Life Insurance Now

“What you leave at your death let it be without controversy, else the lawyers will be your heirs.” — Francis Osborne

A trust is a legal document that establishes a relationship in which one person (trustor) transfers an asset to another person (trustee) who manages and controls the asset for the benefit of a third person (beneficiary). A life insurance trust is a trust relationship established specifically to own a life insurance policy. Having a life insurance trust could potentially benefit your life insurance plan, and ultimately your heirs. It fact, not having one could be a mistake that leaves an irresponsible beneficiary broke and penniless.

By having your life insurance trust as the owner and beneficiary of the policy you could create several potential advantages. First, you can better insure that your lost income is replaced and continues for as long as it needs to–the main goal of life insurance. Second, you can insure that the life insurance proceeds are invested according to your instructions. Third, as I eluded to above, you can prevent the life insurance proceeds from being paid in a lump sum, only to be squandered by financially irresponsible beneficiaries in a short time. Fourth, you potentially remove the life insurance proceeds from your estate, avoiding probate and estate taxes. Depending on your unique situation, thousands of dollars could potentially be saved by implementing this strategy.

A word of warning: if for some reason you decide to purchase a cash value type life insurance policy, DO NOT put it into a life insurance trust. Because a life insurance trust is irrevocable, you will not be able to borrow your cash value from those policies. However, if you follow the strategy of only buying term life insurance, you can get around the irrevocability issue. To effectively “revoke” an irrevocable life insurance trust connected to the term policy, you just stop paying the premiums.

If you feel that establishing a life insurance trust may be the right strategy for your life insurance plan, consult with with your financial advisor and an attorney knowledgeable in trusts.

“The most important secret of salesmanship is to find out what the other fellow wants, then help him find the best way to get it.” — Frank Bettger

Life insurance salesman will often quote you the lowest rate in order to get you to complete an application with them. One agent may accurately quote you a standard rate for the same insurance company that another agent quoted you a preferred plus rate just to get you to complete the application. Your actual rate will be based on the underwriting criteria of the life insurance company you choose regardless of what any agent quotes you.

You cannot get a lower cost term life insurance policy from the same company by pitting two or more agents against each other. Each company has set rates based on their underwriting criteria. If two agents quote you different rates for the same amount and term of coverage from the same life insurance company, it’s because one of them is not properly qualifying you for the appropriate rate. You may be tempted to go with the lower rate, but you might complete an application only to find out later that you’ve wasted your time.

When I got my first life insurance policy that happened to me. My agent quoted me a preferred rate that sounded appealing to get me to complete an application with her, but after submitting my application the underwriter at the life insurance company offered me a standard rate that was substantially higher. Not knowing the strategies I know today, I foolishly lowered the coverage amount and shortened the policy term to get the monthly payment lower.

Different agents represent different life insurance companies, and some agents are better (honest) at qualifying you for an accurate rate. To get the best rate on your life insurance policy, get several agents to provide you with quotes accurately based on the underwriting criteria of the companies they represent. You want to choose from the lowest *accurate* rates you can find, not the lowest rates you may not qualify to receive.

I received the standard rate on my life insurance policy simply because my father had a heart attack before the age of 50. It didn’t matter that I was perfectly healthy! However, if I had used this strategy I would have found another agent that would have shown me another top-rated company willing to offer me a preferred rate because my father was still alive, which could have saved me hundreds of dollars and allowed me to purchase more protection for my family.

This humorous television commercial from a life insurance agency in Great Britain presents an interesting take on the uncertainties of life.

The message of the ad is simple but memorable: life is risky, even when you don’t take risks.

If you want a chuckle, and enjoy humorous television commercials, then watch this short video:

“The safest way to double your money is to fold it over once and put it in your pocket.” — Frank McKinney Hubbard

Whole life insurance is a type of life insurance policy that is marketed as an investment or “forced savings” plan. The claimed benefit of a whole life policy is that it builds cash value, which is the investment or savings part of the policy. When compared to other ways you could invest your money, a whole life insurance policy is simply not a good investment.

Some people falsely believe that their beneficiary will receive both the cash value and the death benefit if they die. However, when you die, your beneficiary will receive whichever is greater, either the policy death benefit or the accrued cash value. As an example, let’s assume you purchased a $50,000 whole life policy and at the time of your death the cash value had grown to $30,000. Your beneficiary would receive only $50,000 upon your death, not $80,000. In that example, at least $30,000 of the death benefit paid came out of your pocket, more if you factor in the portion of the premiums that didn’t accrue as cash value. Sound like a good deal? It is for the insurance company because it only has to pay $20,000 or less to your beneficiary.

“But you can borrow the cash value,” the life insurance salesman will tell you. Most people never do that, and when they do, they have the privilege of paying interest on their own money. Further, whatever has been borrowed and not repaid when the insured dies is deducted from the death benefit that’s paid out. Using our example above, if you had borrowed the $30,000 in cash value from your whole life policy, and had not repaid it before your death, your beneficiary would only receive $20,000.

