Continue reading »]]> Approximately 70% of all life insurance sold is Whole Life. This fact alone will lead most people to believe it is the most substantial and solid life insurance you can buy. People feel extremely safe with the status quo and will not think out of the box when it comes to life insurance. Whole life is a good product, but to disregard all other types is foolishness. Do yourself a favor today and think out of the box with me.

Whole life insurance is an insurance policy that combines insurance protection and an investment into one package. You probably have heard the investment segment referred to as “cash value”. The name, “Whole Life”, means you will be protected your whole life and the policy doesn’t have an expiration date. You can see why over the years this has been a very comfortable approach to life insurance; mainly due to the advertising of the insurance companies. You have been sold on the idea that the investment feature in a whole life policy will help you retire wealthy.

Term life

Consider Term life insurance as you are thinking outside the box. First of all, Term life is life protection only, no investment feature included. As the name “Term” indicates, it is for a term, normally 10 to 20 years, and then it expires in the same manner as auto insurance expires at the end of a “six month” or “twelve month” term. It would be absurd to think the automobile insurance company would owe you anything other than a phone call informing you that you need to renew your auto policy.

So why on earth would anyone want to buy Term life insurance? let me explain. A 40 year old man in good health can buy a $500,000.00 Whole life policy for $3000.00 per year. The same man can buy a $500,000.00 Term life policy for $300.00 per year. Yes, you read that correctly, that is a $2,700.00 per year savings on the same amount of protection.

Let me explain it another way. The whole life policy allocates the same $300.00 for insurance protection, and the $2,700.00 goes to pay commissions and expenses for the first three years. Starting on the fourth year, most of it goes into a saving account with a return that will average 2.6% per year for your whole life. Oh yes, you can borrow against the money that you paid in and pay interest on it until it is paid back to the insurance company. If you don’t pay it back then a like amount is deducted from the death benefit upon your death. If you cash in the policy, all you receive back is the accumulated cash value, this is easy to understand and accept.

Face value only with whole life

Here is the really, really bad part; with whole life, the savings that you paid in with your hard earned money at a ridiculously low yield doesn’t go to your beneficiaries upon your death; they only get the face value of the policy, the $500,000.00. Here is something else to think about, say you purchased a 20 year term life policy and died in the last month (19 years and 11 months) and all you did was stuff the $2,700.00 per year savings under your mattress, your beneficiaries would get the $500,000.00 policy death benefit and $54,000.00, that is if they knew where you hid it.

I know, the next question you are going to ask is, what if you die after the 20 year Term life policy expires. With whole life your heirs will get the $500,000.00 even if you die after 40 years. Yes this is true, but do you realize you are going have to pay $3,000.00 per year and still all they will get is the face value of the policy. Are you thinking out of the box yet? I’m sure  that you are at least thinking.

My recommendation is to buy the 20 year term life policy for $300.00 per year and put the $2,700.00 saving into a mutual fund, or some other fairly conservative investment; stay away from high yield high risk investments because this is your retirement you’re dealing with. After the 20 year term policy expires you can say good by to the $300.00 per year premiums. Over a 20 year period, if you were diligent in investing the $2,700.00 per month in a decent mutual fund or facsimile,  you should have approximately 2 to 3 million to put under your mattresses. If you were 40 when you started, and now you are 60 with your kids grown and out of the nest, the house is paid for and you will be self-insured with your mutual funds. Your poor spouse will just have to be happy with the 2 to 3 million and suffer without the comfort of having life insurance to fall back on.

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Continue reading »]]> Whole Life and Term Life insurance policies offer the same protection in that both pay the face value of the policy to your beneficiaries upon your death. This is probably the only area in which they can be compared.

Whole Life, also called Permanent insurance, is in force for the rest of your life and has an investment feature called “cash value”. The premium is constant unless you purchase a Modified policy which will start with a lower premium and then after 3 to 5 years will level out for the duration of the policy. Approximately 70% of all life insurance policies sold are Whole Life; it has been the most predominant type of life insurance over the last 100 years or so. Let’s not forget that your insurance agent makes a higher commission on this type of policy.

