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.
What life insurance company do I want to select as my carrier?
This is not a simple question to answer because there are so many good carriers on the market. On top of that, different companies have different niches in terms of their best products. If you are looking for a good universal life product then it might be one company, and if you want a good dividend paying whole life policy, than it might be other companies.
In terms of which one to select, you should figure out what type of product you want to buy and find out which carriers have the best products in that area. You should make sure that any life insurance company that you use has a good financial rating from the major rating services. If price is the most important than make sure you are getting the most competitive rate, by shopping all of the main carriers. If you just want to buy term life than price is probably your main concern and the company is probably less of a concern. As I said before, just make sure the company has good financials and at least an “A” rating.
At the end of the day, most companies will offer term options and permanent options. They will usually have various level terms, return of premium term, and either whole life and/or universal life. For the most part, you can’t go wrong provided that it is a reputable company. It is usually more important to pinpoint a specific company when buying cash value products.
Life insurance has a ladder of rates depending upon your underwriting rating. The best underwriting score or rating will produce the lowest premium, while the worst underwriting score will produce the highest premium. If you are very healthy, have good height and weight, and you are a non-smoker, then you have an opportunity to get the best rating. You can get knocked down the insurance ladder for health issues, dangerous avocations, bad BMI, family history, etc.
We will take a look at a hypothetical case of a 40 year old male who is applying for 250,000 of 20 year term life. His best possible rating would be preferred best. If he receives this underwriting rating, the best premium on the market will be $19.79. If he gets knocked down to a standard n0n-smoker because of being too heavy, he will pay a premium of $39.06 monthly for the same policy. If he has multiple health risks and gets the bottom rung on the life insurance ladder, he will pay $122.50. While everyone would like to get the preferred best rate, it is unusual for someone to qualify for that rate. You must have zero negative underwriting points in order to get the preferred best. If you get the worst rating on the underwriting rung, I would suggest you accept the policy or have us shop the case to other carriers. If you are on the bottom rung, it means you are one step from being uninsurable. Even if it is more than you wanted to pay, it is still an offer for life insurance.
Similar to applying for a mortgage, you must be evaluated by the company, before an offer is made. We look at all the carriers on the market depending on where we estimate you will fall on the ladder. It is important to work with a good agent who can help guestimate the rating from their field underwriting with you.
Suzie Orman is a dangerous person to listen to. She is a jack of all trades and a master of none. Her blanket statements about life insurance are ignorant and without grounds. She constantly says that permanent insurance is a rip off and you should always buy term life. Why is that Suzie? Do you understand the tax advantage of life insurance with its buildup and death benefit?
While in many cases term is the appropriate direction for people to take, it is not always the best route. If you can afford to buy some permanent life insurance I would certainly suggest you do. That is the only type of insurance that is guaranteed to be in force when you pass away (provided you pay the premium). The life insurance companies love when you buy term as they pay death claims on about 2 percent of the policies. In other words, most people pay for life insurance for years and their family never gets any benefit.
On top of the permanent nature of this type of insurance, you can accumulate money on a tax free basis in the cash value. If accessed the proper way, you can avoid ever paying income tax on any of the build up and can supplement you retirement tax-free. Also, the cash value can be borrowed against during the life of the policy to buy things, invest, etc. Suzie Orman is obsessed with 401k plans and loves the tax-deferral, but tax-deferral simply means you will pay compound tax later. In addition the government controls the rules on these types of plans, while they don’t on life insurance. A good example is you can’t access until 59 and a half. What if the government adjusts the age to 62 and you are simply at their mercy.
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?
Term life insurance rates change periodically and the carrier with the best rate today, may not be the best rate in 6 months. When we shop the carriers we get the most current up to date rates that exist on the market currently for term life. It is important to make sure that rates are still applicable to when you are applying for the coverage. Clients will often wait on applying and the situation may have changed by the time that they get around to it. Not only can the rates change, it is important to know that it is just a quote. A quote doesn’t become a rate until you qualify for it in underwriting. Often times, clients will assume they can get the quoted rate, but when they apply they get a worse rating or declined.
Another item to consider with the current term life rates is whether the carrier is actual age or next age. If the carrier is actual age, you are eligible to qualify at that age and rate while you are that age. If a carrier is next age, you turn one year older 6 months prior to your next birthday. You can save age by backdating the policy prior to your actual birthday or your insurance birthday. It requires the policy date to be before the event and for the client to back whatever back premium to save age. Please come by www.paramountlifeinsurance.com to get the most up to date rate quote for your situation.
