your financial details.
When creating your personal retirement plan, there are a variety of tools you can use to fund your long-term savings goals. An employer-sponsored 401(k) is one of them while indexed universal life insurance (IUL) is another. A 401(k) allows you to invest money on a tax-deferred basis while also enjoying a tax deduction for contributions. Indexed universal life insurance allows you to secure a death benefit for your loved ones while accumulating cash value that you can borrow against. Understanding the differences and similarities between IUL vs. 401(k) matters for effective retirement planning. Working with a financial advisor can also make a substantial difference in the amount of money you’ll have when you retire.
What Is Indexed Universal Life Insurance?
Indexed universal life insurance is a type of permanent life insurance coverage. When you buy a policy, you’re covered for the rest of your natural life as long as your premiums are paid. When you pass away, the policy pays out a death benefit to your beneficiaries.
During your lifetime, an IUL insurance policy can accumulate cash value. Part of the premiums you pay are allocated to a cash-value account. That account tracks the performance of an underlying stock index, such as the Nasdaq or S&P 500 Composite Price Index. As the index moves up or down, the insurance company credits the cash value portion of your policy each year with interest.
IUL is different from fixed universal life insurance or variable universal life insurance. With fixed universal life insurance your rate of return is guaranteed, making it the least risky of the three. With variable universal life insurance, your cash value account is invested in mutual funds and other securities so you’re exposed to more risk. An indexed universal life insurance policy fits in the middle of the risk spectrum.
Cash value that accumulates inside an IUL insurance policy grows tax-deferred. You can borrow against this cash value if necessary, though any loans left unpaid at the time you pass away are deducted from the death benefit.
What Is a 401(k)?
A 401(k) is a type of qualified retirement plan that allows you to set money aside for retirement on a tax-advantaged basis. Contributions are deducted from your paychecks via a salary deferral. Your employer can also offer a matching contribution. The IRS limits the amount you can and your employer can contribute each year.
With a traditional 401(k), contributions are made using pre-tax dollars. Any money you contribute is automatically deducted from your taxable income from the year. When you begin taking money out of your 401(k) in retirement, you’ll pay ordinary income tax on withdrawals. Any withdrawals made before age 59.5 may be subject to a 10% early withdrawal penalty as well as income tax.
Traditional 401(k) plans allow you to invest in a variety of securities, including mutual funds and exchange-traded funds. Target-date funds are also a popular option. These funds automatically adjust your asset allocation based on your target retirement date.
There’s no death benefit component with a 401(k). This is money you save during your working years that you can tap into in retirement. Unless you’re still working with the same employer, you’re required to begin taking minimum distributions from a 401(k) beginning at age 72. Failing to do so can trigger a tax penalty equivalent to 50% of the amount you were required to withdraw.
IUL vs. 401(k): Which Is Better for Retirement Savings?
Indexed universal life insurance and 401(k) plans can both be used as investment tools for retirement. But there are some important differences to note. With IUL, returns are tied to the performance of an underlying index. If the index performs well, then your policy earns a higher interest rate. If the index underperforms, on the other hand, your returns may shrink. Your insurance company can also cap the rate of return credited to your account each year, regardless of how well the underlying index does. For instance, you may have a cap rate of 3% or 4% annually.
In a 401(k) plan, you have the option to invest in index mutual funds or ETFs but you’re not locked in to just those investments. You can also choose actively managed funds, target-date funds and other securities, based on your time frame for investing, goals and risk tolerance. Your rate of return is still tied to how well those investments perform but there’s no cap. So, if you invest in an index fund that goes up by 20%, you’ll see that reflected in your 401(k) balance.
A 401(k) also affords the advantage of an employer matching contribution. This is essentially free money you can use to grow retirement wealth. With an indexed universal life insurance policy, you’re responsible for paying all of the premium costs.
Another big difference between the two centers on tax treatment and withdrawals. With an indexed universal life insurance policy, you can borrow against the cash value at any time. You’ll pay no capital gains tax on loans and no penalties unless you surrender the policy completely or fail to repay what you borrow. Death benefits pass to your beneficiaries tax-free.
With a 401(k), you generally can’t tap into this money penalty-free before the age of 59.5, even in the case of a hardship withdrawal. You may be able to avoid a tax penalty if you’re withdrawing money for qualified medical expenses but you’d still owe income tax on the distribution. You could take out a 401(k) loan instead but that also has tax implications. If you separate from your employer with an outstanding loan balance and fail to repay the loan in full, the entire amount can be treated as a taxable distribution.
Qualified distributions in retirement are taxable at your regular income tax rate. And if you pass away with a balance in your 401(k), the beneficiary who inherits the money will have to pay taxes on it. Talking with a tax professional or your financial advisor can help you come up with a plan for managing tax liability efficiently both prior to retirement and after.
The Bottom Line
Indexed universal life insurance and a 401(k) plan can both help you build wealth for retirement but they aren’t necessarily interchangeable. If you have a 401(k) at work, this may be the first place to start when creating a retirement savings plan. You can then decide if IUL or another type of life insurance is needed to supplement your workplace savings as well as the money you’re investing an IRA or brokerage account.
Tips for Investing
- When using a 401(k) to invest for retirement, pay close attention to fees. This includes the fees charged by the plan itself as well as the fees associated with individual investments. If a mutual fund has a higher expense ratio, for instance, consider whether that cost is justified by a consistently higher rate of return.
- Consider talking with a financial advisor about how to maximize your 401(k) plan at work and whether indexed universal life insurance is something you need. If you don’t have a financial advisor yet, finding one doesn’t have to be complicated. SmartAsset’s financial advisor matching tool makes it easy to get personalized recommendations for professionals in your local area in just minutes. If you’re ready, get started now.
Photo credit: ©iStock.com/yongyuan, ©iStock.com/kupicoo, ©iStock.com/Piotrekswat
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Why Everyone Over 30 Should Start Thinking About Life Insurance
I don’t like to make generalizations too often, but I do feel that everyone over 30 should start thinking about the importance of life insurance. That is, if you’re 30 and over and don’t have any life insurance.
No one likes to think about their demise, but life insurance is an extraordinary product that can be used to reduce the financial burden you could leave behind for loved ones. Plus, different types of life insurance can even help you build wealth and diversify your assets.
Here are 4 important reasons why everyone over 30 should start thinking about life insurance.
The Insurance At Your Job is Probably Not Cutting It
By now you probably realize the life insurance coverage that your job offers is not enough. Some employers include life insurance in their list of benefits which is great, but the coverage amount often doesn’t come close to your insurable need.
Your insurable need represents how much life insurance you should hold depending on factors like your age, liabilities, health conditions, and so on. One common rule of thumb is that your average life insurance coverage amount should be 7 to 10 times your annual income.
So if you’re earning $60,000 per year, you might want to consider a policy of $420,000 to $600,000 depending on your needs. However, the average employee life insurance policy amount is only around $25,000 to $50,000 or one years’ salary. This is not nearly enough.
Plus, when you leave your job, you’ll lose your insurance benefits too. This is why it’s always important to consider having your own life insurance coverage independent of your employer. So many people are switching jobs every 2 to 3 years so you may not want your life insurance benefits to be tied to your employer anyway.
Term life insurance is pretty affordable and you can get a free quote in just a few minutes from Bestow.
