Life Insurance Policies that could Potentially Fail

 
Having paid out on a few life insurance policies in the last year I thought a real-world perspective on life insurance would be appropriate. 
 
In the early days a death claim was a rare event, but in the last ten years, as my clientele has aged the death claims have steadily increased. Last year I paid out three claims; in 2009 I paid out four. None were “timely.” Every one was sudden and unprepared for.
 
What’s more—and this is the hard part—seldom was the amount of insurance enough. It wasn’t like the survivors were awash in money. It is surprising how many things there are to take care of, and the hole that is left when one partner is gone. Every one of these people could have easily afforded more life insurance. Maybe I didn’t contact them, maybe they didn’t contact me, maybe…maybe.
If you save 10% of your net income you can use some of that savings to buy life insurance. It will do two things: 1) last for the rest of your life, and 2) accumulate savings. If you aren’t saving 10%, and finances are tight, there are still inexpensive solutions for getting the insurance you want.
 
There is nothing in this world equal to the legacy you leave to the people you love. Call me. I’ll be gentle. I’ll just tell you what it costs and you can decide.
Also, and this is important: let’s make sure the insurance you are counting on can be counted upon.  In the last fifteen years an astonishing amount of life insurance sold to the public contains characteristics that could make the insurance fail under various economic scenarios. I’ll review the insurance you bought but never understood and tell you what you have and what you can expect, 887-886-8583.
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Child Life Insurance Policy

I’m sorry it has been a little while since my last post. Things over at LifeInsureMe.com have been insanely busy, but that is definitely a great thing!

I wanted to take a minute to talk about life insurance policies on children. It may not seem like a common thing to have life insurance on a child, but you would be very surprised. A lot of parents have the children insured. There are many different reasons for this, so I will go over the most common reasons.

The number one reason isn’t related to protecting a financial loss in the even of a child’s death. It is done for saving money. Most parents would like to see their children go off to college some day in the future, but that can be a hefty bill. A whole life insurance policy can be used to grow money with almost NO risk, and a steady return. As you are paying for a whole life insurance policy, the policy accumulates a “cash value”. Over 10 – 15 years this cash value can be taken out of the policy and used for WHATEVER you want. The original idea being your child’s college education, room & board, and any other expenses he may have.

The main point here is that there aren’t any rules on what you can do with the money. If your son or daughter doesn’t end up going to college, the money can still be used for something else.

Another key point is that a whole life insurance policy grows tax deferred and when you pull out the money, in most cases you are not going to be paying taxes on the money pulled out of the policy.

I feel this is the best way you can save for your child’s future education and I strongly recommend looking into what you can do with whole life insurance. If you would like to have us look into this for you, please send us an email at info (at) lifeinsureme.com

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When Does Life Insurance NOT Pay out?

Many people ask us what are the different reasons life insurance wouldn't pay a claim. Almost always they are surprised to hear the answer. Life insurance almost pay every single claim. In fact, in the 30 years I have been in this business, I've never seen a life insurance not pay for a claim when the life insurance has been actively paid. Out of the hundreds of life insurance agents that I know, no one has seen a life insurance claim not be paid.

However, Life insurance companies do have two main clauses when it comes to things in the policy they will not pay:

Suicide: Most people are under the impression that a life insurance company won't pay a claim if the insured (person covered by the life insurance) commits suicide. It is the most common question I get asked. Life insurance companies do have a clause for this. A life insurance company will pay a claim for suicide AFTER the policy has been in force for 2 years. This is a little known fact. An insurance company won't go about sending investigators to your house like they do in the movies. They simply look at the death certificate and go off of what it says. If the coroner says it was a suicide, then that's what they consider it to be. As long as your insurance policy has been inforce for more than 2 years, the insurance company will write you a check.

Acts of War: All insurance policies have a clause stating that if there is an act of war in America, they don't have to pay the claim. HOWEVER, this clause has never been used. Since Pearl Harbor to the the attacks on September 11th, those families who have lost loved ones have received the benefits of their life insurance. So why have this clause if the insurance companies aren't going to use it? This clause is mainly a "worst case scenario" protection for the insurance company. In a situation where a major city like Los Angeles or New York were attacked, the insurance company may not be able to pay all of the claims. Therefore, they have this clause in the policy.

One thing the life insurance companies pay attention to is the idea behind life insurance. The public is paying for an agreement, its a non-physical product. For that reason life insurance companies would like to keep the very strong trust they have built over the years that they WILL pay out when a claim comes in. This is a very important concept to them.

When a claim comes in, the life insurance company simply needs a death certificate (an original, not a copy) and a form signed by the beneficiary. Within a week a check is written and sent to the beneficiary. Most people have the check within 10 days and that check can be a very welcome thing in such a trying time.

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Information on a Term Life Insurance Quote

There is some important basic information I would like to explain to everyone regarding their term life insurance quotes.

