When was the last time you met someone who introduced themselves as a “life insurance agent?” These days, even life insurance salesmen refer to themselves as “financial advisors.” Yet, what advice do you think an insurance salesman will provide? Of course, they will recommend you buy life insurance. To make matters worse, the insurance industry has managed to take something quite simple and complicate it to the point where not even all the people who sell it fully grasp the implications of the product.
So what do Certified Financial Planners (CFPs) who don’t collect commissions on product sales think about life insurance? When is purchasing life insurance appropriate?
CASH VALUE vs. TERM INSURANCE
Life insurance comes in many forms. Some policies slowly accumulate a cash value, meaning most of your premium goes towards insurance and a small portion goes towards a savings account. When you surrender your policy you may be able to collect this savings account. These products include whole, universal, and variable-universal life policies.
These policies are commonly presented as an investment. But beware! You should always think of life insurance as an expense. When you purchase insurance, you are buying something –peace of mind. Insurance is a way to ensure the financial security of the breadwinner’s family until the family can accumulate enough investments to make insurance no longer necessary. For this reason, insurance is frequently a necessity for young families, and often less necessary for mature families.
Whole Life
Whole life insurance typically requires the owner to pay premiums for the life of the policy. The insurer guarantees that the policy’s cash values will increase regardless of the performance of the company or its experience with death claims. With whole life policies, the interest rate applied to the cash value is predetermined and fixed.
Universal Life
Like all types of insurance, universal life pays a death benefit when the insured individual passes. Before death, however, the cash-value grows at varying rates depending on the ups and downs of interest paid on bonds and savings accounts.
Variable-Universal Life
Variable-universal life policies are similar to universal life policies, except the cash value can be invested in mutual funds (called sub-accounts) rather than at the insurance company’s current interest rates. However, the fees on these policies can be extremely high and in almost every circumstance there are more efficient strategies.
Term
Policies with 100% insurance and no cash values are called term insurance. This is the type of policy most people picture when they think of insurance. You simply pay the premium and collect a benefit in the event of death.
Although there is no savings element to term insurance, remember you are buying insurance to ensure your family is taken care of if something happens to you. In most cases there are more efficient ways to save and plan for retirement than through the purchase of cash value insurance policies.
Insurance or Investment?
A phrase you may have heard when considering insurance is to “buy term and invest the difference.” (You likely don’t hear this from insurance agents because they are paid a higher commission on cash-value policies. The salesman’s commission on cash value policies is often 90% of your first year premium.) To implement this strategy, buy low-premium term insurance from a highly-rated insurer and put the money saved from not buying a cash-value policy into a true investment account like an IRA, Roth IRA, etc. This provides your family with the protection it needs and an efficient way to save for retirement. Hopefully, over time, the investment account will grow and the need for insurance will be eliminated.
Most fee-only financial planners are proponents of the “buy term and invest the difference” strategy. However, there are certain occasions when a cash value policy may make sense. For instance, buying a cash value policy may be appropriate if your need is permanent, such as caring for a special needs child. Additionally, cash value policies may make sense if your need is certain, such as if you have the policy and are then diagnosed with a terminable disease. However, if you need a cash value policy, look for a no-load policy that doesn’t pay the salesman a commission. This can cut your premium in half and you won’t pay penalties when you withdraw your cash value.
Canceling a Policy: Prepare to Pay
Canceling a term policy is simple – just stop paying the premium. If you cancel a cash value policy within 10 years of purchase, you will generally pay a penalty (called a surrender charge) when you withdraw your cash value. If you cancel a variable universal life policy, you will also pay ordinary income taxes on the profits inside the policy. Chances are your insurance agent forgot to mention this.
Bottom Line
Insurance is clearly a complicated product, but for many, it is a necessity. However, remember that insurance agents are financially motivated to sell you insurance, regardless of your circumstances. Always speak to a fee-only Certified Financial Planner, who is never compensated based on the product recommended, to get an objective opinion of whether you and your family have adequate insurance coverage.
Are you looking for a life insurance policy that is permanent but with flexible premiums and options? If you are searching for this type of policy, then variable universal life insurance might just be the right policy for you.
