When you are looking at buying life insurance you can work with two types of agents. Either the agent will be a broker who independently shops a lot of companies and products or you will work with a captive agent who just represents one company. A good example of a captive agent would be New York Life or Northwestern Mutual. While they do have good products, it is generally a losing proposition for the consumer.
Life insurance brokers will be a better option for the consumer as they are not beholden to one company and trying to fit a round peg in a square hole. When companies are competing, it is generally going to be more beneficial for the customer. The customer will benefit from a larger selection of potential products and will be able to access the best rates on the market if they are just buying level term. The reason for using a company that is captive like a New York Life is that it is a good mutual company with a good whole life product. There are a lot of good mutual companies that can be accessed in the broker market like Mass Mutual, Guardian Life Insurance company, Lafayette Life.
As a life insurance brokerage, we have access to just about every carrier on the market. If you are buying term insurance it is basically a commodity, so it makes sense to look for the best rate. If you are looking for a permanent plan with cash value, then we will look at all the good products in our portfolio.
If you are a male age 65 or older and you have a term policy with at least 3 years left on the level period, you may be able to settle the policy. When I say settle the policy you may be able to sell the policy to investors who will pay you a percentage of the face amount. This may be a great option for a lot of people as most term policies never get collected on by the beneficiaries. On top of that, when the premiums go up astronomically at the end of the level period, most clients drop those policies.
The face amount to qualify for this program needs to fall in the 1 million to 5 million dollar range. The typical offer is 3 to 7 percent of the face amount. The offer is determined by the age of the policyholder and other factors. For example, a 5% offer on a 5 million dollar level term with 4 years left on it, would be $250,000. This can be pretty attractive and can even be used to buy a new policy in some instances. While the term policy may have been used initially for income replacement, the insurance need might be for estate planning now. For more information on this program, you can contact Vince at Vince@paramountlifeinsurance.com and to see if you are eligible.
There is a very good term settlement program available on the market now that works with convertible and non-convertible level term. The program is for males that are 65 and older and have a level term policy with at least three years left on the level period. The face amount to qualify for this program needs to be at least 1 million and no more than 5 million. The offers are typically between 2 and 7 percent of the face amount.
The beauty of this program is that it can provide you cash right now and no real underwriting and no life expectancies are needed. The client will be given the offer typically within a 3-4 day span after filling out a one page summary of their situation with the agent. This type of settlement can be a great thing as most term clients will let the policy end and then have no insurance at the end. This gives them an option to receive money from the policy immediately for whatever needs they have or it can be used for estate planning. Many of the term policies where purchased initially for income replacement and now there are estate planning needs. For example, part of the settlement money could be a great start to purchase a second to die life insurance policy in a trust.
If you find yourself with a policy that falls into that range, it may make sense to consider what your options might be.
Just getting started trying to figure out what type of life insurance you need. It can be really confusing and many people in the insurance industry make it very complicated to understand. Should you buy a term policy? What is a term policy? How many years should it be level? What is Whole life and universal life and should I create a blend of permanent and term insurance? How much coverage should I have? How do I calculate this? What does the rating of the company mean and how do you analyze this? Does this term carrier have a good conversion option for me down the road?
These are all good questions and we try to really simplify it for our clients and bring it down to earth. The most important thing we emphasize is getting the right amount of protection. First and foremost as a beginner to life insurance, get a death benefit that suits your situation (we can walk you through a simple analysis). If all you can afford at this moment is term, than get that on the books, so you have the protection. You can always convert some or all of it to a permanent plan down the road. Term is like renting and permanent is like buying and building equity. You want to select a term that will provide protection for the period that you will need it. For example, you have a child that is 2 and want to have at least 1 million dollars of coverage until they graduate college. The child will finish up at about 22, so a twenty year level term would probably be the most appropriate. A permanent plan (whole life or universal life) can be very beneficial, but starts at a much higher premium than term. The permanent plan premium will remain level as the term premium will go up after the initial level period. Obviously, being a permanent plan it sets up to last for your entire life. Blending term and permanent can be a good idea to give you the best of both worlds and a price tag that you can afford at that point.
We work only with companies that have an A rating or better. As you select a company, make sure that the company has at least an A rating and is not facing a major downgrade. We provide our clients with up to date ratings as that can change quarter to quarter. Talk to a Paramount Consultant and we can walk you through the companies and also discuss which ones have a good option to convert to permanent plans.
When buying term life insurance there are several things to consider. For example, what length level term do you want to buy. They offer 1 year annual renewable term, 5 year term, 10 year term, 15 year term, 20 year term, and even 30 year term. On top of that, many of the company’s offer a return of premium option. This option will return all of your premiums to you, if you outlive the term. I recommend to our clients that they have the term run at least through the years of highest need for their families. In other words, until there kids are at least 18 and preferably through college.