Premium

When you get a quote, obviously you are looking at the cost of the policy. You may have noticed that there are a few different ways you can pay this premium: monthly, quarterly, semi-annually, & and annually. Many people don’t realize that the insurance company charges a higher rate if you choose a method of payment that isn’t done on an annual basis. They charge a little surcharge. The closer it is to an annual payment, the cheaper their extra surcharge is. So when possible, make sure to pay your life insurance on an annual basis.

Length of Term

The longer the term is, the more expensive the annual cost of your life insurance  is. That is simply because the longer the insurance lasts, the more likely it is that the insurance company would have to pay a claim. That is simple odds and mathematics. However, depending on your age, sometimes having a policy that lasts 10 years longer is actually only a few dollars a month more expensive. For people older than 55, in some cases the reverse is true. Always be sure to check all of your options.

Amount of Insurance

Term life insurance isn’t that expensive. That’s why I suggest that people attempt to get as much as they can. I’m not talking about going over-board here; someone making $50,000 doesn’t need $10 millions dollars in life insurance. However, someone in there 30′s could get a $1,000,000 in life insurance for less than a few hundred dollars a year. Since you can get a term life quote as many times as you like, play around with the options (amount, length of term) and see how much life insurance you can afford.

That’s it for now, but I’ll be posting more on term life quotes next week.

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Who can be the beneficiary of my life insurance?

Anyone can be the beneficiary of your life insurance — after you purchase the insurance.  After you own the insurance, all you need to do is submit a form to change the beneficiary and the insurance company will do it; there’s no person there evaluating whether the beneficiary is appropriate or not.

But, when you buy the insurance, insurance companies are very, very picky about who the beneficiary is.  It has something to do with “insurarable interest.” The insurance company is on the hook for big money.  If you die they have to pay out.  So if you make Frankie the Bookie your beneficiary, what do you think the insurance company’s gonna do, kapisch? Their gonna say “forgetaboutit!”

If you make your best friend Tommy the beneficiary, the insurance company will want to know what Tommy’s economic loss will be if you die.  That’s the point: economic loss.  If your married with kids there is economic loss if you die.  So, your wife is a logical and acceptable beneficiary.

But, what if you want insurance on your mother who rents a home and lives on social security–what’s your economic loss if she dies?  Probably none, which is why the life insurance company won’t give her insurance.

There are some situations where someone not related to you may indeed have an economic loss if you weren’t there any more. For example, there are situations where you may be taking care of your mother or father at their later stages in life because they can no longer support themselves. The insurance company would have no problem with the you buying life insurance making your mother or father the beneficiary. Another example is in the event someone loans you a large sum of money. They may want to insure their risk in case something happens to you.

To summarize: when you buy life inurance, the beneficiary has to conform to “insurable interest” rules, which means the beneficiary must have some financial loss if you die.  But, once the insurance is in place you can make the beneficiary anyone you want.

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My Term Life Insurance is Increasing, What do I do Now?

Each year millions of Americans will see an increase in their term life insurance bill. But, before we address possible solutions, let’s take a look at the problem:

Term Life insurance is usually sold as Ten Year Term, Fifteen Year Term, Twenty Year Term or Thirty Year Term. At the end of the “term” (the length of time where the annual cost of the insurance is guaranteed to stay the same) the premium increases. For example, a 35 year old man who buys $1,000,000 of Ten Year Term might pay an annual premium of only $400.  When the ten years expires, the premium could increase to $1,200.

The reason for the premium increase isn’t “all insurance companies are evil.” It was simply the deal made between the insurance company and the consumer, which goes something like this: “Hey consumer, we’ll charge you a ridiculously low insurance premium for ten years, and then a ridiculously high premium after that. You interested?”

You might wonder how the insurance company can charge such a low price, and why they raise it so high. They charge the low price because the consumer just took an insurance physical, giving the insurance company a very good look at the consumer’s physical condition and probable life expectancy.  They charge the high premium after ten years because time has passed, who knows how the consumer is doing now, and the insurance company wants you to drop the coverage.

Okay, so if your term insurance is increasing, you have four choices:

1. Pay the higher bill. No joke. If the policyholder is terminally ill, with a life expectancy under two years or so, it makes financial sense to pay the bill because at death there will be a large tax-free pay out.

2. Don’t pay the premium and let the insurance lapse.

3. Go shopping for new insurance. If you are healthy you’ll probably get a low rate and it’ll all be fine. We recommend shopping in every case. At the very least you can see what a new policy is going to cost.

4. Convert your term policy to “Pemanent Insurance.”  Most term policies allow you to switch to a Permanent Policy — and there is no insurance exam and no medical questions. You simply sign some paperwork and the insurance company offers you a new policy. The premium will be higher, but if your health isn’t good and you might have trouble getting a new insurance policy, then this is the best option for your situation.

There are times when your insurance policy doesn’t actually increase that much. Even in these cases, I would still recommend checking the pricing for a new policy. In most cases, getting a new insurance policy is going to be cheaper than keeping a term policy after the guaranteed years or term of the policy are over.

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Problems with Variable Life Insurance

Problems with Variable Life Insurance

The problem with Variable Life Insurance is that it is variable. How variable can it get? All the way–as in gone.