A variable life insurance policy combines features of universal life insurance with several investment options, so you will be able to claim a larger amount for a death settlement than what you can receive from an ordinary policy. This is called variable universal life insurance, because the premiums and investments in this type of policy are not fixed. These are variables because both depend on the present market conditions.
Getting a variable life insurance policy has advantages over other types of policies. If you compare this to universal life insurance, you will be able to see that on the latter, you cannot control your invested cash value. But if you combine universal and variable, you can switch these investments if you want to get a higher life insurance settlement. You can do this two or three times a year.
Another advantage of having a variable universal life insurance policy is that you can have a tax shelter. This means that the money you make through investments is tax-free. This amount will only be taxed when you cash in the policy.
Even with these advantages at hand, you must keep in mind that variable universal life insurance is not for everyone. So the best thing for you to do is to consult an insurance agent and have the policy pros and cons explains to you. You must be able to understand not only the advantages of this type but the drawbacks as well.
Life Insurance Needs After Retirement
Your needs will change after you get your gold watch and leave your office or factory floor for the last time. But does that mean that your needs for a life policy will entirely evaporate? Well, the answer will probably be different, depending upon your own goals and financial situation. Let us look at a few options for obtaining a life insurance policy after 65 (or any retirement age).
What are Your Obligations?
Your kids may be grown and gone. In a perfect world, they will be educated and off supporting themselves, and maybe they will even have their own kids. You may still have a spouse who depends upon you, but his or her needs may be less than they were 30 years ago. The home mortgage that loomed large 2 decades ago has shrunken or been paid off (we hope). And again, in that same idea vision, debts are low, and there is some money in the bank to settle them if anything would happen to you.
Does this sound like you?
Well, this is a great picture of retirement, but it isn’t always the story with many people these days. Those kids do not always complete their education on schedule. And in this current tight job market, even many college graduates are still seeking to begin their first real job. Grown kids, sometimes with their own kids, are moving back home or asking for parents to help support them financially.
Did the Home Get Paid Off?
Sure, we all planned to pay off our mortgage by age 55. But then our jobs changed and we moved. Or we lost a job and had to refinance or take out a second mortgage. Sometimes those homes do not get paid off on schedule either.
Can Your Savings Survive a Problem?
If you needed to dig into your savings because of a medical problem, can you still leave your kids or spouse any money? Several months in a nursing home can wipe out a lifetime of savings. A life insurance policy is one way to make sure that your survivors still inherit something.
Would Paying for a Funeral and Final Expenses Be A Cash Burden?
US funerals can cost $8,000 or more. And that is money that usually needs to be produced right away. Would that expense be hard on your surviving spouse or kids? A small life insurance policy, designed to pay for senior final expenses, can be an affordable way to plan for that.
Does Only One Child Inherit a Business?
Another use for life insurance is to plan for the transfer of wealth. Picture the owner of a small law firm. His daughter attended law school and is being groomed to take over the firm when he dies. However, he also has two sons who are not lawyers. One teaches high school math, while the other one became an engineer. In order to be fair, the law firm owner would like to leave his sons something, but would like to leave his daughter in charge of the law firm. A life insurance policy can provide a buyout option for the other surviving children when only one child will inherit a business.
Do Retired People Need Life Insurance?
If your savings and retirement income are adequate, and you do not have many outstanding obligations, you may not need to be covered. However older people can use a policy to plan for retirement and estate transfers.
