You can apply for term life insurance with no obligation. You go through the underwriting process with a carrier and see what the offer is after underwriting. If it’s good then you can accept the offer and if it is not what you are looking for, then we can take it out and see if we can get a better offer with another carrier. Most carriers underwrite in a similar fashion, but there can be a significant difference in some instances.
When we talk to clients we want them to understand the preliminary nature of a quote. A quote is simply a guestimate, based upon whatever information the client has provided to the quoting agent. If the client doesn’t reveal everything to the agent then the quote will probably be inaccurate. If the client has medical problems that they are unaware of, then the quote will be off. This is why we reinforce that applying for a policy in no way obligates you. It simply takes the hypothetical quote and turns it into a real offer or a decline. The one thing to keep in mind is that when you apply it will go into the medical information bureau (mib). This will be something that can be seen in the future by other companies, etc. The bottom line is that you have little to lose by applying for a policy and sometimes we will even apply for two carriers at the same time. The chances that you will be healthier in the future than you are today are slim and you will certainly not be younger ever.
We talk to people all the time who say that they are insurance poor and that they have too much insurance. I completely understand being insurance poor as there are so many critical types of insurance that you should buy for yourself. My list of insurances grows all the time and now I have life, health, disability, homeowners, flood, car, dental, and vision. After buying all of those, I feel like I have protected just about every basis possible.
All of these are critically important and some are even required by law to carry. My goal is too have maximum protection for all of the key areas of risk. When I say maximum protection, I mean full replacement value of what you are insuring. For example, if my car is worth $40,000 and I total it, I want full replacement of $40,000 from my insurance company. If I become disabled and can’t work, I want to make sure I can replace my income as close to its current level as possible. Not to belabor the point, but if my house burns down, I want full value from the insurance company.
I try to calculate life insurance in the same fashion. What is my full value to my family? I want the insurance company to reimburse the full 40k for the car and the full amount to my family. I doubt my family is going to get a check after I pass away and say, “gee, this is too much”. I am not suggesting to overinsure, but rather to be consistent and try and protect full value on important assets like yourself.
A very popular product in this volatile market are fixed deferred annuities. These are insurance contracts that pay a guaranteed interest rate on the money deposited and grows on a tax deferred basis. Most companies have different break points and surrender periods. For example, the longer you keep your money with the life insurance company in the annuity, the higher interest rate you will receive. They also have bands that pay at higher rates depending on the deposit amount. For example, a higher interest rate might be credited to any deposit above $100,000. The different surrender periods are the periods where there is a penalty to move your money from that company to another. The surrender charge and period will decrease the longer the contract is in force and will eventually go down to 0%. It is just important to understand how many years before the annuity gets to 0%.
We always look at products for our client that have suitable time horizons for their money. For example, if the client is going to need the money in five years, then they shouldn’t buy an annuity with a ten year surrender period. On the other hand, if the client won’t need the money in five years and can wait ten, then there can be a higher with that trade off. It is also important to select a company that has a high financial rating. Obviously, it is important to know the company will take good care of your money. Look for an A rating or better with a company if you are looking at annuities. For a free analysis of your situation and what products are available please email firstname.lastname@example.org.
If you are a smoker/tobacco user you will automatically pay a substantially higher life premium than a non-smoker/non-tobacco user would. The good news is that you can get a non-smoker or even preferred rating if you stop using tobacco for at least 12 months. Most companies will allow you to qualify for this rating at that point.
Obviously, smoking opens the door for all sorts of health risks and the insurance company is very focused on that. Not only smoking, but any form of tobacco use like a pipe or smokeless. It also negatively effects return of premium (ROP) policies as much more premium must be paid. ROP’s tend to be a better fit for clients that are younger and non-tobacco. If you don’t have insurance, I would certainly not wait until you have reached 12 months with no use. This is a risky proposition as you could be uninsurable at that point. I recommend to my clients that are quitting to get the protection in place and then we will re-underwrite once they hit that point.
One company that has a favorable treatment of smokers is John Hancock. They have a Universal life product that you can qualify for as a non-tobacco user in the first 12 months. The stipulation is that you must submit to a medical at the end of two years, to prove that you are still tobacco free. You can visit Hancock online at www.johnhancock.com to read more about this policy type.
When clients think about life insurance and think of it as straight cost, I certainly understand. We are always bombarded with different types of insurance that we need to buy in our life and people feel “insurance poor”. Clients are insuring their car, house, health, and even their blackberry’s now too. If you don’t use those insurances you never see any benefit.
