Cheap life insurance is what I want. If that is what you want, this is a great time to get term life insurance. With more companies than ever competing for your business and life expectancy increasing, the rates are at all time lows. Obviously, some companies have had to adjust rates up to deal with losses with the economic turbulence that we have experienced over the last couple of years.
Everybody has their idea of what cheap is, but term life allows you to buy a lot of death benefit with little money. The variable here can be health. If you are relatively healthy, the premiums will be more affordable than if you are unhealthy.
We will find out the amount that the client would like to shop and then we run an analysis with the major carriers. In a matter of seconds the carriers rates will appear for comparison. For a healthy male, non smoker, age 35 his two best rates for 1 million of 20 year term would be, Banner Life at $39.81 per month and ING at $40.95 per month. That is pretty darn inexpensive for 1 million of coverage. Another consideration is to look at the return of premium option. While it is appealing to get the cheapest term, it may be a good option to get all your premiums back if you live through the term. For that same 35 year old, he would be looking at a best rate of 117.03 with Assurity with return of premium. Chances are he will live through the 20 year term and then have no coverage. He might as well get all the premiums paid in to the policy, back.
We get calls all the time about AARP life insurance and that clients are interested in this. The bottom line is that AARP has partnered with New York Life Insurance Company to offer life insurance to its members. No medical exam is required and only 3 medical questions are asked on the application. Since there is minimal underwriting the premiums are note going to be more than a fully underwritten product. With that being said it may be of benefit to some to have a product not fully underwritten as health may be a concern. If that is the case there are other companies that offer similar products that may be even more competitive.
Did you know that the life insurance carriers like when you buy term life insurance? A lot of clients we speak with think that it is the agenda of the insurance company to sell them permanent insurance because it costs more. While of course life insurance carriers want you to buy permanent products, they are quite content when you buy term. Only about 2 percent of term policies ever pay out a benefit and therefore it is highly profitable for them. A good option for many is to buy a return of premium term product. This allows you to have best of both worlds with term, but return of premium if you outlive the level term. If you are not familiar with this option you should ask about it. It is usually more beneficial the younger an insured is.
A basic life insurance quote has a few components to it. The length of the the policy, the face amount, the company, and the underwriting estimate.
The length of the policy must be determined before you get your life insurance quote. You can either have a level term policy that goes for a period of time or a permanent plan. Level term plans are either annual renewable term, 5 year level term, 10 year level term, 15 year level term, 20 year level term, and 30 year level term. The 10 year, 20 year, and 30 year can be return of premium plans as well. A return of premium plan returns the full premium paid if you make it through the term alive. The other type of plan that you can get a quote for is a permanent plan life whole life or universal life.
Obviously determining the face amount of the policy is necessary to get a quote. Ask your agent to take you through the life insurance calculator if you don’t know how much you should buy. The companies that offer the plan that you are seeking will be included in the life quote. The final piece of the quote you will receive is the underwriting estimate. This estimate will take into account whether you are a smoker or non-smoker, health, etc. Based on these factors an insurance rating is guestimated and thus you will get an estimated rate quote (price). The quotes can include riders also if you decide to select them.
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 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.
We speak to a lot of clients who are looking for mortgage protection life insurance. Basically, this is life insurance that would provide enough money to the beneficiary to pay of the deceased’s mortgage. Many of the programs out there will offer life insurance with a decreasing benefit to go along with the decreasing mortgage amount. We recommend staying away from these products as the cost doesn’t go down, but your benefit does. To cover this type of single issue you have many different options with life insurance products.
Example 1: You just bought a house with $250,000 mortgage and the term is 30 years. You can take out a straight 30 year level term that will run out when you presumably payoff the mortgage in 30 years. Obviously, few people know where they will be in 30 years, let alone in the same house. Any way you slice it, you will at least have protection for your heirs of $250,000 for a full 30 years. In year 31, the term premium will skyrocket and most people will drop it.
Example 2: Return of Premium (ROP) is a very popular product these days for mortgage protection. Just take the same $250,000 mortgage with a 30 year term, and buy a 30 year ROP. This product will return all of the premium to the policyholder if they are still alive at the end of the term. Usually, these rates are higher than an average term policy, because of the premium return aspect.
Example 3: Some clients will use a permanent policy such as a Universal Life and fund it guaranteed to age 100. This will last the whole term and provide them with a death benefit that should last their whole life time. This is more expensive initially than the ROP and the straight 30 year term, but looks very appealing in year 31 when the policy premium is still the same.
What is the right term length for your individual needs. There are several different length policies to choose from including 5, 10, 15, 20 and 30 year fixed. How do you know what length you should have?
The main questions to ask yourself is how long do I think I will have a life insurance need? Can I be 100% sure that I will need life insurance for that period of time or will I possibly need it longer? Will I ever convert part of the policy to permanent insurance, and when should I do that?
Those are all important questions that I like to ask my clients. Usually, you will have a need for life insurance as long as you are working to protect your spouse and children. Some may argue, that once the children reach maturity there will be a smaller need for insurance. That may be the case, if your savings can supplement the life insurance to protect your income for your spouse. It does make sense especially when the children are young to max out the amount that you buy.
The time period is important to figure out as well. For example, if you buy a 20 year term your insurance needs could easily change in that period of time. It is pretty hard to know anything for sure. I would suggest that if you have kids are young to buy at least 20 year term to cover them through college. If they are older, you may be able to get a shorter term to get them through college. Some people like to buy a policy that is 30 years that will cover the full length of all of their liabilities (mortgage, college, etc.). Thirty year return of premium (ROP) policy’s have become very popular for this purpose.
Many of our clients do a combination of term and permanent to take care of large short term needs and cover their long term needs as well. For example, a client with a newborn who needs to buy 2 million dollars of face amount, might buy $200,o00 in whole life insurance and 1.8 million of 20 year term. He can only afford $200,000 at this point of whole life, but now has a long term and a short term strategy that will provide some protection as long as he lives. The sooner you buy permanent insurance the better as you lock in the mortality rate at that age. When the term premium goes up in 20 years, the permanent premium remains level.
Money back term life insurance is concept that has been created by the insurance company’s to refund the customer the term premiums at the end of the term. This has been a very hot product (ROP-Return of Premium). In essence, a customer is buying a term policy that costs about 30-50% more than your average regular term policy. The benefit for paying more is that the premium amount will be returned in full at the end of the term period.
Is this a good deal?
For example, a 1 million dollar, 30 year ROP term policy costs “Bob” $1000 a year in premium. At the end of the term if “Bob” has paid the full time and is still alive he will get a check back from ABC insurance company for $30,000. If he cancels early, typically he would get back only a portion of his premium: usually nothing for the first six years, 9 percent after 10 years and 35 percent after 20 years. At first look, it looks like it makes a lot of sense. If Bob, lives through the 30 years he gets back all the money he ever paid to the insurance company. On the other hand, if he paid a regular term policy for 30 years and was still alive he and his family would get nothing.
The insurance company knows that few people will ever pay for a policy for the full term and that they are going to win in most cases. On top of that, very rarely do they ever pay out a death claim. Bob, might be better off buying the less expensive term (for say $600 a year) and investing the difference ($400) in to an interest bearing account. This only would work if Bob made sure he remembered to truly save this amount every month and put it aside. Bob, may want to compare Universal life guaranteed to 100 as another option. It would cost more than the ROP and regular term, but it would guarantee a death benefit for his family. The chances he lives past 65 are very high.
ROP can be a great option to look at and it is a very popular life insurance product right now.