Here are 4 important reasons why everyone over 30 should start thinking about life insurance. Click To Tweet
You Want to Protect Loved Ones From a Financial Burden
You don’t have to be married with kids and a house to want to consider life insurance. However, more people in their 30s do focus on settling down and working toward some of these milestones.
If you do have kids, a mortgage, etc. you’ll definitely want to consider how your partner would get by if anything did happen to you. Would the kids still be able to go to college? Would your spouse be able to keep the house? These are important questions that life insurance can help you answer.
Even if you’re single and at the height of your career. More people in their 30s are carrying debt like student loans and personal loans. Did you know that some types of student loan debt can not be forgiven even if you died? You probably don’t want to pass on any financial burdens to your parents or other loved ones who would have to fit the bill.
Life insurance provides a tax-free payment to your beneficiary which can help cover everything from debt payments, loss of household income, funeral arrangements, and more.
RELATED: How Much Life Insurance Do You Really Need
30 Is Still Young Enough to Lock in Affordable Rates For Whole Life Insurance
Let’s say you’re considering the importance of life insurance. Whole life insurance in particular. Whole life insurance is permanent insurance that builds cash value as you continue to pay your premiums.
Other types of insurance, like variable whole life, even allow you to invest some of the cash value and grow the amount faster. You can borrow from your cash value, use it to pay your life insurance premiums, or even withdraw it while you’re still alive and well.
While whole life insurance is cheaper than term life, costs increase around the board as you get older. If you’re considering whole life insurance, the best option is to get a policy while you’re younger. Thirty years old is not too old to still get a decent rate for your life insurance premiums. Plus, it allows you enough time to build cash value that could be put to use in the future.
Get Insured and Protected From Medical Issues
Yes, life insurance is geared toward providing financial relief for your loved ones. Depending on your policy, you may be able to obtain something called ‘living benefits’. Living benefits are an insurance rider (which means it’s an added on feature) that can be added to your term or whole life insurance policy.
Living benefits can allow you to use some of your life insurance coverage amount to pay medical expenses for a serious illness or condition. Of course, this will reduce the benefit provided to your beneficiary, but it can still be a helpful feature to help you cover medical bills that could otherwise be left for your loved ones to deal with anyway.
No one likes to think about getting sick or becoming terminally ill, but planning for the best and worst is just a part of adult life. As you get older, your health tends to decline but if you’re still healthy in your 30s, it’s the perfect time to lock in a life insurance policy and consider adding a living benefits rider.
RELATED: Should You Get Disability Insurance? 4 Ways to Decide
Summary
Life insurance should be apart of everyone’s financial plan. Knowing the importance of life insurance can be life-saving information. If you’re over 30 and still don’t have coverage. Consider all the reasons to get a term or whole life policy. Consider your current future needs and carefully weigh the pros and cons.
Remember, you can get a free no-obligation quote from Bestow in just two minutes.
Source: everythingfinanceblog.com
Term Life vs. Whole Life Insurance: Which Is Best for You?
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Advertiser Disclosure
Disclaimer
Taking out a life insurance policy is a great
way to protect your family’s financial future. A policy can also be a useful
financial planning tool. But life insurance is a notoriously tricky subject to
tackle.
One of the hardest challenges is deciding
whether term life or whole life insurance is a better fit for you.
Not sure what separates term life from whole
life in the first place? You’re not alone. Insurance industry jargon can be
thick, but we’re here to clear up the picture and make sure you have all the
information you need to make the best decision for you and your family.
Life Insurance = Financial
Protection for Your Family
Families have all sorts of expenses: mortgage payments, utility bills, school tuition, credit card payments and car loan payments, to name a few. If something were to happen and your household unexpectedly lost your income or your spouse’s income, your surviving family might have a difficult time meeting those costs. Funeral expenses and other final arrangements could further stress your family’s financial stability.
That’s where life insurance comes in. Essentially, a policy acts as a financial safety net for your family by providing a death benefit. Most forms of natural death are covered by life insurance, but many exceptions exist, so be sure to do your research. Death attributable to suicide, motor accidents while intoxicated and high-risk activity are often explicitly not covered by term or whole life policies.
If you die while covered by your life
insurance policy, your family receives a payout, either a lump sum or in
installments. This is money that’s often tax-free and can be used to meet
things like funeral costs, financial obligations and other personal expenses.
You get coverage in exchange for paying a monthly premium, which is often
decided by your age, health status and the amount of coverage you purchase.
Don’t
know how much to buy? A good rule of thumb is to multiply your yearly income by
10-15, and that’s the number you should target. Companies may have different
minimum and maximum amounts of coverage, but you can generally find a
customized policy that meets your coverage needs.
In addition to the base death benefit, you can enhance your coverage through optional riders. These are additions or modifications that can be made to your policy—whether term or whole life—often for a fee. Riders can do things like:
- Add coverage for disability or deaths not commonly
covered in base policies, like those due to public transportation accidents. - Waive future premiums if you cannot earn an income.
- Accelerate your death benefit to pay for medical bills
your family incurs while you’re still alive.
Other
riders may offer access to membership perks. For a fee, you might be able to
get discounts on goods and services, such as financial planning or health and
wellness clubs.
One
final note before we get into the differences between term and life: We’re just
covering individual insurance here. Group insurance is another avenue for
getting life insurance, wherein one policy covers a group of people. But that’s
a complex story for a different day.
Term Life Policies Are Flexible
The “term” in “term life” refers to
the period of time during which your life insurance policy is active. Often,
term life policies are available for 10, 20, 25 or 30 years. If you die during
the term covered, your family will be paid a death benefit and not be charged any future
premiums, as your policy is no longer active. So, if you were to die in year 10
of a 30-year policy, your family would not be on the hook for paying for the
other 20 years.
Typically, your insurance cannot be canceled
as long as you pay your premium. Of course, if you don’t make payments, your coverage will lapse, which typically
will end your policy. If you want to exit a policy you can cancel during an
introductory period. Generally speaking, nonpayment of premiums will not affect your credit score, as
your insurance provider is not a creditor. Given that, making payments on your
life policy won’t raise your credit score either.
The major downside of term life is that your
coverage ceases once the term expires. Ultimately, once your term expires, you need to reassess
your options for renewing, buying new coverage or upgrading. If you were to die
a month after your term expires, and you haven’t taken out a new policy, your
family won’t be covered. That’s why some people opt for another term policy to
cover changing needs. Others may choose to convert their term life into a
permanent life policy or go without coverage because the same financial
obligations—e.g., mortgage payments and college costs—no longer exist. This
might be the case in your retirement.
The Pros and Cons of Term Life
Even though term life insurance lasts for a
predetermined length of time, there are still advantages to taking out such a
policy:
- Comparably lower cost: Term life is usually the more affordable type of life insurance, making it the easiest way to get budget-friendly protection for your family. A woman who’s 34 years old can buy $1 million in coverage through a 10-year term life policy for less than $50 a month, according to U.S. News and World Report. A man who’s 42 can purchase $1 million in coverage through a 30-year term for just over $126 a month.
- Good choice for mid-term financial planning: Lots of families take out a term life policy to coincide with major financial responsibilities or until their children are financially independent. For example, if you have 20 years left on your mortgage, a term policy of the same length could provide extra financial protection for your family.