What about the interest rate you can earn? You can get a better interest rate elsewhere. And as for the life insurance sales pitch that you can borrow the cash value tax-free, you can borrow any money from any source tax-free. Before you throw thousands of dollars away on whole life insurance premiums, consider the many other ways you could better save or invest that are not connected to a life insurance policy.

“Our judgments about things vary according to the time left us to live–that we think is left us to live.” — André Gide

The best value for the lowest cost is a level premium term life insurance policy. This type of policy will allow you to purchase an amount of coverage at a fixed premium for 5, 10, 15, 20 or 30 years (the term). The greater the term, the greater the risk for the insurance company; therefore, the greater the term, the higher the premium.

Select the shortest term that provides adequate coverage, thereby saving hundreds of dollars in premiums that would otherwise be potentially wasted on an unnecessarily long term.

How do you decide the best term? That depends on your unique situation.

For example, let’s assume that you are a 32 year old male in excellent health and able to purchase $500,000.00 of coverage for 10 years at $13.56 per month, for 20 years at $20.56 per month, and for 30 years at $36.31 per month. Two factors to consider in choosing the best term in that situation would be present affordability, and future needs.

* Present Affordability – If paying $36.31 per month for a 30 year term is going to be difficult on your budget, but you have determined that $500,000.00 of coverage is the minimum that you require, choosing a ten year term for $13.56 might be your best choice to keep a policy affordable without lowering the death benefit amount to get a longer term.

* Future Needs – It is difficult, if not impossible, to predict the future. However, it is reasonable to predict that dependent children may become less dependent one day, that dependent parents will eventually die, and hopefully that one’s wealth will increase. Those factors reduce the potential for financial hardship on others if you die, thus decrease your need for life insurance coverage over time. Will you need $500,000.00 worth of coverage 20-30 years from now?

Consider that if you stop making payments after 10 years on the 30 year term at $36.31 per month due to affordability or changing needs, and your policy lapses, you would have wasted $2,730.00 in premium payments over the 10 years you paid by using a 30 year term to accomplish what you could have accomplished by starting with a 10 year term.

“Our necessities are few but our wants are endless.” — Henry Wheeler Shaw (Josh Billings)

Do you want life insurance, or do you need it? That is a reasonable question you should ask yourself, and it is an essential question to answer, especially if you are trying to build your wealth on a limited budget. Spending thousands of dollars on unnecessary life insurance coverage can be detrimental to your wealth. It is estimated that as much as 30% of all life insurance policies are on the lives of single people with no dependents. Those people probably have no need for the insurance they are paying for.

The purpose of life insurance is to prevent a financial hardship that would be created if the insured person dies. Therefore, if your untimely death would create a financial hardship for another, be it a spouse, your children, or a dependent parent you need life insurance. If no hardship would be created for another by your death, you do not need life insurance, and your money would be better used to build your wealth now.

An important consideration when formulating your life insurance plan is to factor in the potential financial hardship that would be created by a loss of the services the insured person provides now. While a non-working spouse may not contribute a paycheck, replacing their service–child care, for example–could create a financial hardship on the surviving spouse.

“Those who plan do better than those who do not plan even though they rarely stick to their plan.” — Winston Churchill

It may sound obvious that you should create a life insurance plan, but it would surprise you how many people enter the life insurance buying process without a plan. Failing to create an adequate life insurance plan can cost you.

For example, if you are sold a policy with a $1,000,000.00 death benefit when a carefully thought out life insurance plan would have revealed that you only needed $500,000.00 of coverage, you would have spent significantly more than needed for adequate protection. That is money wasted on premiums that could have been used to invest, or used to enjoy your life now.

Another potential consequence of failing to plan is that, in the event of your untimely death, the proceeds from the policy could end up in probate court or end up being squandered away by beneficiaries unskilled in money matters–both costly symptoms of inadequate planning.

How do you create a life insurance plan? It’s not hard, but you will need to answer several questions, determine your needs based on the answers, and write it all down. Here are the basic questions you need to answer:

1. Do I need life insurance?
2. How much coverage is needed?
3. How long will the coverage be needed?
4. What kind of life insurance policy is needed?
5. Who should benefit from the policy?

To adequately answer the questions, you can apply the buying strategies I share with you in this blog to your own situation. How you answer each question will affect what you pay in premiums and ultimately how successful your life insurance plan will be at meeting your goals.

(From Medialink) – Lives change. Growing families often trade up to a bigger house. Someone with a pay raise might think of getting a better car. But, how many with changing circumstances think about the need to trade up to a better life insurance policy?

Turns out… not many.

That means a more difficult life for surviving family members. In fact, the Insurance Information Institute says that nearly half of surviving spouses would experience a 20 to 40% decline in their standard of living if the primary wage earner in the family died.

Life insurance is like money in the bank. And, like a retirement account, the equity can grow. It can be used for almost anything – to pay funeral expenses, debts, and to maintain a certain standard of living. September is National Insurance Month, the time each year to familiarize yourself with your policy and check if you’re adequately covered.

(Watch this video from Medialink)