Comments on: Life Insurance Options : How to Buy Term Life Insurance

By: jessicatgz

jessicatgz — Wed, 18 Jun 2008 07:08:35 +0000

Take at look of the facts. This is how whole life insurance works:
1) You pay level premiums for the rest of your life or until the policy expires. Majority of life insurance policies expires when you are 100 years old.
2) Your premiums are paid for 2 things: The life insurance itself and the cash value.
3) No cash value is accumulated in first 2 years. After 2 years, you will get interest between 1-3%.
4) If you wish to take money out from the cash value, you have to borrow it and pay loan interest of 6-8%.
4a) If you die and there's a loan on the cash value, the amount of loan plus any missed premiums will be deducted from the death benefit.
4b) If you surrender the life policy and there's a loan on the cash value, you will pay income tax on the amount borrowed.
5) If you die someday, the insurance company keeps the cash value.

As you can see, cash value is a rip off. It has slow growth and I could do much better by investing the difference or saving it in money markets. If whole life didn't build cash value, it would be called Level Term to Age 100 and it would be cheaper too.

I have always sold term insurance and help clients invest the difference (or help them start investing). Its the best financial plan because term insurance provides adequate amount of coverage for low amount of premiums. At the same time, the client is building wealth for retirement. When term insurance expires, the client would need to evaluate their financial needs. In theory, most people don't need life insurance forever. As they get older, their financial obligations decrease and their savings goes up, so the need for life insurance is low. If my client still needs life insurance when the term expires, my client can either renew it without having to provide proof of insurability or they can exchange it for another term policy.

By: Primerica Expert

Primerica Expert — Tue, 17 Jun 2008 01:17:24 +0000

I don't know how old you are, but you can do a 1035 exchange and move the net surrender value into a variable annuity. You can learn more about variable annuities here: http://finance1o1.blogspot.com/2007/01/annuities.html

Or you can take the money. If you do this way, you should setup an emergency fund if you haven't already. You should put the money into money market funds. It takes at most 7 days to get the money out of it.

Or you can take the money and open an online savings account such as EmigrantDirect or HSBC Direct that gives 5.05% APY on your savings.

Or you can invest it into mutual funds outside of your Roth IRA.

There are so many things you can do.

By: kimmee812

kimmee812 — Mon, 16 Jun 2008 14:04:22 +0000

Met Life is a good company. If you've had the policy for awhile you're probably better off staying with them because your premium will be higher based on age if you switch. You need to make sure that the term goes long enough to see the kids through college.

You probably don't need the term policy for the kids. Depending upon their ages and health a smaller permanent policy may be better for them, if any at all. Many people don't agree with a life policy on kids but I like to see a permanent policy because that way if something goes wrong with their health and they become uninsurable they've at least got the permanent policy.

By: LCHLADY

LCHLADY — Mon, 16 Jun 2008 13:32:35 +0000

I would say you would not be wise to cancel a whole life policy for a term, as what people don't know & agents neglect to tell them, is after the level period has ended, i.e.10 year term, 30 year term, the policy changes into a annual renewable term, which means the premiums increase dramatically & then will increase yearly from that point, going forward. So generally they are no longer affordable, any new policy you will be at a higher premium as it will be based on your current age or worse yet, you may now have a condition that makes you uninsurable.

At the very least, you may want to supplement with a term policy for short term coverage, but keep your whole life policies.

Yes, it is common to have dividends pay the premiums. You can call your customer service & tell them you want to change the dividend option to premium & your mode to annual. If you are not allready paid to the anniversary date, then you can also have the dividends pay you to that date to get everything synched. Then the dividends will pay the premium automatically after the grace period has ended.

Unless you plan on repaying the loan, then you may want to withdraw the dividends. Yes, you don't have to repay a loan, but the problem is that you OWE the insurance company the loan interest, so if it's not repaid, then the interest is taken out of the cash value & increases the loan balance, so this creates a snowball effect, as your loan interest will continue to increase yearly. Eventually the loan balance will cause the cash value to go into a negative & YOU will lose the policy.

So, if you pay the loan interest when it's due yearly a loan is ok.

By: vivalafool

vivalafool — Mon, 16 Jun 2008 09:35:38 +0000

Many times 5 years is a common window to reapply, but it depends on the condition or reason you were declined. Some companies won't insure people period for certain conditions, etc. Every company has different underwriting requirements

As far as what your options are:

Definately going through a broker is your #1 best option. They will have access to multiple companies and can do the work of contacting each company, explaining your situation and finding one that would give you the best chances of approval.