- Upgrade if you want to: If you take out a term life policy, you’ll likely also get the option to convert to a permanent form of life insurance once the term ends if your needs change. Just remember to weigh your options, as your rates will increase the older you get. Buying another term life policy at 50 years old may not represent the same value as a whole life policy at 30.
There are some drawbacks to term life:
- Coverage is temporary: The biggest downside to
term life insurance is that policies are active for only so long. That means
your family won’t be covered if something unexpected happens after your insurance
expires. - Rising premiums: Premiums for term life
policies are often fixed, meaning they stay constant over the duration of the
policy. However, some
policies may be structured in a way that seems less costly upfront but feature
steadily increasing premiums as your term progresses.
Young Families Often Opt for Term Life
The rate you pay for term life insurance is
largely determined by your age and health. Factors outside your control may influence the rates you
see, like demand for life insurance. During a pandemic, you might be paying
more if you take a policy out amid an outbreak.
Most consumers seeking term life fall into
younger and healthier demographics, making term life rates among the most
affordable. This is because
such populations present less risk than a 70-year-old with multiple chronic
conditions. In the end, your rate depends on individual factors. So if
you’re looking for affordable protection for your family, term life might be
the best choice for you.
Term life is also a great option if you want a
policy that:
- Grants you some flexibility for
future planning, as you’re
not locked into a lifetime policy. - Can replace your or your spouse’s
income on a temporary basis. - Will cover your children until
they are financially stable on their own. - Is active for the same length as
certain financial responsibilities—e.g., a car loan or remaining years on a
mortgage.
Whole Life Insurance Offers
Lifetime Coverage
Like with term life policies, whole life
policies award a death benefit when you pass. This benefit is decided by the
amount of coverage you purchase, but you can also add riders that accelerate
your benefit or expand coverage for covered types of death.
The biggest difference between term life and
whole life insurance is that the latter is a type of permanent life insurance.
Your policy has no expiration date. That means you and your family benefit from
a lifetime of protection without having to worry about an unexpected event
occurring after your term has ended.
The Pros and Cons of Whole Life
As if a lifetime of coverage wasn’t enough of
advantage, whole life insurance can also be a highly useful financial planning
tool:
- Cash value: When you make a premium payment on
your whole life policy, a portion of that goes toward an account that builds
cash up over time. Your
family gets this amount in addition to the death benefit when their claim is
approved, or you can access it while living. You pay taxes only when the money
is withdrawn, allowing for tax-deferred growth of cash value. You can
often access it at any time, invest it, or take a loan out against it. However, be aware that anything
you take out and don’t repay will eventually be subtracted from what your
family receives in the end. - Dividend payments: Many life insurance
companies offer whole life policyholders the opportunity to accrue dividends
through a whole life policy. This works much like how stocks make dividend
payments to shareholders from corporate profits. The amount you see through a dividend payment is
determined by company earnings and your provider’s target payout ratio—which is
the percentage of earnings paid to policyholders. Some life insurance
companies will make an annual dividend payment to whole life policyholders that
adds to their cash value.
Some potential downsides to consider include:
- Higher cost: Whole life is more expensive than
term life, largely because of the lifetime of coverage. This means monthly
premiums that might not fit every household budget. - Interest rates on cash value loans: If you need emergency extra
money, a cash value loan may be more appealing than a standard bank loan, as
you don’t have to go through the typical application process. You can also get
lower interest rates on cash value loans than you would with private loans or
credit cards. Plus, you don’t have to pay the balance back, as you’re basically
borrowing from your own stash. But if you don’t pay the loan back, it will be
money lost to your family.
Whole Life Is Great for Estate Planning
Who stands to benefit most from a whole life
policy?
- Young adults and families who can
net big savings by buying a whole life policy earlier. - Older families looking to lock in
coverage for life. - Those who want to use their policy
as a tool for savings or estate planning.
To that last point, whole life policies are particularly advantageous in overall financial and estate planning compared to term life. Cash value is the biggest and clearest benefit, as it can allow you to build savings to access at any time and with little red tape.
Also,
you can gift a whole life policy to a grandchild, niece or nephew to help
provide for them. This works by you opening the policy and paying premiums for
a set number of years—like until the child turns 18. Upon that time, ownership
of the policy is transferred to them and they can access the cash value that’s
been built up over time.
If you’re looking for another low-touch way to leave a legacy, consider opening a high-yield savings account that doesn’t come with monthly premium payments, or a normal investment account.
What to Do Before You Buy a
Policy
Make sure you take the right steps to finding
the best policy for you. That means:
- Researching different life insurance companies and their policies, cost and riders. (You can start by reading our review of Bestow.)
- Balancing your current and long-term needs to best protect your family.
- Buying the right amount of coverage.
If you’re interested in taking next steps, talk to your financial advisor about your specific financial situation and personal needs.
Sign up now.
Source: credit.com
A Guide to Universal Life Insurance
- Life Insurance
Universal life insurance is a type of permanent life insurance, offering both a cash value and a death benefit. It offers numerous tax benefits and is often considered to be a combination of a life insurance policy and an investment; it can pay dividends, be cashed out, and offers a guaranteed death benefit at the same time.
Find the Right Life Insurance for You!
Attention: Still Open During the Financial Crisis…
Tip: Act now to see if you qualify for lower rates!
Compare free personalized quotes from the nation’s top providers.
How Does Universal Life Insurance Work?
Universal life insurance is split into two different components: the cost of insurance, known as the COI, and the cash value; and unlike whole life insurance and term life insurance, it can be adjusted over time. The cost of insurance is simply the price needed to keep the policy alive and it includes elements such as administration charges and mortality costs.
As for the cash value, this includes all accumulated premiums that exceed the necessary cost of insurance. This sum will increase as it earns interest in line with the market rate. The policyholder can choose to increase or decrease premium payments, as well as the rate at which they are paid, which is why this type of insurance is also known as adjustable life insurance.
The cash value can cover the cost of the universal life policy, but if there is not enough money to cover the premiums then the policy can lapse.
A universal life insurance policy offers two types of death benefit. One is a fixed sum that doesn’t change and guarantees your loved ones will get a specific amount when you pass away; the other is an increasing lump sum, in line with the policy’s cash value. This sum is tax-free but will not be paid if the cash value is withdrawn before the policyholder dies or if the premium payments stop. In such cases, the policy will lapse.
Whole life Policy vs Universal Life Policy vs Term Insurance Policy
There are pros and cons to all life insurance products. Some offer cash values, others don’t; some are easy to understand, others are a little more complicated. If you’re not sure which policy is right for you, speak with an insurance agent and they’ll discuss your options and help you decide.
A term life insurance policy is the better option for many applicants and covers them for a specific period of time, often from 10 to 30 years. There is no cash value or additional benefits, and the entire purpose is to provide a death benefit in exchange for monthly life insurance premiums.
A term life insurance policy is generally a cheaper and more widely available option as it provides some more assurances to the insurance company, as all policies are based on the probability of the individual dying during the term.
By carefully weighing up these odds, using information such as their age, health, and family medical history, the insurer can almost guarantee a profit while still giving the policyholders what they need.
The younger you are, the less you will pay and the greater the death benefit will be. Whole life insurance and universal life insurance, however, have a cash value attached and this can be surrendered (surrender charges may apply) for the cash value.
If the surrender value is not taken, and the policy premiums are paid, a guaranteed death benefit will be paid to the beneficiaries regardless of the age of the policyholder.
