Friday, January 17, 2014

Universal Life Insurance Explained

Universal life insurance is a “flexible premium” “current assumption” “adjustible death benefit” type of cash value life insurance. Confusing, I know. The term flexible premium means the policyowner is permitted to select whatever premium he or she wishes to pay, within limits, and later to adjust or change the premium. Policyowners may even skip premium payments as long as the cash value is sufficient to cover policy charges.

The term, current assumption, means that current interest rates, as well as current mortality and expense charges, are used to determine additions to cash values. The term adjustible death benefit means that policyowners are permitted to raise or lower policy death benefits. However, increases may require evidence of insurability.

As a result of this tremendous flexibility, universal life insurance has become a very popular option for those looking for permanent life insurance coverage.

What are the advantages of universal life insurance? 

  1. The policyowner has wide discretion or flexibility in selecting the premiums that are paid. Provided that there is enough cash value to cover mortality charges, the policyowner may even skip payments. In contrast with other types of policies, skipping payments does not result in the creation of policy loans. 
  2. The policyowner may change the level of death benefits. Decreases in the death benefit are permitted at virtually any time. 
  3. The policy is “transparent”. That is, policy illustrations and annual reports break out and report each of the policy lements seperately. 
  4. Most universal life insurance policies offer two death benefit patterns, called option A and option B. 

  • Option A: This option, which is similar to a traditional whole life policy, offers a fixed (level) death benefit. As cash value grows larger, the net amount at risk (or pure insurance) is reduced to keep the total death benefit constant. 
  • Option B: This option operates in a manner similar to the death benefit one would receive from a traditional whole life policy with a term insurance rider that is equal to the current cash value. Under option B, the death benefit is equal to a specified level of pure insurance plus the policy’s cash value at the time of death.

Sunday, January 12, 2014

How to select a Term Life Insurance company

While the cost of term life insurance is a critical factor in choosing a term life policy, the term life insurance company you choose is equally important. With nearly two thousand companies offering term life insurance in the United States, choosing a term life insurance company can be difficult. Consider these issues:

Ability to pay claims - - Consumers want to know whether term life insurance companies can meet their obligations. Fortunately, independent rating companies evaluate the financial strength and stability of term life insurance companies, assigning a letter grade such as A+, A, A-, B+ or AAA, AA, A, etc. Higher ratings indicate less financial risk.

Medical categories - - Most term life insurance applications are evaluated by the life insurance company's risk underwriters, who determine whether an applicant's health is Preferred, Standard, sub-Standard, or uninsurable. This categorization has a direct impact on (1) applicant ability to get term life insurance and (2) the cost of your term life insurance policy. This subjective process can differ dramatically from company to company. Consumers can submit multiple applications, but that takes time and may require repeated medical examinations. Your application could be denied because companies know when you submit applications to other companies and they become concerned about you accumulating insurance for unsatisfactory reasons. If you suspect the term life insurance company may have concerns about your health it is recommended tha you work with an insurance agent who can advise you on the best approach.

Service Issues - - like other businesses, insurance companies can be easy or difficult to deal with. Are their representatives knowledgeable about term life insurance and are they easy to contact? Is their website useful? How long does the term life insurance application process take? Are the term life insurance premium payment plans reasonable? Is it easy to make policy changes? How timely is the insurance company in paying term life insurance claims?

If you are looking for a reputable life insurance company to buy insurance from, check out , our preferred life insurance broker.

Friday, January 10, 2014

About Applying For Life Insurance

When you complete an application, the company reviews the information you provide along with health history information provided by your physician's office (you will be asked to authorize a release of your medical records), and information from the Medical Information Bureau (MIB), a central data bank of health information. In addition, the company will usually arrange for a Paramed to visit you at their cost and your convenience to confirm your application information, and to collect a blood sample and specimen. For larger amounts of coverage or older applicants, more extensive medical work may be required.
Usually, we suggest that people send in an application without sending money. Once you are approved and we send you the policy, then you can make the final decision whether to start the coverage after reviewing the policy in detail.  This way you can wait to see if, and at what rate, you are offered coverage. Then you can decide if you want to put the coverage in force.   If you apply expecting to qualify for the best health rate class but do not meet the company's standards for that class, most companies will automatically extend you an offer at the best rate class for which you do qualify.
Generally speaking, companies that ask more questions and collect more data will offer lower rates than those that will accept you without a paramed visit or one that boasts it accepts everyone.  The reason is simple...when a company asks no questions, they know that a higher proportion of their application are likely to  come from people with health problems.  Therefore they price their products to cover that extra risk (and they also usually limit the amount of coverage they will provide to $100,000 or less).
Insurance companies, like all companies, want to stay in business. Out of each dollar they take in, they must pay benefits, administrative expenses and overhead, marketing costs and taxes, licenses and fees. If they end up issuing policies to a block of customers who turn out to die-off more quickly than expected, the amount of money needed to cover benefits will be greater than planned for in the premiums that were charged. That means there will be less money available for administration and overhead (which means cuts in service and layoffs), less money for marketing (which means fewer sales), and it will require them to raise premiums on new policies (remember, they cannot raise premiums for existing level term life customers).
Higher prices for new policies and less money spent on marketing will mean fewer sales in the future, adding further to an increasing spiral of problems that could ultimately lead to bankruptcy...something neither they, nor their existing customers or insurance regulators want. That is why they ask so many questions!

