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Life Insurance 101

There are 2 types of LIFE INSURANCE
Which one do you have ???

“Life Insurance 101”

Term

  • Like renting
  • Temporary
  • Inexpensive
  • Solves a need for a period of time
  • Convertible w/ no new medical (change it to UL)

Advantages
Low cost initially, stays level for whole term, convertible to a UL with no new medical exam, so poor health issues are OK, get all your money back at end of term (optional). TAX –FREE PAYOUT. (In most cases). During life, this is an asset.

Disadvantages
Higher initial cost, 15-20 year commitment (minimum-lifetime).
Nothing to show for it ~ No cash value.

Universal & Whole Life

  • Like owning
  • Permanent
  • Costs more than Term
  • Solves a need forever
  • Non-convertible (stays UL forever)

Advantages
Cost remains level forever, tax-deferred accumulation values, potentially lower cost over time, tax-free access to cash values in future, “paid up” potential, never expires. Level or increasing DB options. TAX –FREE PAYOUT. (In most cases). During life, this is an asset.
Can be used to fund retirement, college, final expenses, estate protection, etc.

Disadvantages
Costs more than term.

THE 3 QUESTIONS

  1. Why buy Life insurance?
  2. Who needs it most? (hubby or wifey)
  3. How much do I need?

1.) To NOT be a fool and to step up as “the man” and provide for family expenses like daily living, college, gifting, charitable giving, pay off debt, leave a POSITIVE legacy of honor, responsibility and accountability.

2.) Primary breadwinner, obviously. But if she dies, who’s gonna run the show at home? Mary Poppins costs money ! So does college.

3.) Typically 5-7 times your annual income. But how many more years will you work? Now multiply that by your annual salary. That’s how much you will earn before you retire.

If you’re not here, where will that $ come from?

Without Life insurance . . .your family MAY need to . . .

Borrow money, go into debt, take on additional employment and/ or work longer hours, downsize housing, sell assets at a deep discount, discontinue certain schooling plans, delay college, discontinue a business, suffer unpleasant circumstances, etc.

Rates are based on age, build and health.
What are you waiting for?
Just do it !

This is my “Life insurance 101” summary and this explanation should help you greatly. Please forgive me if you already know this, but it usually helps folks to be aware (or be reminded of) the basics, and it is my duty to make sure you are aware of ALL of your options regarding Life Insurance. Here we go . . .

LIFE INSURANCE 101
What is Life Insurance? Life insurance is a contract between a life insurance company and the policy’s owner (a.k.a. the “insured”). The insurance company agrees to compensate a named beneficiary on the death of the insured person. This payout is usually tax-free to the beneficiary. (The beneficiaries can be changed anytime by the owner of the policy).

Life insurance is intended to protect the economic value of a human life to those who are financially dependent upon it. The costs are based on age & health, so the younger and the healthier, the better for you. If you’re a smoker, the rates will be much higher because your health is at a higher risk. See the note at the bottom of this email to discover the “Smoker’s Solution.”
People buy Life Insurance for a number of reasons:

  1. Income replacement (in case the breadwinner dies too soon)
  2. Funding educational objectives for children, grandchildren, etc. (Child’s policy)
  3. Cover debts including mortgage, credit cards, autos, loans, etc.
  4. Build personal wealth with a retirement account to supplement their retirement
  5. Prepare for estate taxes
  6. Give to a favorite charity
  7. Provide for their loved ones and / or hire “Mary Poppins” to help raise the children.
  8. Final Expenses – providing assistance to funeral attendees. There are 2 types of LIFE insurance – ?Term (Temporary) & Universal Life ~UL (Permanent).

Type # 1 is the TERM. Term means, “period of time” and it is temporary and inexpensive.

Term periods come in 10, 15, 20, 25, & 30 yr increments. Once you decide on your “term” of time, (the longer the better when you are younger), your payment is level (stays the same) for the entire term. At the end of the term time, the cost increases dramatically. There is no “cash value” inside of the term policy. It’s kind of like renting. At the end of the rental period, the level (fixed) cost is over. The price then increases annually. There is a feature called “Return of Premium” that you can attach to the policy. It does 2 things. It increases the cost a little bit, but it also gives you all your money back at the end of the term. Not a bad deal. All your premiums back !

