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Life insurance is actually an important financial planning tool, used to find the optimal path around the two risks you can never completely avoid - death and taxes. It’s critical to make sure you have the right life insurance in place. Life insurance can be a confusing topic for many people. There are many different options available, made even more complicated by the unique insurance language used to describe them. As an online life insurance broker and life insurance agent, we believe in adding a human touch to the planning and purchasing process. We've been writing policies for decades and understand the importance of insurance in your overall financial plan, so you don't have to worry about sales pressure or fast talk. What we do is determine your personal needs, questions, and let you know the options which will work best for you.
As a term life insurance broker, I can tell you this is by far the most popular type of policy on the market. Let's look at the term life information you need to know to make a smart choice.
Term life insurance is pretty much what the name suggests. You buy life insurance from an insurance company for a specified term. You then pay premiums during that term. If the person the policy is based on dies during that term, the death benefit is paid to the beneficiaries listed on the policy. If the term expires without such a death, then the policy is terminated and the parties go their separate ways.
An example can really help show how this works. Let's say I just got married and have a child on the way. I am now responsible for more than just myself. I decide to buy life insurance, but don't have a lot of money. Term life is the way to go. I buy a $500,000 policy for a monthly payment of $100 [just an example]. The term of the policy is 10 years and I am the person insured. If I get hit by a drunk driver and am killed a year from now, my policy will pay $500,000 to my beneficiary, probably my wife. If I live through the 10 years, the policy will terminate and I will go look for a new policy depending on my life situation at that point.
Term life insurance because it is fairly easy to understand and is very inexpensive. In fact, it is getting cheaper by the year. Individuals who have held a policy for more than 2 years typically are paying much more than they should! Regardless, the term life insurance policy is a good starter policy for most individuals.
Barry Waxler
As a whole life insurance broker and agent, I can tell you this venerable form of life insurance has significant merit when it comes to dealing with ultimate risk we all face - death.
Whole life insurance is a rarity in the world of life insurance. How so? The name actually describes exactly how the policy works. It is life insurance that is put in place for the "whole life" of the insured. This is true whether you buy it at age 28 or 68.
How does one rate a whole life insurance policy compared to other products? Well, there is a definite plus, to wit, the policy lasts forever regardless of what happens in your life. If you are diagnosed with cancer five years after getting the policy, you can’t be canceled. The insurance company simply has to take on the risk this or some other event might happen.
Life insurance companies do not like risk. As risk levels go up with an insured, so do the premiums. Since whole life insurance policies last for the entire life of the insured, they encompass a lot of risk for the insurer. This means the policies you will pay are generally pretty high, sometimes shockingly so.
As a whole life insurance broker, I can tell you that this policy is appropriate for some situations, but those situations are generally pretty rare. The insurance industry has evolved dramatically since whole life policies were popular. There are now products that provide similar or better benefits for less expense.
Barry Waxler
As a universal life insurance agent, I find the universal life insurance policy to be one of the best tax planning tools available. Let’s dig into some universal life insurance information.
A universal life insurance policy is what is known as a form of permanent insurance. Unlike term policies, it does not end at any set time. The only realistic ways the policy does end is if the person the policy is based on passes away or premium payments are not made. This is why it is known as “permanent”.
So, what exactly is it? This is a policy where you pay premiums in “x” amount. The payment is comprised of two elements. One is an amount equal to what is needed to keep the life insurance in force. The second is an additional amount that accumulated in the policy over time. This is known as the “cash value”. The cash value grows at a prescribed interest rate tax free until it is distributed.
The cash value of policies of this type offer the buyer, you, a lot of flexibility. How so? Well, you can borrow against the cash value tax free. One needs only consider the last few years to understand how valuable this characteristic can be. Let’s assume you lost your job in 2009. Instead of losing your home and so on while looking for another job, you could have borrowed against the cash value of the policy to make the payments. Since you would be borrowing the money as a loan, no tax would be due on the policy. This was a very common move the last few years.
Barry Waxler
A 2nd to die life insurance policy is unique in that it is designed to deal with the passing of both parties in a relationship. This is why it is euphemistically referred to as a second to die policy.
Survivorship Life Insurance Policy
There is a unique problem when it comes to life insurance. Insiders in the life insurance industry use terminology that makes sense to them, but few others. This leads to the rather confusing situation where the industry calls a policy by one name while consumers call it by something else. It is also the case here. A 2nd to die life insurance policy is known as a survivorship life insurance policy in the industry. Both names are used about equally, so don’t get confused when you hear them both. They refer to the same thing!
Okay, so what is a 2nd to die life insurance policy? It is a policy designed to deal with a tax situation that arises. Tax law is clear. A married person can pass all their assets to their partner upon death with no tax consequence. Problems arise, however, when the second spouse dies. The remaining assets are hit with estate taxes at the federal and state levels, which can quickly consume most of the assets. Total tax rates in the 70 percent range are common. This essentially means that most of your assets go to the government instead of your heirs!
A 2nd to die policy provides for a lump sum insurance distribution upon the death of the second spouse. It is usually paid into an irrevocable life insurance trust, which means it is excluded from the estate when taxes are calculated. These life insurance proceeds are then used to pay the taxes due on the estate, saving your heirs from a nightmarish tax bill.
Survivorship life insurance definitely has its place in our modern society where tax rates are rising and set to go higher thanks to our brutal national debt situation. The good news is these policies are fairly inexpensive, making them a good long term investment for your family.
Barry Waxler
As a variable universal life insurance agent, I can tell you these "VUL" policies have become exceeding popular given their investment element.
Death is often sudden and dealing with the passing of a loved one is difficult. Funeral insurance, also called burial insurance, can be used to ease the burden on surviving family members.