Term Life, as its name implies, is for a term and expires afterwards. It offers a death benefit only if you die during the term of the policy, usually 10 to 20 years. Many will argue this to be a temporary insurance because it has an expiration date and unless it is a level term, the premiums will increase several times over the years. It has no cash value, however it is close to 90% less than the cost of a Whole Life policy.

Over the last 50 years, people have become much more savvy about their finances and life insurance. There is an ongoing debate over which is best, Whole Life which is more expensive and includes a saving account called “cash value”,  or Term Life which is  approximately a 10th of the cost and allows you to make your own investments.

This is a question only you can answer by deciding whether you are disciplined and can stick to an investment plan. With one of the Whole Life policies, and there are many, all you have to do is set up an automatic payment with your bank and go about your business. After a number of years the cash value will increase to the point that you will have a nice stash of cash to tap into in case of an emergency; not bad!

If you have more of an aggressive financial spirit, you might want to consider another option. If you are a 40 year old man, you can buy a $500,000.00 Whole Life policy for about $3,000.00 per year; and it will include an accumulated cash value feature. Or you could buy a $500,000.00 twenty year Term Renewable Life policy for about $350.00 per year, however it will have no accumulated cash value. With the term policy, you will have a huge $2,650.00 a year savings for the same $500,000.00 worth of life insurance protection. If you are a prudent investor, you could end up with huge earnings, a lot more than what the cash value of a Whole Life policy will pay. You can easily see why Term Life is becoming more popular now that people are learning how to put the pencil to their investments.

With an ordinary Whole Life policy as in Term Life, all that your heirs will receive upon your death is the face value of the policy and none of the cash value. With Whole Life it is in force until you die, as are the premiums normally. With the same $3,000.00 a year, if you invest wisely, you probably will not need any type of insurance after 20 or so years.

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When you decide that you need life insurance, you will discover that all life insurance policies fall into two primary categories of insurance. They are Term Life and Whole Life which is also referred to as Permanent Life. Both offer several different types for you to choose from.

Term Life Insurance

Let us first consider Term Life Insurance:

• Term Life Insurance is in effect only for the “term” specified in the policy. Think of it as basic insurance the same as auto insurance- you buy it for a period of time after which it expires.
• The death benefit is payable only if the insured dies during the term of the policy.
• The specified amount of coverage has premiums which are fixed over the term of the policy, usually in 10-year increments.
• Many policies offer you the option to buy Increasing or Decreasing Term which gives you the option to increase or decrease the amount of coverage throughout the term period.
• Renewable Term is a provision that includes a renewal option that gives the policy owner the right to renew the insurance coverage at the end of the specified term even if they have become uninsurable.
• Some Term policies will give the policyholder the right to convert the term policy to a permanent policy which is an important feature if you become uninsurable.
• An employer or professional association can buy Group Term that is intended to cover a group of people with a reduced premium.

Whole Life Insurance

The basics of Whole Life or Permanent insurance are:

• A Whole Life policy provides coverage throughout a person’s “whole life”. This is an important feature due to the fact that a person could develop health problems rendering them uninsurable, but as long as the premiums are paid, this policy can’t be canceled.
• This type of policy has an investment component that builds cash value; and depending on the policy, it can be withdrawn or borrowed against.
• Universal Life is characterized by its flexible premiums and  flexible face amounts that allow you to decide how much you want to invest.
• Indexed Universal Life, a form of Whole Life insurance combines the premium and death benefit flexibility. The cash value’s current crediting rate is tied to the performance of a financial index.
• Variable Life policies  are another form of Whole Life  in which the death benefit and the cash value of the policy fluctuate according to the investment performance of separate account investment options. This is not the same as accumulated cash value. A nice safe-guard with Variable Insurance policies is that they it guarantee that the death benefit will not fall below a specified minimum.
• Variable Life has another option known as Universal Life, a form of Whole Life insurance that combines the premium and death benefit flexibility of Universal Life insurance with the investment flexibility and risk of Variable Life. Sometimes this is referred to as Flexible Premium Variable Life insurance and Universal Life; a nice feature.
• You can buy a Whole Life policy known as the Last Survivor Universal insurance, also called “Survivorship” or “Second-To-Die” Life insurance which is designed to pay estate taxes. This policy covers two persons and provides for payment of the death benefit proceeds only when both of the insured have died.
• Single Premium Whole Life insurance is a policy which allows you to pay for your insurance up front. This is an excellent policy for a person over 65 wanting to protect a “nest egg”  and pass it along as an inheritance, tax free. It still maintains an accumulated cash value that can be withdrawn or borrowed against in the event of a financial need.