Finally, if you want to convert the term into a UL later on, you can do that too. This is a common thing that most people do, later in life.
But you wouldn’t put the ROP on it ~ that would be a waste of money.

There is also another rider called, “Waiver of Premium,” which pays you premiums should you become totally disabled. You would need to request that too ~ it is not automatically included.

Type # 2 is the UL. This is like owning. It’s permanent. You build equity (cash value) inside the policy that you can use for any reason at some time in the future. It costs a bit more up front as compared to TERM life insurance, but it builds a tax-deferred savings account that pays better than a bank. It’s also safer. Many folks also buy these for themselves and their children as a cash building account for their future. And you, as the policy “owner” are in control of the money at all times. With no government controls on how you spend the cash values ! A great way to supplement your retirement account and start building one for the child! And VERY inexpensive for the younger ones too ! Once you get the policy, the cost stays the same forever, with no expiration date. You can also put additional contributions (over-funding) into the policy to help boost and build the cash values. That would be to your benefit. If you do this, at some point in the future,you can eventually STOP PAYING into the policy and let the built up cash value pay it for you! The growth rate is competitive and contractually guaranteed annually. The Auto Club’s investment portfolio is very conservative, thereby minimizing your risk.

There are also 2 “Options” within a UL policy.

Option A = LEVEL death benefit and
Option B = INCREASING death benefit. (INCREASING death benefit option is popular for children’s policies).

And there is an option available that will only require 20 years worth of payments into a UL and then the policy is fully paid for. I will not illustrate that here, but can provide those numbers at your request.

Type #3, which is really a strategy, is the “Combo” policy, (a.k.a. Hybrid) where we do a smaller UL (to keep it low priced), then add a TERM to it. This is far less cost than 2 separate policies for the same amount of coverage. This is one policy for one person. And the insurance coverage MUST EXCEED $100k to do this type of policy. After the Term policy time ends, the coverage amount will also adjust and the policy coverage will be the “base” amount. So essentially, you had a large amount of coverage for a long period of time, and then at the end of the TERM, the coverage amount decreases later in life, when the large amount is no longer necessary or desired.

What’s the best type of Life policy to buy? The one that’s “in force” when you die!

I can run illustrations for you to demonstrate what all of this looks like. It’s very simple and helps it make more sense. Ideally, you’ll need to contact me to see these. In order to save on cost, TERM insurance is always a cheaper deal in the short term. And even though the UL is higher in cost initially, the UL is more cost effective long term.

Yet whatever plan you choose, it must be comfortable and affordable for you.
Again, rates are based on age & health, so the younger & healthier you are, the better the rate you will get.

To accurately determine how much insurance you need, I do a Financial Needs Analysis with you that only takes a few minutes and reveals it all. We will discuss the actual reason(s) you are buying it and then seek to fulfill that need. In the meantime, a simple formula is to calculate how many more years you will work and multiply that number by your current annual salary. That will give you a number of how much money you will make for the rest of your working life (approx. & assuming no salary increases, which is unlikely). The question then presents itself:
Note that once the income of the breadwinner ceases, money is still necessary to pay the bills and live.

If you’re gone, where will that money come from? Answer: life insurance.

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Please note that, to a certain degree, I can adjust any coverage amounts so you are comfortable to pay for it. I don’t want you to stretch beyond your feasible means. Stay within your budget.

When you go with a UL or COMBO, it’s not money you’re spending, it’s money you’re saving !

Here’s a VITAL closing thought . . .

If you get a TERM policy now, you can “convert” it over to UL in the future and keep the same “health rating” as you had in the beginning of your term policy ! If that’s the case (for now) get a shorter term period and convert before it’s over. . . .

The “Smoker’s Solution”

Smoker rates are very high, (double – triple) so get a policy now and after a year or so of being nicotine-free, do another medical test and reduce your rating for life !!! That way, you will only pay those higher rates for a year or so, instead of . . for life !!! And, you’ll breathe and sleep better as your lungs rejoice !

Any questions, anytime, please call. I will follow up with you to get your feedback and decision. PLEASE NOTE that we can do the app over the phone and via email. Simple and quick!

Here’s a short video that may help to clarify things:


Please call or email with any Q’s. Have a beautiful day.

Thank you.