Life Insurance

Life Insurance

1. Policies

   • Things to Know Before Buying Life Insurance Things Can Change at Any Time – Even if you don’t need life insurance now, it pays to understand how it works. It’s really true that understanding how your insurance needs will change as your life circumstances do is a smart move. Life Insurance is a Contract – Any kind of insurance, including life insurance, is a contract. Ultimately, you’d never sign an important contract without reading it; don’t buy insurance without understanding it. Life Insurance is a Commodity that Gets Sold – You do need to inform yourself as a consumer or you will not be able to effectively judge your needs and what is presented to you as part of a sales pitch. Most life policies in America are sold by agents who have a major interest in selling one kind of insurance (whole life) more than others. Insurance versus Investment –Whole life insurance is a vehicle for investment, and as such it is many times more costly than term life insurance. *Typically this means that many Americans who purchase whole life coverage can’t afford enough to cover what they really need, and they end up underinsured. *Like any investment, too, returns that insurance agents quote you are educated guesses. They are often optimistic guesses; after all, as you already know, commissions depend on the sale of whole life insurance and sales pitches slant things in optimistic ways. *The bottom line is that today there are so many ways to invest your money and grow it that whole life policies are almost never an ideal investment vehicle. You need to understand the terrain to ensure that you make the best decisions with your money. Dealing With Loss is Difficult – No one wants to think about what will happen when they or a loved one dies. It’s depressing and can feel paranoid. You have to understand how life insurance works and how your own circumstances will function within life insurance parameters. Life Insurance Myths Are Everywhere – A straight multiple of your income does not correlate to anything. Instead, you need to assess all of the numbers and research what is available to you.
   • Term
     • Term coverage simply provides death benefits; it’s just pure insurance. In general term life requires lower payments and is less complicated. ~Term life demands less commitment than whole life. It’s sort of like refinancing your house. If interest rates get better you can get a better deal – as long as your property(Health) is still worth something and there hasn’t been a major change in your circumstances(Finances). ~Term life policies are just plain insurance. It’s only when you get into whole life policies that investment decisions, cash values and related issues come up. ~Term life only has value if you die. ~Term life is for a set time period. With term it doesn’t matter when you die. Whole life has no set time period and it lasts until you die. ~Term life is almost always less expensive.
   • Permanent
     • A.K.A."Whole Life Insurance" They have an added investment component along with their pure insurance or death benefit function; these policies build cash value over time. Whole or permanent life insurance policies provide the death benefits of a term policy but do not expire. They allow you to borrow, tax-free, against the policy’s cash value during your lifetime. Payments can't be renegotiated; options are to depreciate the policy by borrowing against the cash value or to give up the policy altogether.
     • Variable
       • Variable life demands the most vigilance from policyholders. it’s like a universal policy but you (and not the insurer) are managing the investment portfolio. These policies also have to be registered with the United States Securities and Exchange Commission.
     • Universal
       • Universal life insurance is like whole life insurance with more flexibility (Appealing to younger buyers) ~Adds money market investment of funds to the traditional death benefit. Rate of return is set by market, but isn't guaranteed. ~Annual premiums and the death benefit payout can vary. Depending on: how premiums are being paid, how the market pays out, and how the insurer calculates the death benefit. ~Buyer pays at the rate they choose, there aren't due dates, except for an annually required minimal premium. ~You are allowed to increase death benefit by increasing payments and proving that your health is good. ~By paying extra, the policy can accumulate cash value. ~Death Benefits are calculated in two ways: a set death benefit (Stays the same even as your case value grows) or steady payment levels that wil l increase the death benefit The key to the successful use of universal life coverage is paying attention to your policy and adjusting as needed. If you’re willing to do this work then it might be the right kind of coverage for you. If you feel more secure with a set monthly payment and death benefit that doesn’t change, stick to traditional whole life.
   • Convertible Term
     • Sort of a hybrid term policy. Can be exchanged for permanent life insurance of equal value if the policyholder decides he wants a change. Typically, this exchange requires neither underwriting nor a medical exam; that’s why it tends to costs a little more and why it isn’t available once you reach a certain age. Usually policyholders are permitted to convert term policies only until they turn 65; and the period during which conversion is possible is shorter than the period of coverage.