In this way, a fixed whole life insurance policy and a variable universal life insurance policy remain for the entire life of the policyholder, while giving their loved ones some assurances. These policies are often said to combine the benefits of a death benefit with a savings account, one that can boost your retirement income and provide an additional option when everything turns sour and you’re in dire need of a cash injection.
As a result of these extra benefits, whole life insurance policies typically charge higher premiums. For instance, a healthy 30-year old man can expect to pay between $200 and $300 a year for a term life insurance policy that lasts for 30 years and offers a $250,000 payout. This covers them until the age of 60, and statistically, there is a high chance they will outlive this policy, thus affording the life insurance company more leeway and allowing them to offer lower rates.
However, if a 30-year old man were to apply for a whole life insurance policy offering the same death benefit, they would likely be charged in excess of $2,000 a year.
Is Universal Life Insurance Right For You?
Whether a universal life insurance plan is right for you or not will depend on your age, health, budget, and goals. If you’re looking for a death benefit to protect your family and you don’t have a lot of money to spare, it’s probably not the best option and you should look for a term life insurance policy instead.
However, if you have a large estate to protect or a dependent who will rely on you for the life of the policy (such as a disabled child) a permanent life insurance policy is probably the better option. It’s also worth noting that insurance coverage can be switched and tweaked.
A universal life insurance policy can be adapted to suit your growing needs, with a flexible premium and death benefit. A term life insurance policy, on the other hand, can be switched to a permanent life insurance policy if you find that you have more money and more options further down the line.
This isn’t always the case, however, so if there is a chance you will want to switch make sure you use a life insurance company that will let you do this.
Bottom Line: A Safe Investment
A universal life insurance offers several benefits and combines an investment with a death benefit. If you need both of these and have the money to pay the premiums, it’s a good option.
However, if you’re mainly looking for a death benefit or an investment, look into a term life insurance policy or a stock market investment, because neither of these options are strong enough on their own. It’s only when they are combined that universal life insurance begins to look worthwhile.
Source: pocketyourdollars.com
3 Tips for Finding an Affordable Life Insurance Policy
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Advertiser Disclosure
Disclaimer
Life insurance offers protection for your family’s financial security. Many people buy themselves a life insurance policy that will protect their family. It’s also possible for people to purchase life insurance policies for someone else. For example, children can purchase policies for their parents and vice versa.
Life insurance coverage offers valuable financial protection. You need to find a policy that meets your coverage needs and fits your budget. Here are three tips that will help you find the right fit:
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Understand Policy Options
Premium rates vary based on the kind of policy you choose. There are two broad categories of life insurance—temporary and permanent.
Temporary life insurance, or term life insurance, offers a death benefit payout if the insured passes away during the timeframe the policy covers.
Policyholders can choose the length of the term and the death benefit amount. Some companies offer additional coverage options, called rides, that can be attached. These range from accelerated death benefit riders to return of premium riders. These additional riders add more value to the policy, which also affects the rates.
Permanent life insurance has its own two categories—whole life and universal life. Both kinds of permanent life insurance accrue cash value over time. The cash value can be used to purchase paid-up additions, pay premiums or be borrowed against.
Like term life insurance policies, policyholders can choose to add additional coverage with riders. Riders vary by company and affect the monthly premium.
Whole life policies typically have the highest premiums because the coverage is permanent, and there’s generally a guaranteed cash value growth rate. Most whole life policies come with high death benefit amounts. Policyholders can choose the amount when they sign up for the policy.
However, for those who need less coverage or only enough to cover funeral expenses, final expense insurance policies are a great option. Final expense insurance is designed for seniors. It’s a type of whole life insurance, but the death benefit amounts are much lower. Because the death benefit is only enough to cover funeral expenses, premiums tend to be lower.
There are a few kinds of universal life insurance policies. The biggest difference with these policies is how the funds are invested. The cash value of variable universal policies is invested in multiple accounts, including stocks and bonds. The cash value of indexed universal policies is invested in indexes, which are diversified investments.
Because there is no guarantee of how the cash value will grow in the investments, universal life insurance premium rates tend to be lower than whole life insurance premium rates.
Work with an independent agent
While the various types of life insurance are common among life insurance companies, not all companies carry every kind. It’s a good idea to know what kind of life insurance policy you want before starting to work with companies.
If you’re not sure what kind of life policy you want, work with a life insurance agentto ensure that you find an affordable policy that meets your coverage needs. A licensed agent can help you through the entire process of selecting and applying for a policy.
Working with a licensed independent agent also has other advantages. The specific terms, riders and premium rates can vary by company. Independent agents sell policies from multiple companies, so they can help you compare similar policies across companies.
An independent agent can help you understand the underwriting process and find a policy that is a good fit for your situation. In addition to comparing coverage and terms across companies, an independent agent can help you compare premium rates.
Working with an independent agent makes the research process easier for you because you don’t have to reach out directly to companies. Instead, you can work with one person to find the best company and rate for you.
Use quote websites wisely
While some people like working with an agent, others may prefer to do independent research. Quote websites come in handy because they make it easy to quickly view your options.
There are many life insurance quote websites to choose from. So, how do you know if you’re working with a good company?
First, it’s important to understand what kind of quote website you’re using. Some websites, like Geico and Progressive, show quotes from multiple life insurance companies. These quotes allow visitors to compare their policy options across companies. However, these companies just show quotes and connect their visitors to companies.
Others, like Bestow, Haven Life and Ladder, only show quotes for the policies they offer. These companies help their clients through the application process, which is another benefit of working with them.
Others, like Quotacy, show quotes from multiple life insurers and help their clients through the application and underwriting process. Quotacy agents even assist their clients in making updates to their policy after they purchase a policy.
Second, it’s important to know what kinds of policies the website shows. Many online tools focus solely on term life insurance. While this is a shared characteristic across many quote websites, each one has its unique features.
For example, Ladder stands out because its policies allow policyholders to adjust coverage during the term as their needs change.
In contrast, other quote websites show quotes for different kinds of permanent life insurance. This is true of many sites that only offer quotes, like Geico and Progressive. Websites that offer more comprehensive services, like Quotacy and Policygenius, also offer quotes for permanent life insurance policies.
Finding affordable life insurance
Life insurance offers valuable financial protection for your family. It can pay off remaining debt, cover funeral expenses and even replace income.
While the protection offered is highly valuable, it’s important to find a plan that fits into your monthly budget. The first step is determining what your needs are and which kind of life policy best meets those needs. From there you can work with an independent life insurance agent and do your research into policies and premium rates offered by different life insurance companies.
Alice Stevens loves learning languages and traveling. She currently manages debt and tax relief, life and health insurance, and car warranty content for BestCompany.com.
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Final Expense Life Insurance: What You Need to Know
- Life Insurance
Also known as burial or funeral insurance, final expense life insurance is a variant of whole life insurance designed to cover a single expense after the policyholder passes away. Often aimed at seniors, these insurance policies have reasonable monthly premiums but generally pay much smaller death benefits than term life insurance policies.
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What is Final Expense Life Insurance?
Final expense life insurance is a whole life insurance policy that releases a lump sum when the policyholder dies. It charges a fixed monthly premium and generally offers a simplified sign up process, with few complications, fast decisions, and no medical exams.