This is a popular way to use affordable life insurance. Mortgage protection is basically a policy that pays a death benefit that will be enough to pay off a person’s mortgage in the event of death. A term life policy will be taken out for the term of the mortgage. A level term or a decreasing term product can be used for this, although a level term is a much better value. Decreasing term has a decreasing benefit, and level term has a level benefit. Once the term product is selected for 10, 15, 20, or even 30 years, that rate is locked in. The great thing about term is that the beneficiary can use the proceeds however they want to. In other words, they can pay off the whole mortgage, continue to make payments, or do something completely separate.
Having a level term policy with the flexibility of the use of proceeds can be very beneficial. This is a single use of insurance that is only factoring in one debt of the consumer. Often times there are other debts that would be left to a beneficiary, college funding goals that might not be reached, lost income, etc that need to be considered. As a single use product, term life can certainly be a perfect fit.
Another type of term product that is being used on a regular basis for mortgage protection is return of premium term. This is a term program that is level for a period of time (the length of the mortgage) and then if the client is still alive at the end of the term they get a full refund of premiums paid. The downside to this product is that it is more expensive than a regular term, but guarantees the money back.
Many of our clients want to know about return of premium term life insurance. It is one of the hottest products on the market and it makes a lot of sense. Since only about 2% percent of people ever die during the term of their term life policy, why not recoup the premiums at the end.
The argument for it is that the money that you paid for the term premiums will come back to you 100% at the end of the term period. The argument against it, is that it costs more than regular term insurance does. In most cases at least 50% more than a regular term policy and often more than that. The other argument against it, is that you earn no money on the premiums you paid into the policy and only get the money back with no interest. While I understand this argument, I think it is better to get the money you put in, as opposed to the term policy that expires and you get nothing back. Return of premium basically serves as a forced savings. If you didn’t put the money into the policy, would you have saved it otherwise.
The return of premium option generally is more favorable for a younger person as the increase over regular term premiums are smaller than with older consumers. It never hurts to get a quote for both and weigh them against each other. Depending on your goals and budget, this may be a great option for you.
When selecting life insurance, most clients just want a simple explanation. They are not looking for a complex analysis of all the features, riders, and insurance speak.
Here are some simple basics that can be of assistance:
1. There are 3 types of different types of life insurance- Term life, whole life, and Universal Life (Each one has many variations).
a. Term life is like a renting insurance for a period of time at a level rate (for example 10 year, 20 year, or 30 year). No equity is built and you have a death benefit only as long as you pay.
b. Whole life insurance is designed to last for your whole life (permanent insurance). It is a level premium that starts off much higher than term, but remains level for the life of the contract. When term rates go way up after the level period, they will surpass what is being paid on the whole life. Whole life builds equity (cash value) that can be used and borrowed against during the course of your life. Unlike the concept of renting with term, this is like owning/buying your insurance.
c. Universal Life is another permanent insurance like whole life, but with much more flexibility. The premium is flexible and allows the policyholder to pay the premium that best allows them to achieve their goals. For example, a guaranteed universal life is just enough premium to have a death benefit for the rest of your life. On the guaranteed universal, you have no cash value build up to speak of. If you fund the policy at the maximum level, you can create a large cash value for retirement use. The premium level paid can be adjusted at anytime to meet the owners objectives. Like whole life, it is owning your insurance, but with more flexibility than whole life.
2. Which one is right for you? Everyone is different and has different goals. The main thing is to decide what the goal is of the insurance and then to maximize based on your goals. Often times our clients will use a blend of more than one to achieve multiple goals. For a free analysis, email email@example.com.
To get an accurate quote for term life insurance it is important to provide the agent with as much information about you and your medical history as possible. I see a lot of people giving out quotes blindly to customers without knowing much information about the potential insured. To accurately figure out what the clients rate might be, you must know their age, tobacco use, health conditions, previous health conditions, medications, profession, drug and alcohol habits, and avocations.
With that being said it is impossible to know 100% what insurance rating you will receive until you do underwriting. We would always rather be conservative in our estimates, so the client doesn’t get too surprised. When you receive a quote ask the agent what information was figured into the quote. It is easy to tell anyone the preferred rate would be, but can that person realistically qualify for that?
I spoke to a potential client the other day and he asked what a 20 year term policy would cost him? I said, “that depends, what is your health like?” It would be like asking what your mortgage rate is going to be before the bank considers your credit score, income, and consider the down payment amount. If you receive a quote, just recognize that is only a guestimation and only correct if you can qualify for that rating. If you have certain medical issues and/or dangerous avocations, make sure your agent is well versed in what are the best companies to approach. Remember not all companies underwrite the same way and certain companies give you better options based on different underwriting aspects.