The term length is important, because at the end of the term the insurance cost will probably go through the ceiling and be cost prohibitive. Another thing to keep your eye on with insurance is your insurance age. Most life insurance companies, recognize you as one year older when you get within six months of your birthday. For example, if you are turning 43 on July 11th, you want the policy to be dated no later than January 10th to be considered 42. The other option to save your age is backdating the policy. This can be a good option, but you must catch up on the back premiums. Talk to your agent about this.
Make sure to put your policy in a safe place. It is a shame, but many life insurance policies go unclaimed. Either the policyholder lost the policy or never let his/her family know that he had a policy. Of course the insurance company is ok if the beneficiary doesn’t come forward. That simply means that they don’t have to pay out the benefit. They will not seek you out. This is a good reason to have an agent that services your account and advises you on your insurance needs.
When looking for a policy look at the financial ratings of the companies. Make sure the company you buy from has at least an A rating. It is easy to get caught up on just the rate and ignore the strength of the company. With today’s financial insecurity, make sure you consider this in your decision.
A very popular option with employers these days is voluntary payroll deduction (VPD) life insurance. It is a very convenient benefit that can be offered to the employees of a company that doesn’t cost the employer anything. Basically the options are presented to the employees during the day, so they don’t have to worry about meeting the agent at night or on the weekend. For folks who sign up for it, a deduction is taken out of their paycheck to pay the premium each month. It is one less bill you have to deal with then and often times a VPD plan has more liberal underwriting standards. If you are in bad health and might not qualify usually, you may be able to still get insured throught the VPD plan. On top of that it allows employees to select from level term insurance, whole life, and universal life. The cash value can build up nicely over time like your 401k and it can create another nice pot of money. All policy’s in a VPD plan are portable, so you can take it with you if you leave the company and you continue to have that coverage.
If you haven’t opted in to your existing plan, it would make sense to explore it. If you are an employer and would like to explore setting up a plan, you may want speak to a Paramount consultant. As an employer, it is a competitive marketplace and qualified people are always looking for a better opportunity. This is one option that you can provide to your employees as another perk, that is of no cost to you.
Hello Mr. or Mrs. Client,
“I see that you have $500,000 of 20 year level term life insurance that you purchased four years ago. Is that correct?”
“How come you selected that amount?”
Client, “because that is how much my brother has.”
While I am poking fun at this, I have had a thousand different answers when it came to the amount purchased. In fact, I have had that answer numerous times.
All kidding aside, what is the proper way to calculate the amount of life insurance that a person needs? There is no definitive answer but there are several schools of thought on this.
1. A multiple of income- For example 5 or 10 times your income. If you make $100,000 you should have 1 million dollars of life insurance.
2. Needs based- To calculate the amount needed to cover liabilities that will be left behind and to provide ongoing income to the family.
3. Human life value- This concept maintains that a person should carry life insurance that is equal to the present value of the capitalized value of his future net earnings. This ensures that his family will not suffer disastrous financial loss when he dies.
4. Income based- Estimating a conservative return on a death benefit amount. An example: client B makes $50,000 a year and wants to provide his wife Ethel and his son Duke and daughter Lucy at least that same amount in income if he were to pass away unexpectedly. He assumes a conservative return on money safely invested is about 5%. On that basis, he decides he wants to buy 1 million dollars of life insurance. 5% on a principle sum of 1 million would spin off $50,000 a year for his family without touching the principle.
Those are four schools of thought that I seem to hear most, but I know there are others. When speaking with your financial professional, ask them what is the methodology they use.
“If they say, buy as much as your brother”, it may be time to find a new agent.
The good news about purchasing life insurance today is that people are living longer than ever before and the mortality rates have gone down. The average male and female are living longer than they ever have before.
The benefit to the customer buying life insurance is that longer life expectancy creates lower rates. Since 2000 the average term policy rate has gone down about 4% a year. The rates have also gone down due to insurance company’s being more selective on who qualifies based on health and the tremendous competition between company’s.
If a term policy was bought 3 or 4 years ago, it is worth taking a look at what the policy would cost you today and it might make sense to re-apply. The most popular type of term insurance is level term with a term of 20 or 30 years. The insurance company guarantees that the premiums remain the same for that period. If you can lock into a lower rate than it can make a big difference over 20 years. It is also important to select a company not just on rate, but one that has a good financial rating. If the company doesn’t have at least a A rating, it is probably a good idea to keep looking.
You can read a lot of good information about life insurance and mortality rates at http://www.iii.org.