Agents have many choices when it comes to selling insurance. From an agent’s perspective, each type of policy has its own benefits and drawbacks. Certain policies are easier to sell, while others provide higher commissions. Although insurance isn’t always highest on an agent’s list of policies to sell, it is definitely worth checking out. Just consider the usual steps required to earn commission on a universal or whole life insurance policy:
setting several client appointments constructing policy illustrations completing application sending application to regional office for approval setting client medical appointment obtaining client’s medical records supervising the policy underwriting handing over the policy once it’s approved submitting delivery requirements to regional office The entire process can take some time. You can expect the time from your initial client appointment until you receive commission to be as long as ten weeks. This is one reason final expense insurance is worth considering. Completing a final expense insurance policy generally requires far fewer steps. This means you can get paid for your policy and move on to the next one without so much time elapsing. Here are the typical steps involved in this type of insurance policy:
We suggest purchasing online final expense insurance leads set up a single phone interview write up the application complete a phone underwriting question sheet submit application to regional office for approval handing over the approved policy The process from the time you contact your final expense leads to the time you close the deal is much shorter for this type of insurance policy. This means you can expect your commission in as little as two or three weeks instead of two months or more. Additionally, commissions tend to be quite large for final expense insurance. This isn’t always obvious to inexperienced insurance agents. But the truth is, you can expect to earn more from selling a ten thousand dollar policy to a senior than you can from selling a half-million dollar policy to someone in their twenties. This is because the elderly will be paying much higher premiums on their policy.
Final expense policies are worthwhile in other ways too. The typical buyer is a senior citizen. This demographic is much more likely to be consistent in paying their premiums. For a senior, the final expense policy is very important; they expect to use it before too long, and so they make sure they keep the policy. Younger people with insurance policies are not so reliable. Indeed, to someone with so many expenses and bills, especially in tough economic times, an insurance policy may be deemed unnecessary. This can cut into an agent’s profits, especially if the policy is cancelled within the first year, which could result in a charge-back. So if you haven’t included final expense insurance leads in your insurance business plan, you might want to consider it. It certainly has the potential to add to your profit!
Many people who are married do not understand that if they have individual debt or combined debt with their spouse they need a plan to pay off this debt if they pass away. The best tool that one can use is life insurance. No one knows when it will be there time to pass away so it is better to have a plan to protect themselves and their families from creditors.
Did you know that in most cases creditors can force your spouse to pay your outstanding debt even in the event of your death? Does your spouse have the earning capacity to pay off their debt in addition to your debt if you pass away? Do they have money to give you a funeral or cremation? If you answered no to any of these questions it is time to be proactive to save your family from experiencing a financial crisis in the event that you pass away.
I would suggest purchasing insurance as soon as possible because if you are diagnosed with a serious health condition you may not be able to qualify for life insurance. The debts will still be there and you will not be able to find a way to help your family when you die.
I know that the economy right now is tough and money is sometimes tight for many. But imagine how tight money will really be without your income. Will your family be able to sustain itself in the event that you do pass away?
It is a fact, that adult life insurance, also known as final expense insurance or burial insurance, is available in a variety of affordable plans that are simple and affordable. It is a good move for all individuals of age to consider. One good benefit of acquiring this type of insurance is that it will provide protection for individuals who are aging and the earlier one obtains life insurance policy, the lower the premium will often be. Having this type of insurance will protect your loved ones and provide you with the peace of mind you been looking for.
Indeed, this type of insurance policy will provide money for funeral expenses, pay unpaid bills and aid with future income needs. The policy coverage will vary as will the premium attached to the adults life insurance policy. When shopping around for this policy, try visiting a local insurance agency in your area first. If you don’t know which insurance agency to use, ask your friends and family members for referrals as this is a great way to obtain a good insurance agent. Just make sure that your policy includes all of the desired coverage benefits and is reasonable in price.
However, this will allow you to have an agent review the options from larger insurance providers and get the best deal possible for you. One indisputable way to prepare for tomorrow is by purchasing life insurance today. It is not uncommon for young adults to blow off life insurance because many do not think they will need it, or it is not time to buy it. Another great benefit of obtaining adult life insurance is that it allows you to pay little by little for a bulk sum payout upon your death. Moreover, most adult life insurance policies also offer a child rider. The financial purpose of obtaining adult insurance is to replace income after death. You can secure guaranteed financial protection with it.
Now, you may be thinking that since you are single and without children and young, you do not need adult life insurance, but in reality you may have a lot of debt that could become the responsibility of your family should something happen. Debts like, student loans, bills or any other debts you may leave behind. The truth is that, if you wait until you’re older, you should definitely expect to pay much more in life insurance premiums.