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You invest in life insurance because you love your family and feel a responsibility to care for them long after you are gone. It’s a safety net to keep them out of financial harm.
You could be protecting them from something as small as burial expenses or as large as lost income and mortgage debt. (flesh this out with better examples–with children, without children)
If only choosing the right life insurance product was that simple. Not only are there hundreds of companies selling life insurance to the consumer; there are almost as many types of life insurance policies you can choose from.
The options and choices paralyze our decision making.
Let us sort of the confusion, so that you can make the best possible decision to provide security for your family and loved ones.
All life policies no matter how many options or riders are either term and permanent policy. Understanding that one fact will help you understand your options much better. Term is basically life insurance that covers you for a predetermined number of years. Most common terms are 10, 20, & 30 year terms. Permanent Insurance covers you for your entire life with termination date.
|Term||ROP (Return of Premium||Whole||Final Expenses||Universal||Variable Universal|
|Premiums||Option for level premiums or increasing over the life of the term||Similar to a basic term, except premium, will be refunded at the end||Level for of the policy||Level for the life of the policy||Flexible based on customer needs||Level for life, but option for investment to pay premiums after a number of years|
|Guaranteed Death Benefit||Yes||Yes||Yes||Yes||Yes||Yes|
Now that you have an idea of what the different types of life insurance are, and what benefits they offer,
Let’s look at the two types of life insurance and their variations:
Simply put, term life is life insurance with an end date. When you purchase you decide on the amount of coverage, and how long the coverage will last.
Common time frames are anywhere from 10-30 years.
You are a 30 year old female, and you decide to purchase a 30 year term policy for $250,000. If you die at any point between age 30 to age 60, the policy would pay your beneficiaries $250,000.
When you purchase a term policy, the longer the term you select the higher the premiums will be because the company is more likely to pay a claim on the policy.
To summarize, term life insurance is life insurance with a guaranteed premium for a specific amount of time.
For most customers, term life is the superior product. If the person wisely saves for retirement, they have little need for life insurance as their dependents move away and their nest egg increases.
An empty-nester with no mortgage and a substantial amount of money from savings and investments needs less insurance. Fewer people are dependent upon his income and debt payoff is small or non-existent. His savings will provide whatever insurance would have covered.
The below chart shows some sample rates for $250,000 term policies for applicants with very good health, who are non-smokers.
|Applicant||Coverage||10 yr Term||20 yr Term||30 yr Term|
|Male, Age 30||$250,000||$9/mo.||$13/mo.||$17/mo.|
|Female, Age 30||$250,000||$8/mo.||$11/mo.||$16/mo.|
|Male, Age 40||$250,000||$14/mo.||$23/mo.||$38/mo.|
|Female, Age 40||$250,000||$10/mo.||$15/mo.||$24/mo.|
|Male, Age 50||$250,000||$31/mo.||$53/mo.||$99/mo.|
|Female, Age 50||$250,000||$20/mo.||$31/mo.||$52/mo.|
|Male, Age 60||$250,000||$179/mo.||$411/mo.||N/A|
|Female, Age 60||$250,000||$42/mo.||$77/mo.||N/A|
Rates will vary according to your health as well. If you are in poor health, overweight, and have multiple severe health issues, you can expect to be labeled as a high risk life insurance applicant, which in turn will lead to you having to pay higher premium rates.
Smokers, face the same issue, for instance, smokers can expect life insurance rates to be anywhere from 2-5 times higher than non-smokers on average.
Your rates are also dependent upon your age, the older you are, the higher the premiums will be.
As you begin looking at a variety of term life insurance quotes, there are 3 features you should consider. Understanding these features will make you a confident investor.
Don’t overcomplicate coverage selection. If you need to buy a financial calculator or create a spreadsheet, you are trying too hard. There are a few simple questions to ask when calculating how much life insurance you need:
This exercise is not only important for term, but you can use those numbers if you choose a more robust permanent policy.
A younger person (20s or 30s) should go for longer terms such as 30 yr terms. If you are past the halfway point toward retirement age or not far from an empty nest, a shorter term such as 5 – 10 yrs.
The more you have saved for retirement, the less coverage and less time you need.
Most term policies have options that allow you to modify the policy to change or extend the benefits offered.
