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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.
Life insurance is something that is often times not kept during retirement years. With the opportunity to presumably self insure at that point, many people will drop their term or let it expire. While this is a strategy of many, it is not always the best one to pursue. You may assume you don’t need or want life insurance after retirement, but how do you truly know how you will feel when you reach that age.
We speak to clients everyday that are looking to qualify for coverage that are 60 years old and over. They consistently say that they wish they had bought when they were younger or planned for some coverage into retirement. With that being said, it is certainly very possible to still qualify for coverage and the premiums will be determined by health. Premiums have become more and more affordable due to life expectancy increasing.
The amount of coverage and reason for coverage may be totally different than when the client was 35. At 35, they might have had a primary focus of replacing income if a premature death occurred. At 65, income replacement might be less important and it might be about estate planning, mortgage protection, and final expenses. When you are looking at your financial plan it is important to consider changing items of importance in your life. It is always a good idea to look at your plan every year or two, to make sure nothing has changed. If something has changed it may be something to address, or it may simply be something to keep in mind going forward.
The best time to have life insurance is when you die or when you need access to money for opportunities and purchases. The reason I say the best time to have life insurance is when you die, is so your family gets a death benefit. It does you little good other than protect your income years, if you pass away with no insurance. If you paid for term for 20 0r 30 years and now you die with no coverage, that is quite unfortunate. Most assume that once you get to a point and you have accumulated enough money, you can self insure with your existing assets. This is a strategy that the life insurance carriers certainly like as they don’t have to ever pay a death benefit. All of the premiums paid during those years were pure profit to the company. Only about two percent of term life policies ever actually pay a death benefit.
The other time it is great to have life insurance is when you need capital for whatever reason. The reason could be for investing or buying a new property or a car. If you have a cash value policy, you can have access to the cash value that you have accumulated and you can borrow against it, to buy whatever you want. I promise you will be happy when you want to make a down payment on a new home and there is enough money you can access in your policy. The other beautiful thing about a cash value policy is that it is permanent and your family will eventually get a tax free death benefit.
Often times the service that is provided by a life insurance agent is underestimated. You might think that the only thing the agent does is sell you the policy and then moves on. We focus on providing great service to our customers during the underwriting process and after they are officially a policyholder. I have heard many customers, say that they didn’t know who to call and had to call someone at a call center for a basic policy question in the past. We are available to our customers at anytime to answer whatever questions they have and whatever adjustments they might need to make. For example, if they need a change of beneficiary form or need to adjust their address, we help them with that. If they have a claim, then we are there to help them through the process.
Another aspect of what we do from a service perspective is keeping them informed of any changes, updates, improvements in the industry. It is important to know what is going on as changes can effect them. On top of that, we stay in touch about their conversion options. If they don’t already have a permanent life policy, such as whole life or universal life, it is important to keep them posted on options. With most carriers there is the option to convert all or part of your policy to a permanent plan with no proof of insurance. Clients are often not aware of this option and it can be of great benefit. Service is an important component of what we offer our clients.
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.
Life Insurance is one of the best risk management tools that are available to businesses and individuals. The loss of a key executive or key person for a company can be devastating in multiple ways to the company. Not only do you lose someone who is integral in what you do as a company, but you have a need to find a replacement. There is no telling whether you will be able to find a suitable replacement quickly or if you will even be able to find a comparable replacement. The loss of this key person can affect sales, productivity, and overall morale. Since the business will have all these obstacles with the passing of this person, it makes sense to have life insurance on that person. If that person happened to pass away, it would provide a windfall of money that could go towards hiring a new employee and help offset losses in productivity and sales.
On the individual side, life insurance is a very powerful risk management tool as well. It will guarantee that certain things will happen, even if you are no longer in the picture. For example, that your income will continue, debts will be paid off, and the kids will still go to college. It is possible to get a very inexpensive term policy, that will guarantee the money will be there when your family needs it. When you are building a financial plan for yourself, it is important to manage the risks that exist out there. Make sure you take a look at your life insurance program and consider whether it is adequate to manage your risk.