Reasons Not To Buy Life Insurance

Depending on what you read and with whom you speak, you may hear many other reasons to buy insurance. Here are some that we think are a real "stretch":
    "Protect your children with life insurance"...We all want to protect those we love. But life insurance bought on a child doesn't protect them, it protects you. Unless your child is a major breadwinner, the insurance only protects you from the cost of a funeral. Speaking purely in rational, financial terms, most households can afford to bear this cost out of savings... insurance is not needed.
    "Give your child the gift of life insurance to get him or her started on the way to financial responsibility, and to protect their ability to get life insurance later in life, should something happen to their health"...While it is technically possible that a child may develop a serious illness which could lead to insuring problems in the future, it is rare that this occurs. And of those who do survive such an illness, most are insurable if they make it to adulthood. You would probably make a much more valuable gift if instead you invested the amount you would have paid in premiums rather than paying it to an insurance company.
    "Life insurance is a good way to save money for a rainy day"...True, if you buy cash value life insurance (also called "permanent insurance"...whole life, universal life), money that goes into a cash value account does grow without being taxed; however, only a portion of what you pay into a policy goes into the cash value account. So, while the rates of interest you may see illustrated appear to be higher than some investments, you need to remember that this rate is only applied to part of your contribution. Generally speaking, if what you want to do is grow your money, an investment is a better investment.
    "Life insurance is a good way to force yourself to save"...If you have trouble saving money each month, what makes you think you would continue to pay premiums for insurance you don't really need? Instead, you could set up regular automatic direct checking account deductions with a mutual fund that will invest your money for better returns.

All About Term Life Insurance

There are two main types of life insurance: term and "permanent" insurance.

Term can be further subdivided into annually renewable term (also called ART, yearly renewable term, or YRT), and level term insurance.
"Permanent insurance" includes traditional whole life, interest sensitive whole life, universal life, variable universal life, survivorship life (also called second-to-die-life), first-to-die-life (also called joint life)
When you want the most coverage at the lowest cost, term is the way to go. It is cheaper than "permanent" insurance for two reasons:
1. There is no cash value account or other "savings fund" in a term policy. 100% of the premium goes to pay for the benefit plus insurance company expenses.
2. The company guarantees to cover you at a fixed rate, but only for the length of the term you select. At the end of the term you can continue most term policies, but the rates go up dramatically.
The word "term" in term life insurance refers to the fact that you are guaranteed coverage for the specified term as long as you pay the required premium. For example, a 1 year term policy has a rate that is in effect for 1 year at a time. A 10 year level term policy covers you for 10 years with a level benefit and at a premium that does not change for the 10 year term (the company must provide the coverage as long as you pay the premium, but you can cancel any time...just stop paying the premiums).

Term life is most often bought for the following reasons:
  • To replace lost income should the insured individuals die prematurely
  • To provide a lump sum for bill paying...As a way to pay off an outstanding major financial obligation such as a mortgage should an income earner die prematurely
  • To provide a lump sum which will be used to cover anticipated future expenses...As a way to provide for a specific future major expense, such as college education, should an income earner die prematurely
  • To provide business partners with a fund to buy-out a deceased partner's share...Sometimes the deceased partner's spouse or family members are not interested in working in the business. Life insurance can give the partnership a way to fairly and immediately compensate the surviving spouse.

Availability of these optional, extra cost riders varies from company to company and some of the most common term riders are:
  • Child Rider...insures one or more minor children, usually for one rate, and usually for amounts of $20,000 or less.
  • Accidental Death Rider...provides increased benefits at a relatively low price, should you die due to other than natural or self inflicted causes.
  • Waiver of Premium Rider...If you are disabled, you no longer have to pay the premiums on the life insurance to keep the coverage in effect.