Policyholders use final expense life insurance to protect their loved ones after their death. It’s often taken in lieu of a traditional whole life policy or term like policy, with the former not available to seniors and the latter proving very costly and limited.
Policyholders can add a beneficiary to their final expense life insurance policy to ensure that the money goes to this individual when they die. They can also arrange for the money to be paid in monthly or yearly installments, although considering the purpose of this policy is to cover “final” expenses that may arise or remain after death, it’s often best to release it as a lump sum.
Who Can Benefit from Final Expense Life Insurance?
You can benefit from a final expense life insurance if you:
- Have dependents
- Don’t have a whole life or term-life policy
- Have sizeable debts
- Are worried about funeral costs
Think about what will happen when you die. It’s a morbid thought to have, but it’s important to see things from your family’s perspective.
Can they afford to provide you with an honorable send-off; can they afford to clear your debts? Will your death impact them financially or will you leave them with enough cash and assets to cover necessary expenses?
Your loved ones need time to grieve, to mourn your loss. They shouldn’t have to worry about financial issues, as that will just make a bad situation worse.
What is Final Expense Life Insurance Used For?
You can use final expense life insurance to cover any costs that your loved ones would otherwise be required to pay. The most common uses for this type of life insurance include:
Funerals
The average funeral costs close to $10,000, and those costs are rising. It’s one of the five biggest expenses that the average American will incur during their lifetime, and unlike a wedding, car or home, it’s not something you can simply avoid by going without, nor is it something you can delay until you have more money.
If you die, your loved ones will need to cover these costs quickly and completely, and while you might want them to cut costs and avoid spending too much, they will want to ensure that you have the best possible send-off.
The only way to guarantee that you have a good funeral and they don’t bankrupt themselves is to cover the costs before you die.
Final expense life insurance can be paid directly to your loved ones or to the funeral home. In the case of the latter, you can plan your funeral yourself, choosing products and services based on the value of the death benefit that will eventually be paid to the home.
Of course, you can’t be sure that the funeral home will honor all of your requests or even still be operating by the time you pass, so unless you don’t have anyone who can arrange your funeral, we recommend paying the death benefit directly to your beneficiaries.
Medical Bills
You are predicted to spend over a quarter of a million dollars on healthcare during your lifetime, most of which will occur in the final decade of your life. That’s a huge sum of money to spend on anything, and it’s a terrifying prospect to think that this money could be passed onto your loved ones.
In most instances, your loved ones won’t be responsible for your debt, but there are exceptions. What’s more, all medical debt charged during the final months of your life will be at the head of the queue to take money from your estate when you die. If that debt strips your assets bare, it means your loved ones won’t get anything and may struggle to cover their own debts and expenses.
With final expense life insurance, you can use a death benefit to repay those medical bills and remove the burden of responsibility from your loved ones.
Debt
Unsecured debt is often at the back of the queue when it comes to taking money from your estate. However, if you live in a community property state or your partner cosigned on the debt, they will be responsible for it.
You also have to think about mortgage and auto debt. These loans can pass onto your heirs, who will then be tasked with continuing the repayments if they want to keep the assets. If they don’t have the money, they could lose those assets, and this is where a final expense life insurance benefit can help.
Frequently Asked Questions about Final Expense Life Insurance
Still got a few questions about final expense life insurance and its many nuances? We have answered some of the most frequently asked questions below to lend a helping hand.
How Much Does It Cost?
Final expense life insurance varies depending on your age, sex, weight, smoking status, and whether or not you have any preexisting medical conditions. Generally speaking, a woman between the age of 50 and 55 can expect to pay between $30 and $40, while a man of the same age will be charged between $40 and $50.
This cost increases as you age and while you can still apply when you hit 80, you can expect premiums as high as $200 a month, or $2,400 a year.
Why Does it Cost So Much?
The costs are higher than term-life insurance because the risks are greater. Unlike term-life insurance, the term will not expire, which means the odds of the recipient receiving the death benefit are higher.
Of course, there is still a chance that they will fail to meet their payment obligations, at which point the policy will void, but such instances are rare for this particular type of insurance.
Does it Expire?
Your final expense life insurance policy will remain active for as long as you make your insurance premiums. It will not expire like a term-life insurance policy, but you will lose it if you stop making payments while you are still alive.
Does the Money Have to be Used for Funeral Costs?
Not at all. The insurance company doesn’t care what the money is used for as it doesn’t impact their bottom line. There is also nothing preventing your loved ones from pocketing the cash and burning your body in the garden, if that’s what they choose to do.
We don’t mean to sound bleak, but the point is, there are no restrictions or limits and your loved ones are only bound by your word and their promise, so if you want the money to be used for a specific purpose, make sure you get everything in writing lest they forget.
How Much is the Death Benefit?
Final expense life insurance typically pays around $20,000 and is always less than $50,000. It’s a small sum when compared to many term-life insurance policies, but that’s because it serves a specific purpose and is not designed to clear mortgages or cover one or more family members for the rest of their life.
Is There a Medical Exam?
Because the payout is less than $50,000, a medical exam is rarely required. You will be asked some basic health questions and you need to be honest during this process, but in most cases, you will not be required to undergo a medical exam.
Source: pocketyourdollars.com
How do Life Insurance Companies Make Money?
- Life Insurance
Life insurance seems like a pretty good deal. You pay $30 a month for 20 or 30 years and in the event of your death, your family gets a sizeable cash sum, often in excess of $250,000. Every 12 seconds someone dies in the United States and these deaths occur across all demographics (although the majority are over 70) and from a myriad of causes.
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If a life insurance company can afford to pay a $500,000 sum on a policy that’s collected less than $20,000, how can it afford to stay in business when life is so fragile, death is always a certainty, and they’re in it for the profit?
Contrary to what you might think, insurance companies don’t rely entirely on luck or underhanded tactics to stay in the black. There are actually three ways that an insurance company makes money and ensures those profits remain stable.
Underwriting
Underwriting is the process of taking a calculated financial risk in exchange for a fee. The word was coined as the underwriter, the “risk-taker”, would sign their name underneath a detailed outline of all risks they were willing to take.
Underwriting is performed by all life insurance companies and it’s a careful, considered process through which they can balance their profit and loss. There is no guarantee with the underwriting process and it’s not uncommon for them to lose money over the course of a financial year. However, what they lose one year may be offset by what they earn in another year.
How Insurance Companies Profit from Underwriting
Insurance is based on statistical analysis and probability. If you’re a healthy 20-year old with no preexisting medical conditions and no genetic issues, you’re considered to be very low risk.
An insurance company may offer you a $500,000 payout on a 30-year term in exchange for a policy that costs less than $1,000 a year. They’re only making $30,000 over the term, but they know there’s a good chance you’ll live well beyond your 50th year, which means all of that $30,000 is profit.
In fact, statistically speaking, a 20-year old has a less than 6% chance of dying within 30 years and this applies to the general population. Once you account for medical issues, family health problems, smoking, drug use, dangerous jobs, and a plethora of other high-risk conditions, that figure drops to an infinitesimal sum.
The insurance company knows that if they have 50 healthy 20-year-olds on 30-year $500,000 policies, there’s a good chance that between 0 and 2 will collect. This means they will collect $1.5 million and payout between $0 and $1 million.
The odds of a 20-year-old dying within that term increase if they have abused drugs/alcohol in the past, have a preexisting medical condition or their parents died of genetic disorders before they turned 50. In such cases, the underwriters will calculate the risks and create a policy that allows them to cover their costs.
