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Ways to pay off debt through life insurance
A life insurance policy can help you to pay off the unpaid debts through three main ways and these are:
1. Withdrawing money from your life insurance policy – You can use the cash from your life insurance to pay off your debts. However, you will have to use your cash value insurance policy to pay off your debts rather than using the term life insurance. In cash value insurance, the cash value grows year after year with the tax-deferred interest. Once you have been able to accumulate good cash value, you can use the amount to pay off your debts. However, while doing so, you will have to go on making the monthly premiums on the insurance in order to maintain your policy.
2. Borrowing from your life insurance account – other than withdrawing money from your life insurance, you can borrow from the policy to pay off your debts. Here borrowing is same as any other kind of borrowings. That is you can take out a loan against the built up cash value of your insurance policy. Thus, you will have to pay back the amount that you are going to borrow against your policy, otherwise the value of your policy can get reduced. However, in case the policyholder dies before paying back the amount he had borrowed, the balance is then deducted from the policy and then the remaining balance is handed over to the beneficiary(s) of the policy.
3. You can also consider life settlement option – Another way in which you can use your life insurance to pay off your debts is through life settlement. This can be your option if you either transfer or sell off the policy to a third party in lieu of a certain amount of money. If you do so, you as a policyholder may be able to get an amount more than that of the cash surrender value of your insurance policy. But, the fact is that this amount which you will receive will be less than the amount which you would have received as death benefit.
Another thing that you should know about life settlement is that the person who buys the policy becomes the policyholder. As a result, he will have to be responsible for making the premium payments. Other than this, you won’t be able to opt for life settlement unless you are a senior citizen (more than 65 years of age). The life settlement proceeds are also taxable.
Ponte Vedra Beach, Florida — As the name suggests, the coverage expenses in a term life insurance are meant for a particular period of time. After that duration, the policy expires. Then, it’s up to the policy holder to either renew the policy or let the coverage end. The beneficiary would receive the benefits if the policy holder dies within a set period or term. However, if the policy ends before his death, then the beneficiary receives nothing. As opposed to permanent life insurance, it does not provide saving components that could be used for wealth accumulation.
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Since term insurance can be purchased in large amounts for a relatively small initial premium, it is well suited for short-range goals. “The rates that are being offered by the many life insurance companies currently in the market place are highly competitive and affordable. It pays for the consumer to make the carriers compete for their business,” according to Vince Bagni, managing partner of Paramount Life Insurance. These include life insurance coverage to pay off a loan, or providing extra life insurance protection during the child-raising years, etc.
The duration of a term life insurance could range from the simplest one year to 10, 15, 20, and even 30 years. In a one year term, also referred to as the annual renewable term, the benefit is provided by the company only if the policy holder dies within that span. The amount of premium is according to the expected probability of the owner dying in the same year, whereas the level term life insurance has a fixed rate premium throughout the span of the contract. This is also a renewable term insurance, and the premium is based on the total cost of each year’s annual renewable term rates. The insurer makes the adjustment of rate along with the time value of money.
FEATURES OF TERM LIFE INSURANCE
Initial affordability makes term life insurance convenient and an attractive option for the applicant.
Term life insurance policies have adjustable premiums. This means that the company may raise or lower premiums at some point specified in the policy. However, this is based on projected changes. These could include investment earnings, mortality experience, persistency and expenses. However, premiums may never be raised above the maximum premiums stated in the policy.
The level term policies allow the policyholder to continue coverage after the original coverage period of the policy. Every time the policy is renewed, the premium increases to the amount for the attained age of the insured at that time. This right is usually offered for a specific period, which varies depending on the type of policy. Bagni states, “if you are coming to the renewal on your level term policy, you are not going to be happy with the renewal amount. It makes a lot of sense to shop for a new level term.”
Term policies are convertible to age 75. This allows the policyholder to exchange a term affordable life insurance policy with a permanent insurance policy at any time while the policy is still in place
There are more and more affordable life insurance options with all the companies vying for the business. On top of that we are seeing people live longer than ever before. With competition and different product lines that are designed for different lengths and flexibility, it creates a lot of affordable life insurance options for consumers. Term life insurance is almost a straight commodity if you have no interest in converting to a permanent plan ever. Term rates have gone down so much it is pretty staggering. A couple things to keep in mind is just because a company is saying that a policy could cost X doesn’t mean you could qualify for that rate. The company who is actually showing up as the second, third, or fourth best quote may actually underwrite more favorably and end up being a better rate.