The truth is with whole life or universal life, is that it is beneficial to put as much money as you possibly can in them. The IRS has put a ceiling on how much money you can put in a policy on an annual basis called the MEC level. MEC stands for modified endowment contract and once a policy becomes a MEC it is taxed differently. A MEC makes all of the growth in the policy be taxable. If the client keeps the contract within the limits then the cash value will grow tax deferred. The IRS put a limit on it for a reason.
Most clients struggle with the idea of paying more than the minimum amount. While the minimum amount will generally suffice in keeping the policy going, it could be so much better. How many financial tools do you have in your portfolio that increase in value everytime you put money in? Not many right? In fact, the more money you put in the better it will be.
This can serve as a large paradigm shift for a lot of folks. If you can see more than cost, you may be able to see the beautiful possibilities.
When looking for life insurance you should evaluate some important questions.
Am I being realistic in how far the proceeds will go for my family? How long of a term should I buy or should I get permanent policy.
There are different schools of though on how much insurance to carry. I have never met anyone who had a claim who said that they received too big of a benefit. With the cost of insurance dropping it is very affordable to get a lot of death benefit at a low cost (this is based on age and health of course). I would certainly err on the side of too much rather than too little. I suggest to my clients that they buy enough death benefit that will spin off enough income without touching the principal. For example, if Client A makes $50,000 a year, they would need 1 million dollars invested conservatively at 5% to spin off $50,000 a year income. That is not considering any inflationary factor, but just maintaining the income level for the family at a minimum. There are other ways to estimate this, but this is a good rule of thumb I like to use.
It is important to first and foremost get the amount that you need. Don’t buy to little permanent policy just because you want permanent and can only afford a fraction of what you need. If you need 1 million and can only afford twenty year term, just get the term in place and you can always convert all or part of the term to permanent later. A lot of our clients will buy a blend of cash value life insurance and term. They may have a budget to buy $100,000 0f whole life insurance and $900,000 of term. It is always important above all else to get the amount you need.
When looking at your financial life it is important to build an island of protection. You can never completely insulate yourself from all risk, but you can take certain steps to protect your families future. You need to have all the basics in insurance with homeowners (if you own a home), car insurance, health insurance, and life insurance. On top of that there may be various trust work and planning that you can do with your lawyer and CPA that can help to further protect you.
One thing we suggest to our clients is to buy an overall umbrella liability policy. Usually for a few hundred dollars a year you can get an umbrella policy for several million dollars. With homeowners, car, and health insurance you want to make sure you have plans that meet your needs and have deductibles at a reasonable level. For example, if you can swallow a slightly higher deductible, then that can usually drop your premiums. You have to obviously meet the deductible amount if you have a claim though. When looking at Life insurance, you want to make sure you protect your income for your family. Also, if your spouse works it is probably important to protect their income. Life insurance isn’t just about straight financial loss as you may not emotionally be able to go on for a while. Do you have enough insurance if you didn’t want to go back to your job right away or even for two years?
Besides protecting yourself and your family it is important to protect your assets from creditors. It is important to speak to your CPA, Lawyer, and financial professionals to make sure you have taken the proper steps on this front. Understanding how to set up your assets and what vehicles to use will be important to determine.
When you are looking to protect your income for your family it is important to look at your different forms of protection. It is important to look at your disability insurance (DI) and make sure that you are covered if you were to suffer a long term disability. If you can’t afford to be out of work with no paycheck for more than 6 months than you should secure a DI policy. When selecting a DI policy it is important to read to contract closely in regards to what you must be disabled from to receive compensation. Some policy’s pay only if you cannot do any occupation. It is better to secure a policy that pays based on you not being able to do your own occupation. A true Own Occ (Own Occupation) policy is much better protection than Any Occ (Any Occupation). Make sure you understand and read the language on this as it is important. Also, it is important that it will provide you enough income to survive. Typically you can qualify for up to two thirds of your existing income as the benefits are not taxed. Often times people will think they can live on less if disabled, but I doubt you would want less than you are currently making if you are disabled.
The other important way to protect your income is to have enough life insurance. If you make 100k a year, you want to buy enough to spin that off in interest, so your family still has the principal for safety. For example, at a conservative interest rate of 5% your family would need a death benefit of two million dollars to generate 100 k a year in interest. That doesn’t include any inflationary factor, but it at least keeps the income level the same. If you want to add some more to increase the income to match inflation, you would simply buy more death benefit. Rarely, does a survivor complain that they received too much death benefit.
Talk to a Paramount consultant to make sure you are protecting yourself against downside risks and that you protect your income for your family.