By the same token, a life insurance company may refuse to provide a 30-year term to a 52-year-old, because according to the statistics, one out of every two will die within that term and they simply couldn’t offer realistic premiums.
Of course, these are just rough estimates, but it gives you a general idea of how life insurance companies operate. It’s also the reason why your premiums increase significantly if you are a smoker (smokers live 10 years less on average) are obese (obesity is considered to be as much of a mortality risk as smoking) or have a problematic medical history.
Canceled and Lapsed Coverage
Your life insurance policy can stop or be canceled at any time. Let’s return to the example of the 20-year-old paying premiums worth $1,000 a year. They may have taken out the life insurance policy because they just got married or they experienced a bout of paranoia after learning about a friend who died young.
But what happens when that relationship ends and that paranoia fades away; what happens if they go from being comfortably employed, to unemployed and desperate? They’re not the ones who will benefit from that payout, so they may decide that they’re just wasting their money, in which case they stop making the payments and the policy lapses. If this happens, the life insurance company gets all of the premiums and none of the liability.
Whole life insurance policies can also be cashed out. They build money through dividends and this entices the owner to give it all up for a big payday. If they’re struggling financially and realize they have a big balance waiting for them on their life insurance policy, they may be tempted to cash the check, close the account, and walk away with the windfall, thus removing all liability from the insurance company.
Refusing to Pay Out
Life insurance companies can also make money by refusing to pay out and pointing to a discrepancy. This is not part of their business strategy, and they don’t actively seek to scam their customers because, quite simply, they don’t need to. Thanks to underwriting, cash outs, lapse policies and investing, life insurance is a profitable enterprise without needing to resort to underhanded tactics.
However, they can and will refuse payouts if they determine that the contract was somehow breached. This can happen in any number of ways and for a myriad of reasons:
The Cause of Death Wasn’t Covered
Most causes of death are covered by most life insurance policies. However, there are some exceptions, including suicide. Many policies refuse to cover suicide at all, while others refuse to cover it if it occurs within the first 2 years of the policy.
More than 40,000 people take their own lives every year in the United States and it’s a common issue across all demographics. It’s also on the increase and is now the 10th biggest killer in the United States.
As heartless as it might seem for an insurance company to refuse a payout for someone who took their own life, it’s important to remember that their underwriting is based purely on probability, and because suicide is one of the biggest killers in young men, it’s something that has to be considered.
The policy should state clearly which causes of death are covered and which ones are not. It’s also something you can discuss with the insurance company when you take out your policy.
Important Information was Not Disclosed
This is the most common reason for a payout to be refused. In some cases, the applicant is looking for cheaper premiums and knows that a few seemingly innocent lies will shave tens of dollars off their premiums.
The policyholder may also assume that certain information isn’t relevant or be too ashamed to disclose it. For instance, if they were cautioned for driving under the influence of drugs or alcohol it may not seem relevant to the underwriting process, but if they die in a road traffic accident it could prevent a payout.
In the majority of cases, however, they simply forget. A life insurance policy is something you fill out in one sitting and something that requires you to list all previous medical conditions, hospital visits, and health complaints. It’s easy to forget a few things here and there.
There is No Beneficiary
A life insurance policy can only be paid directly to an heir when they are named as a beneficiary. If there is no beneficiary, it will be paid to the policyholder’s estate, from which their heirs can make their claim.
This becomes problematic if the policyholder has a lot of debt, as the debtors will then line up to take their share from the estate. It can also make life difficult for loved ones trying to make a claim on that estate. It’s always recommended, therefore, to name beneficiaries on the life insurance policy and to back this up by writing a will.
The Contestability Period
The above issues become more prevalent during something known as the contestability period. This begins as soon as the policy goes into effect and it can last for 1 or 2 years, depending on the policyholder’s state of residence.
If the policyholder dies during this period, the life insurance company will seek to contest it by looking at all of the details and ensuring they match. They will check the cause of death against previously filed medical reports and will make sure the correct information was supplied at the time the policy was filed and that there are no discrepancies.
Once this period passes, it’s unlikely there will be any issues, but they can still occur. The insurance company may, for instance, investigate the claim if they believe it was purchased for the sole benefit of the beneficiaries (for example, the policyholder purchases it knowing they were going to commit suicide or were about to die).
Summary: Payouts are Rare
Studies suggest that as few as 2% of all term policies pay out, and the most common reason for non-payment is that the policyholder survives the term. This is a statistic that detractors like to quote and it’s often followed by a claim that life insurance is just institutionalized gambling.
To an extent, they’re right. You’re essentially gambling against a house that always wins and, like a casino, it always wins because, for every player that wins, 10 others will lose. The difference is that life insurance provides some much-needed peace of mind while you’re alive and ensures your loved ones are covered in the event that anything happens to you.
Source: pocketyourdollars.com
How to Get Cheaper Life Insurance Policies
- Life Insurance
Life insurance is essential if you have debts, a mortgage or lots of dependents. However, the older you are, the more expensive it becomes. If you add medical issues and other health concerns to the mix then you might be refused altogether or quoted astronomical premiums that make you question whether it’s worth the protection.
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Fortunately, there are a few things you can do, ways you can improve your chances of securing favorable terms and getting cheap protection for your family.
Choose a Term Policy
Life insurance comes in many shapes and sizes, but all policies are variants of a whole life policy and a term life policy. The former lasts for the policyholder’s “whole life”, but can also be cashed out sooner; the latter is limited to a fixed term of between 10 and 30 years.
To the insurance company, it’s all about balancing expected profit and loss. With a whole life insurance policy, the risks are higher because they will pay out regardless of how long the policyholder lives and can only profit if the payments lapse or the policy is cashed. With a term life policy, the odds are always weighted in their favor because the policies are set to a fixed-term that the policyholder is likely to survive.
For instance, if you’re a healthy 20-year-old, you shouldn’t have an issue getting a full 30-year term because there’s a greater than 1 in 20 chance you will survive it. If you’re 60, your term may be limited to 10 or 20 years, because anything above that begins to tip the balance back the other way.
By opting for a term life insurance, you can place probability in the underwriter’s favor, thus ensuring you are offered the best rates. The shorter the term, the better those rates will be.
Lose Weight
Height and weight are two major factors in determining the likelihood of a policyholder making it to the end of their term. The simple calculations will tell them whether you fall into an “overweight” or “obese” category, in which case your risk increases significantly.
If you’re in these categories, try to lose weight before you apply. Life insurance companies consider obesity to be as much of a risk factor as smoking and every pound you lose will reduce that risk and thus decrease your premiums.
If you have a lot of muscle and an average amount of fat, you may also face some issues as your weight won’t tell the whole story. This is one of the few times when a medical exam is preferred, as that way you can prove you are not overweight and should be considered a low-risk as opposed to a high one.
Quit Tobacco
It’s a no-brainer—smoking massively increases your mortality risk and smokers live ten years less on average. The life expectancy in the United States is just under 80 years. To an insurance company, a smoker is uninsurable beyond that 70th year, making a thirty-year term highly unlikely for anyone aged 40 or more.
Smoking also increases your risk of heart disease, cancer, and a host of other conditions. It’s a huge red flag and one that will increase your life insurance premiums, decrease your payout, and reduce your chances of being accepted altogether.