ROP or Return of Premium Term is a unique product, a hybrid of term and the cash value portion of a whole life policy.
ROP is a term policy, but the difference is that when the policy term is complete, the premium paid will be returned to the policyholder. For example, if a 30 year man purchases a 20yr term policy for $250,000 in coverage for $25/month. Over the life of the policy, he will end up paying $6000 in premium over 20 yrs. If he survives the policy term, the insurance company will return him the $6000 at the end of the term.
Why wouldn’t you choose to purchase something like this? First of all, premiums are higher than a regular term. Second, you are not earning anything on the money.
It is primarily used in divorce situations where kids are involved. Each spouse will purchase a life policy to cover alimony if they die before alimony terms are complete. If the policy is not used, the spouse will get the return premium.
|ROP||20 years||250,000||20||$125 / month|
|Regular Term||20 years||250,000||20||$13 / month|
|ROP||20 years||250,000||30||$152 / month|
|Regular Term||20 years||250,000||30||$13 / month|
|ROP||20 years||250,000||40||$260 / month|
|Regular Term||20 years||250,000||40||$18 / month|
Yes, it’s more expensive; however, if you are not a disciplined saver, then may be a good way to put money away for later and receive a life insurance benefit.
If you need an investment product combined with life insurance there are more options with permanent insurance.
Permanent insurance, unlike term, will cover your entire life. Within the category of permanent insurance, there are a variety of products: whole life, burial insurance, universal life, and variable universal life.
Outside of the insurance coverage provided, all permanent products provide a cash value component. The difference between permanent policies is the way that cash value will accrue. Whole life policies accrue more conservatively. Variable Life policies will be more aggressive with investment growth.
Popular financial writers and speakers such as Dave Ramsey and Suzie Ormond shun consumers from purchasing whole life. They will often refer to it as an investment scam. They argue that consumers should purchase term, and take the difference they would have spent on permanent insurance and invest on their own.
Theoretically, they are right, but in practice, it rarely comes true.
Most people are not disciplined savers. Permanent life provides a life benefit but also forces policyholders to receive a return on investment they would not have been disciplined to do.
Permanent Insurance is perfect for those who have maxed out other retirement investment. It also provides a tax shelter, because earnings are tax-deferred.
A great insurance broker can help analyze which types of insurance are the best for you and your investment temperament.
Whole life lasts your whole life. It is the original version of permanent insurance.
One unique feature of whole life (which is true for all permanent life) is that it builds cash value. Each premium dollar you pay into the policy not only provides a death benefit for your family, you are guaranteed a rate of return on the premium.
When a policyholder dies with whole life coverage, the beneficiaries not only receive the death benefit but will receive the cash accumulation as well.
Because whole life covers your entire life span it is more expensive than term insurance.
|Applicant||Coverage||Whole Life||10 yr Term||20 yr Term||30 yr Term|
|Male, Age 30||$250,000||$104/mo.||$9/mo.||$13/mo.||$17/mo.|
|Female, Age 30||$250,000||$88/mo.||$8/mo.||$11/mo.||$16/mo.|
|Male, Age 40||$250,000||$184/mo.||$14/mo.||$23/mo.||$38/mo.|
|Female, Age 40||$250,000||$120/mo.||$10/mo.||$15/mo.||$24/mo.|
|Male, Age 50||$250,000||$451/mo.||$31/mo.||$53/mo.||$99/mo.|
|Female, Age 50||$250,000||$253/mo.||$20/mo.||$31/mo.||$52/mo.|
|Male, Age 60||$250,000||N/A||$179/mo.||$411/mo.||N/A|
|Female, Age 60||$250,000||$504/mo.||$42/mo.||$77/mo.||N/A|
That’s a significant difference between whole and term; however, there are good reasons to consider whole life:
Burial insurance is a unique life, small enough to covers final expenses. The product is designed to cover all the end of life expenses associated with a funeral, such as medical and burial.
Burial insurance is a smaller policy with coverages from $5,000 to $25,000. Some companies will even offer up to $50,000.
Burial Insurance, like all permanent policies, will stay in force until the end of your life. Some burial policies even accrue cash value.
A traditional life policy disperses fund to a beneficiary which is usually a family member. While you may have bought and paid for a policy to cover final expenses, the beneficiary can spend at their discretion.