Other very affordable options are return of premium term, which will return all premiums paid if you outlive the term. This will cost more money than regular term, but few people ever die during the term of the policy. It is especially affordable if you live through the term and get all your money back. Guaranteed universal life is also considered to be very good affordable option and the most affordable for plans that are permanent (guaranteed to 100 or 105). This type of plan is almost like a permanent term and lasts to 100 or so, but the premium never goes up and little if no cash value is built.
Since term life insurance is basically a commodity the life insurance carriers have had to make it very affordable to compete. The ability to keep it cheap is centered around a few factors. One is that the insurance companies rarely ever pay a death claim on a term policy. Typically, less than two percent of people with term policies ever make a claim. Since so few people actually die, it is a big money maker for the life insurance company. It is a win for the consumer because they were able to get a good amount of coverage for a very reasonable price.
The other big factor in keeping the premiums down is that fact that life expectancy has increased. People are living longer and that contributes to being able to offer reasonable rates to an aging population. Over the last few years rates have come down to the lowest they have ever been. In the last couple years, we have seen some companies have modest price increases due to their overall portfolio taking a hit financially. To make up for their losses elsewhere they had to charge a little bit more for life coverage.
Another main reason, that rates are so cheap is the amount of competition. With so many carriers offering life insurance at competitive rates, it is imperative to be in that ballpark to be successful selling term. Some carriers are not trying to compete with their term products as their focus might be on high quality permanent plans.
When looking at what type of life insurance to buy, it is important to marry affordable life insurance with the product that makes sense for your situation. For example, if you have a child that is 1 years old and you decide you need coverage for 20 years, don’t buy a 10 year term. The temptation to do that might be there, to save cost, but in the end it may hurt you. If you go and apply for a new 10 year term at the end of the first 10 year term, you may not be insurable and certainly the premium will be a lot higher.
The first thing we want to look at is how long will you want and need the coverage. You may want to have permanent insurance, but your budget will not allow for that. Maybe you can do a combination of term and permanent to meet your budget and your permanent need and want. It is important to buy the right amount of death benefit above all else. One case recently, the client wanted to buy 100,000 dollars of whole life, when the need for death benefit was closer to 500,000. We suggested supplementing the whole life with a 400,000 term rider to cover the additional exposure and the client agreed to that strategy. Very often we will see a client with a plan that is not budget friendly and the plan type makes no sense. As an independent brokerage we can shop all the carriers and all the different products. If a consumer is dealing with a captive agent, they may get stuck with one of the products in the agents limited repertoire.
We speak with a lot of clients that are considered by most companies to be uninsurable and they are looking for other affordable life insurance options. While not nearly as cost effective as a traditionally underwritten policy, there are guaranteed issue companies. These companies will write policies that are guaranteed to be issued, even if you are not insurable by traditional standards. These companies will charge a cost per thousand rate based upon your age. These per thousand costs will be significantly higher than and underwritten per thousand rate. If you are not insurable, you really don’t have any other choice than to pay it or not buy it. The other big drawback of this type of policy is the limitation on the death benefit amount. Usually the most that can be purchased is $50,000 of face amount.
Another great option is to try and get more coverage at your place of employment. Group life insurance is guaranteed issue and is usually going to be better terms than an individual guaranteed issue plan on the open market. On top of potential guaranteed issue plans, there are survivorship policies that can be issued with one unhealth spouse. If either the husband or wife are sick they may be able to buy a survivorship/second to die plan. This type of plan unfortunately doesn’t pay until the death of the second spouse, but it may be a good option if a client is not insurable. Survivorship is used heavily in estate planning and it is less expensive typically than other permanent plans.
What is affordable life insurance? It is life insurance that you can afford to pay every month to keep it in force. I think it is important to calculate the appropriate amount of coverage you should have and work from there. I would rather have you buy all term life if it would allow you to get the appropriate amount of face amount. For example, we do an analysis and it determines that you should own 750,000 of life insurance on your own life. The whole life cost will be too expensive and you would only be able to afford about 300,000 of that type. On the flip side, you can get 750,000 of term and that fits in the budget fine. Obviously, it makes sense to cover the need, before you figure out what type of insurance you buy.
If we do the analysis and it is determined that you need 750,000, but can only buy 500,000 of term. While the 750,000 was the ideal number, I would rather you have some coverage than none at all. If something is not affordable, than it won’t be long before you will stop paying on it and fall behind. In order to get the most affordable policy on the market search google, it is important to shop it out and compare rates of all the various carriers. While it is important to get a good rate, it is also important to make sure you get a good value. Is the company highly rated and what options does it afford you on the conversion side?