Saying no to the cancer-sticks will save you a small fortune on your insurance premiums and will also reduce your monthly bills, with the average smoker spending just under $2,300 every month.
It’s not just smoking that life insurance companies focus on. They’ll also penalize you if you chew, sniff or vape tobacco.
Be Careful How You Select Your Hobbies
Underwriters pay very careful attention to what you do in your downtime. If you spend your days shopping, chatting with friends and playing basketball, they’re not going to bat an eyelid. But if your days are spent playing extreme sports, bungee jumping and skydiving, you will be considered high risk.
Some activities are riskier than others and, in some cases, they can make you as much of a liability as obesity and smoking. It’s worth reconsidering your more extreme hobbies if you’re struggling to find cheap life insurance. All the following will make life insurance companies think twice:
- Boxing/Fighting (if you actually partake in combat and don’t simply train)
- Skiing and Snowboarding
- Rock Climbing
- Deep Sea Diving
- Base Jumping
- Skydiving
- Bungee Jumping
- Surfing
- Automobile Racing
Think Twice about Bankruptcy
Bankruptcy can increase your premiums because it is a known contributor to stress, which in turn can increase your risk of heart disease and many other chronic conditions. What’s more, someone who files for bankruptcy is also more likely to commit suicide.
Bankruptcy is never something you should rush into as it can leave a derogatory mark on your credit report that remains for up to 10 years. However, this aspect is rarely considered, even though it could seriously inflate your premiums.
Stay Honest
Honesty isn’t going to reduce your premiums, far from it, but it will make life much easier for your family if anything happens to you. If you lie on your insurance policy and you die during the contestability period, which begins as soon as the policy is active and ends after a year or two, the claim will be refused.
This can happen even if the contestability period is over, as long as the life insurance company can prove that you filed a fraudulent application. Life insurance is something you purchase to protect your family against the unexpected. It’s not something you can predict with any degree of certainty, so lying and hoping that you will swerve the contestability period and avoid any issues is reckless at best and criminal at worst.
Stay honest, keep it simple, and try the other tips in this article to reduce your premiums legitimately.
Summary: Quote and Compare
Some of the things that you might expect to have a big impact on your life insurance premiums actually count for very little. For instance, riding a motorbike will not impact your eligibility unless you ride professionally. By the same token, it doesn’t matter much if you spend a lot of time in the car, providing you’re not racing at high speeds every weekend.
The things you need to focus on the most to get a cheaper life insurance policy are your weight and smoking status. These are the things you can control, the things you can fix with time and perseverance. If you want to see just how much if a difference they can make, get a life insurance quote before you lose weight and/or quit smoking and then get a quote from the same company afterward.
You will be in a much more favorable position and should be offered lower premiums, even though you have aged an additional year or two since you last applied.
Source: pocketyourdollars.com
How to Find Affordable Life Insurance
- Life Insurance
Life insurance can be expensive and if it’s essential those high costs can leave a nasty taste in your mouth. You may wonder if it’s worth purchasing a policy at all, which could place your family in jeopardy as they won’t have the cover they need when you pass.
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However, there are a few ways you can bring those costs down and get affordable life insurance. So, don’t despair, and take a look at these top tips for cheap life insurance.
How are Life Insurance Payouts and Premiums Judged?
Insurance underwriters set your premiums and your payout based on the likelihood that you will die during the term. It sounds pretty morbid, but these are for-profit companies we’re talking about and when death is your only liability, there’s no time for gentility.
It’s something that frustrates everyone who has ever been quoted high premiums, but it’s important to see things from the perspective of the underwriter. If you’re 100 pounds over your ideal weight, your risk of heart disease, cancer, and countless other diseases increases, and you become more of a liability.
It doesn’t matter how much you convince them that you’re on a diet and will lose all of that weight eventually—as things stand right now, you’re more of a liability than someone who weighs 100 pounds less.
Of course, it’s possible to be 140 pounds and unhealthy, just as it’s possible to be 240 pounds and healthy, and this is an argument that many applicants make. But those are the exceptions. The oldest woman ever smoked until the day she died and made it halfway through her 122nd year, and everyone knows of at least one smoker that continued the habit well into their 70th and 80th year, seemingly unaffected.
However, the average smoker will die 10 years before their non-smoking counterpart and their risk of contracting a host of diseases increases exponentially for every decade that they stick with the habit. Should a life insurance company dismiss your habit just because of a 122-year-old French woman? Of course not.
These are statistics and probabilities; they focus on the most likely and the most common. By their very nature, there will always be exceptions and outliers. A life insurance company doesn’t care about any of these because as long as they focus on the events that are most likely (obese policyholders and smokers will die young; preexisting medical conditions are more likely to reoccur than if they didn’t exist at all) the premiums will exceed the payouts and they will turn a profit.
Start Early
The sooner you apply for life insurance, the better your chances of getting a high payout and a low premium. Age is one of the biggest factors in determining your mortality risk. A 20-year-old has a high chance of surviving a 30-year-term, but for every additional year, those odds decline and by the time they hit 55, the odds are no longer in their favor.
Starting early doesn’t just protect your loved ones if you die before your time, it also gives you more options. This is when whole life insurance policies are at their most beneficial. These will payout regardless, even if you live to be 100. The life insurance company will still benefit, however, because many of these policies either lapse because of non-payment (a lot can happen in those 80 years) or the policyholder takes the cash value.
They’re like a life insurance policy and saving account bundled into one, but they become less viable as you age.
Make Big Changes
You probably knew this tip was going to be here, but it’s worth mentioning: If you smoke, stop; if you’re obese, lose weight. We can’t stress enough how much of a difference these things will make to your life insurance application.
If you’re a smoker and you’re obese, you’re a massive liability. Statistically speaking, you’ll be beating the odds if you make it to your 60th year, which means a 30-year term stops being a viable option when you’re just 31! If that’s not enough to scare you, then there’s nothing we can say that will.
By quitting cigarettes and dropping a few dozen pounds, you improve your chances of living a long and full life, which, in turn, means you’ll get cheaper life insurance premiums.
And these are not the only changes you should consider making. Many applicants fail to calculate just how much of a liability they become when they partake in extreme sports and activities such as base jumping, parkour, sky diving, and rock climbing. Some of these are riskier than others, but in all cases, the underwriter will compare them to the averages to determine your likelihood of dying young.
Roughly 10 skydivers will die for every 1 million that jump on a regular basis. However, more than 40 times as many will die from base jumping and you’re 30 times more likely to die from extreme mountaineering than you are from base jumping.
Some of these are less risky than you might think. For instance, you’re twice as likely to die from walking than you are from horseback riding, as the former puts you at risk of major pedestrian accidents.
You’re also more likely to die from getting out of bed aged 45 than you are from SCUBA diving. So, assess the risks, try to look at your situation from the underwriter’s perspective, and make changes where necessary without giving up all the things that you enjoy.
Wait
You can apply for life insurance as soon as you lose weight or give up risky and dangerous activities. You can reap the benefits straight away when you do this, but the same can’t be said for everything.
Smoking is a great example of this. If you quit smoking today, you will need to wait at least 12 months before that has an impact on your life insurance policy. It only makes sense when you consider the majority of short-term cessations will result in relapse.
The underwriter also wants to protect their bottom line, because you won’t start feeling the health benefits until several months have passed and before that time elapses, you’re still a high risk for many diseases and conditions.