Burial insurance policies are best for people who have few financial dependents, who need a small amount of life insurance coverage to pay for immediate expenses and remaining debt in the event of their death.
The timing of disbursements of funds is quick. When the funeral director is the beneficiary, there is no worry of waiting for a life policy coverage to be decided.
Among burial policies there are three benefit levels available:
Graded benefit policies provide partial benefits to the policyholder within the first couple years. The partial benefit period is usually a 2 – year waiting period before full policy benefits are given. For example: If you purchased a policy at 60 years of age, but died within the first year of the policy inception, the beneficiary would only receive a % of the coverage amount.
Modified plans are similar to graded benefit. The difference is the amount paid. If you died within the first two years of a modified plan, the beneficiaries would only receive the premiums paid plus any interest accrued on the policy.
Level Benefit policies provide protection from the date of issue.
Graded & Modified plans are reserved for those with severe medical issues. They are guaranteed issue without the need for a medical exam.
Level benefit plans have more medical requirements but, they are much easier to qualify for than a traditional life policy. Even though there are medical questions, no medical exam is needed.
Universal Life is another permanent product. Like whole life it includes an insurance component as well as a savings component.
What makes Universal different than whole life is flexibility in premiums. You have the ability to choose and adjust your premiums, except the portion funding the life insurance.
The best way to think of Universal Life vs. Whole is flexibility. With a whole life policy, you agree to a level premium, and certain level of coverage, and a level return on the cash value of the policy.
Rates on all life products are cheaper when younger. Investing in universal when younger creates more options. After 10 to 15 years, cash value has grown enough that many people can use for a down payment on their first house.
At some point, a customer can allow the cash to pay the life insurance portion of the policy, and divert other funds to other retirement accounts.
The traditional universal life policy bases return on current money market rates. While over time returns are consistent there could be variability because of market fluctuations.
An index universal life product was created to stabilize returns over time. The cash returns are connected to a stock market index such as the S&P 500.
Variable life insurance is a permanent life policy. The cash/savings portion of the policy is what makes variable unique. Variable life connects the investment portion directly to the investment markets.
Whole life, the original permanent insurance, provides life insurance plus a savings account.
Universal life is life insurance, plus a money market account.
Variable life provides life insurance but turns the cash portion into an investment account. The easiest way to think of variable life is to imagine a combination of a life policy plus a mutual fund.
Combining the life and mutual funds provides unique advantages that other forms of permanent insurance do not give you. Also, it does something most investment products cannot do….offer a death benefit.
Variable life insurance is best for someone who has an idea of the financial markets and wants to build cash value with their life insurance policy. It is a great investment vehicle that also functions as a life insurance policy at the same time, and the policyholder has a good amount of control and risk aversion.
The life insurance portion of variable life works like other permanent policies. It’s the investments that make it unique. Let’s walk through the investments first.
A portion of the premium goes straight into an investment account, similar to a mutual fund that is a collection of stocks and bonds. The beauty of the variable account is control. The policyholder can choose exactly which fund he wants his investment portion to fund.
Each fund inside of the policy can be chosen based on a policyholders risk tolerance.
Knowing which fund to pick is a key reason you should use an independent agent. They can provide direction to funds that fit your investment goals.
Most policies come with a wide range of flexibility and allow you to move your investments to other funds over time as your need to be aggressive or conservative change.
Like other permanent policies, variable life policies allow you to borrow or withdraw from the investment portion. This can create a nice safety net for a policyholder outside of the life insurance benefits.
Taxes against variable policies are unique. There are only tax consequences when a policyholder decides to withdraw money from the investment account. In doing so, taxes will be owed against any gains on that portion of the money.
However, upon the policyholders’ death, the death benefit and investments are exempt from taxes. Because of this feature, variable life should be considered as part of estate planning to safeguard money from estate taxes.
Variable life insurance also allows customers to reduce or increase coverage through the policy life. This is especially beneficial as a customer ages. The need for life insurance may be reduced as dependents decrease and other retirement accounts increase. A policyholder can reduce coverage and move the difference in premium into the investment portion, or decrease the overall monthly premium. Increasing coverage is possible, but in doing so some companies may require supplemental apps with medical testing.