Some companies offer what's called Gauranteed Issue insurance. There is no medical underwriting, so it doesn't matter what your medical history is like for the most part. Many of them have a "pre-existing conditions" clause that is waived after a certain period of time (IE: after you've had the policy for X years the pre-ex. condition is no longer a factor in whether it will pay out or not).

By: victoria_goudy

victoria_goudy — Sun, 15 Jun 2008 21:53:51 +0000

if you had spent the same amount of energy reading your textbook that you spent typing all that in you would know the answers and you would benefit from the experience.

no one is going to do your homework in life.

By: thevoice

thevoice — Sun, 15 Jun 2008 17:38:41 +0000

By: maylene1852

maylene1852 — Sun, 15 Jun 2008 09:42:20 +0000

The Term vs. Whole Life is an odd debate. Most people often recommend term and forget about all the details becuase they've read "Buy Term and invest the rest" so many times. Sadly, most people that Buy Term, don't invest the rest and when they hit 50 years old they are now paying hundreds of dollars a month for insurance and have nothing for savings or they don't have the disapline and knowledge to invest to 'self-insure' themselves. Then when they hit age 75 or 80, if they are still paying the $500+ dollars a month (this in not an exaggeration…if you have term insurance check your policy…it will be at least that exprensive when you are older) for their term insurance, they are forced to bet $500 a month that they will die before age 80 or they get nothing. Buy Term and Invest the Rest is a good strategy in theory, but it's a terrible strategy when you look at it from a practical standpoint. Most people don't have the time or commitment to invest and get the returns that this strategy requires to make it work. Keep in mind…Whole Life was created becuase most people got hosed with Term insurance being either too expensive to pay for or it expired when you need it the most.

In reality, Term insurance should be used for a temporary need (making sure the kids will be taken care off, making sure the mortgage is paid off, etc.). The cost will start out small when you are young and after the term is over it will increase (IE: If you are buying 20 year term, at the end of 20 years you will have the option to renew it and a substantially higher price for another term). You build no cash value and it will expire ussually around age 80 (Average life expectancies are increases every year with advancements in medicine) if you haven't died by then. Think of this like renting a house…it's cheaper than buying one (whole life), but when you move out (cancel the insurance), you just hand back the keys and you get nothing in return.

Whole life should be used for the expenses that will not go away whether you die tomorrow or 50 years from now (funeral costs, taxes, legal fees, etc). While the inital cost is slightly higher than term premiums, Whole Life will never go up as long as you live. It will also build cash value and will never expire. Basically, not only will it be there when you need it when you are 85, but it will be very inexpensive ($50 40-50 years from now will be pocket change when you look at inflation rates). Some companies offer a limited pay option where you only make your payments for a specific time frame then it is completely paid up (similar to a mortgage…you only pay for 20 years and then you keep the house).

If you only plan on covering needs for 20 years or less (IE taking care of the kids, paying out debts, etc), buy term, but if you will have a need of longer than 20 years (IE final expenses, charity or legacy fund) buy whole life to cover than need.

With the right Whole Life insurance you will likely never pay more than 30% of the total benfit amount. IE: through the next 20 year I will pay a total of $13,200 into one of my life insurance plans and never a penny more and it will pay out $100,000 at some point. At the very most I will pay roughly 13% of the total payout amount.

As for the amount, most of the people I work with in your situation (late 20s, 2 young kids) look at $50,000-$100,000 of whole life coverage (the cost of a final expenses…funeral, legal fees, taxes, etc…range anywhere from $20,000-$30,000 where I live right now…factor in inflation and it will be substantially more by the time you are 80) and around $500,000 of joint first to die (pays out once when the first one of you or your hubby dies) 15 year term insurance ($200,000 to pay out the mortgage/debts if you have and $300,000 to make sure the kids have proper child care and living standards, and have their post secondary paid for). Again, this is ball park on most that I work with. If you google search "Life Insurance Needs Analysis" you should get a whole pile of different calculators that will help you determine how much you need.

Insurance on kids is more of a planning for their future. The odds of a child passing away are very slim, but there is a chance. If you can afford it, buy a limited pay whole life plan and when they are old enough to make the payments they take it over. If you select the 20 pay option, it will be completely paid up for them by the time they are ever done university and they won't have to do through as much of the questioning as you are.

Sorry for the novel…hope this helps…

By: earlyout55

earlyout55 — Sun, 15 Jun 2008 09:16:18 +0000

Too short term