Look for Group Life Insurance
If you can’t get life insurance by applying directly, you may be offered it through an employer. Group life insurance is offered to large groups of people and is typically provided by employers.
You probably won’t get the same extensive cover, but you will get some cover, and this is a great alternative if you’re struggling to seal the deal yourself.
Only Buy What You Need
It’s tempting to get a big payout when you’re buying life insurance as that payout can then provide a good life for your loved ones. But life insurance shouldn’t be like winning the lottery. It’s not designed to allow them to quit work and spend the rest of their lives sipping champagne on Mediterranean cruises.
The payout should cover all of their needs for several years, while also repaying any debts that you (or your loved ones) have. If you have a mortgage, it can also go towards repaying this.
Many life insurance experts recommend that you stick with the absolute basics in situations where the remaining family members can still support themselves. For instance, let’s suppose that you’re a 50-year man in relatively good health. You earn roughly the same money as your wife, but she’s 10 years younger than you and you also have a son at college and a mortgage with $50,000 left to pay.
In this case, the payout should be at least $50,000, plus the size of remaining debts. However, you don’t need to include all debts in this. Some debts, including all federal student loans, will die with you, which means your son or your wife won’t be burdened with them. For example, if you cosigned on a $20,000 federal student loan and also have $10,000 in joint credit card debt, a death benefit of $60,000 will be enough.
That way, your wife can clear the mortgage and debt in full, thus reducing monthly liabilities and putting more money in her pocket at the end of the money. If she ever faces a financial crisis, such as the loss of a job, she’ll have a fully paid house to use as collateral and can take loans and equity loans as needed.
This is the best way to provide for your family after your death without crippling your finances in the present.
And Finally, Take Your Time
The sooner you apply, the better. But that applies to years and not weeks, so don’t feel like you need to rush. If you’re not sure about the process and need a little advice, spend some more time reading through articles and guides and speaking with current policyholders.
Providing yourself with a little extra shopping time will also make it easier to compare and to find the best life insurance rates and the best payouts based on your specific budget and situation.
Source: pocketyourdollars.com
What is Permanent Life Insurance and How Much do you Need?
- Life Insurance
Permanent life insurance is defined as a whole-life policy, one that doesn’t expire and may provide a number of benefits during the policyholder’s life and when they pass away. It’s not a specific type of insurance, as such, and is instead an umbrella term used to describe life insurance policies that are not fixed to specific terms.
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Types of Permanent Life Insurance Policies
There are two types of permanent policies: Whole Life Insurance and Universal Life Insurance. Unlike term life insurance, which is fixed to a specific term, permanent insurance policies are designed to be paid for the entirety of the policyholder’s life, with a death benefit released upon their death.
Take a look at these pros and cons to see how a permanent life policy can benefit you.
Pro: Lifelong Coverage
Permanent life insurance is not limited to a fixed period of time and providing you keep meeting those monthly premiums, the death benefit will be released to your heirs when you die.
Pros: Cash Value
Permanent life insurance is often likened to a savings account and a life insurance policy combined, as it has a cash value that you can collect as you see fit. You can see the policy’s cash value during the term and withdraw as much money as you need.
What’s more, the cash value grows on a tax-deferred basis, which means the policyholder is not required to pay taxes on the money it generates.
Pro: Premium Payments Don’t Change
With whole and universal life policies, your premium payments remain the same, which means you don’t need to worry about variable life insurance rates changing from one year to the next. You should pay the same in the first year as you pay in the 20th year.
Con: It’s More Expensive
The extended coverage and extra investment options come at a greatly inflated price, as whole-life policies tend to be much more expensive than their term-life counterparts. How much you pay will depend on the amount of coverage provided, but it’s generally a lot higher than a term life policy with the same payout.
Con: It Doesn’t Account for Inflation
A lot can happen in 50 years and a death benefit that seems like a huge sum now may be worth much less in 40 or 50 years when you eventually pass away. However, it’s worth noting that your life insurance premiums will remain the same as well, so it’s all relative.
Cons: It’s Complicated
Term-life insurance is relatively simple. You pay a sum of money every month and if you die within the term, your loved ones will be given a cash sum. However, once you consider the cash value, tax-free withdrawals, potential dividends, and more, permanent insurance policies are more complicated.
Other Types of Life Insurance
There are several types of life insurance and if you’re being rejected for permanent life insurance or receive quotes that are far too high, it’s worth looking into one of these other options.
Term Life Insurance
With a term life insurance policy, you won’t be covered for your entire life, but you will receive extensive coverage for a number of years. These policies are available for less, because if the policyholder outlives the term they won’t collect the death benefit or any other payments and the life insurance company will secure all the profits.
Final Expense Life Insurance
Seniors are generally refused for term and whole-life insurance policies because the risk is too high. However, final expense life insurance can provide many of the same benefits, with a death benefit paid to your loved ones when you die. The premiums tend to be high and the payout low, but if you’re above the age of 60 this is one of the few options you have for life insurance coverage.
Final expense insurance is often used to pay for funerals, estate taxes, and debt, but there are no restrictions regarding how it can be used.
Joint Life Insurance
Joint life insurance policies are targeted at spouses seeking to provide cover for each other and their children. The options include first-to-die insurance, where the money will go to the surviving spouse; and second-to-die insurance, which pays the death benefit to beneficiaries when both applicants die.
Is Permanent Life Insurance Right for you?
If you can get your head around permanent life insurance and understand what you’re paying and what benefits it’s providing, it could be the right choice. This is especially true if you have the money to meet those payment obligations every month and want the extra asset that the cash value can provide.
However, if your insurance needs revolve entirely around protecting your loved ones, term-life insurance is probably the better option. A term life insurance policy generally offers a high payout for low premiums (when compared to whole life policies). This sum can be used to clear debt, pay off the mortgage, and set your loved ones up for life. And just as importantly, it provides you with the peace of mind that comes from knowing your nearest and dearest won’t be destitute if you die.
Older applicants may struggle to get affordable term and whole life insurance products, but that’s where final expense insurance comes in. This is a limited type of policy with a coverage amount of less than $50,000, and an average amount of less than half that—more than enough to cover funeral expenses and most types of debt.
Summary: There are Always Options Available
You’re never too young, old or sick to be considered for life insurance.
It’s all about probabilities. Underwriters will consider all the data you provide them with and use this to calculate the likely date of your death. It sounds morbid, but when your business is death, things can get a little dark every now and then.
Imagine, for instance, that you’re a 20-year-old male with a clean bill of health and a brand-new family to look after. A life insurance company will be more than happy to provide you with term life insurance, because these products are limited to 30-years and the odds are high that you will live to be 50. Not only will they be more than happy to sign you up, but they will also offer you a good price because you’re deemed to be such a low risk.
If you opt for a permanent life insurance policy, the premiums will be higher because the death benefit payout is more likely. However, they also know there’s a good chance you will face financial difficulties during the next few decades, in which case you may stop making those payments or accept the cash value as soon as it reaches a respectable sum.
As you age, your risk increases, and the same applies for smokers and people with pre-existing medical conditions. They will still be more than happy to receive your business, it just means your options may be a little more limited and your premiums may be much higher.
So, keep searching, keep comparing, and work on improving your health to bring those premiums down.
Source: pocketyourdollars.com