Variable Life insurance can be free. The investment portion is large enough, a policyholder can choose to have the investments pay the premium of the life insurance.
Each type of permanent life is designed for the needs of certain customers. Variable Life is no exception.
One of the biggest reason we are able to help you wade through all the various life insurance choices and options is that we work with more than one carrier. We have specifically contracted with the top carriers in the industry today.
Each company has been selected to provide a wide range of options to cover the maximum amount of people. Some companies are better and less punitive with smokers.
Other companies focus on older adults. One area particularly difficult to find are companies that will insure people with pre-existing medical issue or are survivors of aggressive diseases such as cancer.
Below is our list of Top 10 Life Insurance Companies we work with today. We’ve included each companies AM Best rating.
You want to make sure you have insurance with a strong financial company so that they have the funds to pay claims when needed. AM Best is a third party rating organization and ranks insurance companies based on their financial stability. This list is not exhaustive of all carriers we contract, but a snapshot of our favorites.
|Company||A.M.Best Rating||Customer Reviews|
|1. Protective Insurance||A+||4.3 / 5|
|2. Banner Life||A+||4.4 / 5|
|3. AIG||A+.||4.2 / 5|
|4. Prudential||A+||4.1 / 5|
|5. Lincoln Financial||A+||4.0 / 5|
|6. Principal Insurance||A+||4.0 / 5|
|7. American National||A+||4.0 / 5|
|8. Ameritas||A||4.3 / 5|
|9. North American Life||A+||4.2 / 5|
|10. Sagicor||A-||4.0 / 5|
Protective was founded in 1907 by former Alabama governor, William D. Jelks, and is currently headquartered in Birmingham, AL. Protective has a wide variety of life products from term to various permanent life policies. They even have a child life insurance policy.
Banner Life consistently ranks at the top of most insurance carrier lists. Banner is owned by London based Legal & General Insurance founded in 1836.
AIG is a well known international financial company. AIG has a unique history. The company was founded in 1919 in Shanghai, China, and moved to New York City in 1939.
AIG specializes in a wide variety of term options as well as hard to place permanent insurance policies, especially for older adults with health issues.
Prudential is well known for its famous motto and logo proclaiming “Get Piece of the Rock” with the Rock of Gibraltar in the background.
Prudential was founded in 1875 in Newark, NJ. Prudential has a wide variety of products from term to various permanent policies such as Universal and Variable life policies.
Lincoln Financial founded in 1905. In 2015, they were the 4th largest life insurance carrier in the United States.
Their top products are their universal life products, but they carry a wide variety of other life insurance options
Principal Insurance was founded in 1879 by Edward Temple in Des Moines, Iowa. In 2015 it was named one of the world’s most ethical companies.
Principal is well-known for very affordable Term Life products, but do have a multiple of permanent options as well.
Founded in 1905 in Galveston Texas, American National provides a wide range of no medical exam life insurance products.
American National was listed in Forbes Magazine in its “100 Most Trustworthy Companies” list for 2009 & 2017.
Ameritas is a mutual insurance company founded in 1887 in Lincoln, Nebraska. Their flagship insurance product is their FLX Living Benefits Term.
Unlike most term policies that just provide a death benefit, the FLX product provides living benefits for people when serious health issues arise. This is unique among term products.
North American Life was founded in 1886, and is currently part of the Sammons Financial Group.
They have a wide variety of life products and specialize in products requiring no medical exams. Insuring customers with a wide variety of medical issues has become a specialty.
Sagicor is one of the oldest life insurance companies. They have existed for 175 years, making them a dinosaur of life companies.
Their term policies automatically come with a couple unique riders at no extra cost. They can accelerate issuing without a need for medical exams as well.
|Mutual of Omaha|
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A Broker has contracted will multiple companies. He can shop between the various companies. He can choose which products are the best fit for your needs. He is not committed to forcing you into a one size fits all product. A broker will tailor that appropriate policy for you, not him.
Be concerned if an agent or broker only represents one or two companies. They may not be able to find you the best policy for your needs.
Fill out a quick quote form to give yourself and idea of the options available to you for life insurance, or talk with one of our agents about your own needs and how life insurance can protect your family’s life and assets.