Each whole life policy needs to be considered with your particular family and financial needs in mind.

We all have different needs, therefore we should make prudent comparisons between Term Life and Whole Life and all of the variations available with each type of policy before making a purchase. The last thing that a person wants is to realize at age 65 that they have made a big mistake. Your Life Insurance options at that age are much more  limited.

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Life insurance is primarily intended to care for your loved ones in the event of your death. There are many types, however they can all be placed into two basic types which are Term Life and Whole Life. There is a continuing debate as to which policy offers the best coverage as well as other benefits.

Term Life Insurance Policy

A Term Life policy offers death benefits only, in other words if you die during the term of the policy, your beneficiaries will receive the face value of the policy. What is meant by “term” it is purchased for a specific number of years usually 10 to 20 years, then it expires leaving you without protection. Some term policies will allow you to renew the policy or convert it to a whole life policy. There is no accumulated cash value with a Term policy. Term life insurance is purchased for a family first starting out, or to cover a special need such as “key man insurance”, maybe to provide for inheritance that heirs will be burdened with, and many other specific needs.

Whole Life Insurance Policy

A Whole Life Insurance policy offers a death benefit and an accumulated cash value. If you should reach a point in your life when you don’t feel you need life insurance, you can redeem the cash value by cashing in your policy. Another option is to borrow against it, however depending on the policy, it could be taxable if not paid back. Because of the investment feature, this type insurance has higher premiums.

Before buying life insurance, ask yourself how long you want to keep your policy. If you want it just for ten or twenty years, term life will be your best bet. If you want life insurance until you die, then whole life policy is considered a permanent insurance and may be a better solution for you. Assess your life insurance needs to determine which coverage would work best for you whether you live or not.

Continue reading »]]> Whole life insurance covers the insured for his or her whole life, provided all premiums have been paid and the policy has not been surrendered. Some policies are “paid up life” and premiums are paid out for a specified time period then the policy is paid up for life, while others are paid throughout the policy holder’s lifetime and premiums are fixed for the life of the policy. Cash value is an additional feature; an amount that you get on top of your policy which is tax-deferred. This can be borrowed against by the policyholder and the beneficiaries will still receive death benefits when the insured dies as long as the premiums have been paid.

Universal life is more flexible

Universal life insurance, on the other hand, is more flexible than whole life insurance. Policyholders are allowed to change their death benefits more easily. Similar to whole life, you also get cash value on top of your policy. Here, the policy holder can make adjustments based on changing circumstances, premiums may increase or decrease depending on the policyholder. The policyholder can also use the cash value to pay for the premium, in the event that they are unable to pay. You can also withdraw the cash value without applied penalties. You can also surrender the policy and get the equivalent of your cash value after the first 15 years. One thing to watch out for with this type of insurance is the market interest rates; you see, low rates secure your policy while high rates may make you lose some or all of your cash value, depending on the circumstances.

If you are concerned for your loved ones, you may choose a steady and less complicated type of insurance. You may be paying for a higher premium, but at least you know that your beneficiaries are protected with the whole life insurance policy. Which would best meet your needs, Whole life or Universal Life Insurance?