Variable Life policies have cash value that is invested in mutual funds. If the mutual funds do great, the insurance policy does great. But I’ll tell you, the policy will probably never do as great as the day you bought it. By that I mean, when you bought it the salesman showed a long-term rate of return between 9-12% (insurance agents are permitted to show up to 12%). You’ve got to understand, that rosy forecast has nothing to do with anything. It’s worse than a guess.  It’s like a fortune teller who says, “I see a beautiful young woman, you are with her at the altar, and now there are children playing on a large estate in Italy.  $100 please.”

Let’s dig deeper. You see that 9% return? How likely is it that you will get a 9% return every year? Impossible!  The salesman says it is an average–fine. But if you are up 20% in year one, and down 10% in year two, are you averaging 10%? Nope. You are averaging 8%.

Another point: when the agent says the market “has averaged 9% over the last twenty years….” Alright, it did 9% from 1990-2010. But how did it do from 1985-2005? You’ll be surprised. You knwo why — because it’s Variable!

Even if the policy does great for years, you are never out of the woods. What happens if the stock market takes a dive when you are 80? Trouble, that’s what.

The purpose of life insurance is to protect you against tragedy in the future. If there’s a chance that protection won’t be there, what good does it do? Variable Life policies, in most scenarios, is a life insurance tragedy.

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Guaranteed Health Insurance for Children

Although this is a blog about Life Insurance, every once in a while I do a post on Health Insurance. Today is one of those days.

As many people are already aware, California has an open enrollment period from January 1st through March 1st for children under the age of 19. Children are guaranteed health insurance regardless of their pre-existing conditions. That time frame is coming to an end now, so I wanted to let everyone know that there is another time a child can be enrolled with a health insurance company on a guaranteed basis. Anyone under the age of 19 will be allowed to enroll on a guaranteed basis during the month of their birthday.

Even though they are allowing children to get a health insurance policy despite their pre-existing conditions, they may charge a higher rate depending on when the child had health insurance last. This depends on the insurance company you are going with and more insurance companies may end up charging an extra fee later down the line.

This is an excerpt from Anthem Blue Cross of California:

California Assembly Bill (AB) 2244 (2010) also provides that applicants under the age of 19 may be assessed a 20 percent surcharge for a period not greater than 12 months if the applicant has not had coverage within the last 90 days prior to the date of the application and is not considered a late enrollee.

Currently, this information is only valid for residents in California. If you ever have a question, please leave a comment and I will be happy to give you an answer.

Posted in Consumer Advice, Health Insurance | 10 Comments

Online Term Life Insurance Quotes

You will find many places online that offer term life quotes.The problem with some of these sites is that they are not Life Insurance Agencies. They are simply people who create websites to get leads. They then sell the leads to other “lead generating” companies. These companies then sell the leads to 4 to 6 different life insurance agents.

Then the phone calls and emails start coming in… non-stop and sometimes for weeks.

I don’t know about you, but I hate receiving unsolicited emails or phone calls from people. It drives me crazy! That is why we created LifeInsureMe.com. We wanted to give you the quote information without anything else. You may not end up using us as your life insurance agency, but at least you will have all of the information.

I hope everyone has a great weekend!

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Is Life Insurance Tax Deductible?

This question comes up a lot.  The answer is “no,” with only one exception.  But, since people always reply with, “Are you sure life insurance isn’t tax deductible???”, let’s break it down to cover all the different unique circumstances.

Life insurance is not tax-deductible if purchased to protect the family, protect the estate, pay-off the mortgage, provide money to replace a “key-person” or “Key-employee” in a company, or to fund a “Buy-Sell Agreement” between partners or shareholders.  To repeat, the answer is no, no, no, sorry no and wish-it-were-true-but-no.

Life insurance premiums are tax-deductible for Whole Life or Universal Life policies inside a “Qualified Retirement Plan.”  This means that if you have a Defined Benefit or a Defined Contribution (Profit-Sharing or 401k) retirement plan, the premium for the life insurance policy is tax deductible. But it isn’t quite that simple. Let’s clarify:

For Whole Life policies inside of a Qualified Retirement Plan, there is “cash value” and there is a “death benefit.” The cash value is like a savings account, and it is included in the equity of the retirement account. For example: a person has a retirement account that has both Whole Life insurance and mutual funds.  The cash value of the life insurance is $10,000 and the equity in the mutual fund is $30,000.  The participant has a total of $40,000 in their retirement account.

The difference between the Whole Life policy death benefit and the cash value is the amount of “net” insurance. For example, if the death benefit is $250,000, but the cash value is $10,000, the net death benefit is $240,000.  The cost for this, which is similar to a term insurance cost, is 1099’d to the participant; they have to pay tax on it.  But, the premium paid for the life insurance is tax-deductible, just like any other pension contribution.

Although term life insurance isn’t tax deductible, it’s still something you should have for yourself and your family. If you would like to get a term life quote, you can get one at LifeInsureMe.com

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