You Don't Know Life Insurance
Life Insurance has so many uses, and so many benefits. I will try to cover most of them here.
So, in this section I will discuss:
- Why I consider Life Insurance an investment slice of the New Asset Allocation Model.
- Uses and Features of Life Insurance.
- How much Life Insurance do you need.
- Why all children should have some Permanent Life Insurance. Yes, you heard me right, ALL CHILDREN!
- Types of Life Insurance.
- Life Insurance Policy Reviews.
Life Insurance is perhaps the only form of insurance that protects an asset, YOU. At the same time, some Life Insurance has residual value that can often be equal to or grow over time to be much more than the premiums you put into a Life Insurance policy. As you know, insurances like car insurance, homeowners insurance, and health insurance have no residual value when the contract period expires. After your 6 month car insurance term is over, the premiums you paid are gone forever, whether you file a claim or not.
Some Life Insurance policies build up cash value that actually can grow over time, and therefore we need to consider certain Life Insurance as an investment. Because there is a death benefit at the end which typically pays significantly more than the premiums we paid in, we also need to consider Life Insurance as an investment, and a part of My New Asset Allocation Model.
Uses and Features of Life Insurance-
- Of course, the primary use of Life Insurance is for income replacement. We buy Life Insurance to protect our families from loss of income in the case of premature death of one of the 'bread winners' of the family.
- Life Insurance is often purchased in small amounts to pay for the cost of burial services.
- Life Insurance is also used to pay estate taxes in the case of large estates that will be subject to those taxes.
- Unbeknownst to most people, the cash value buildup of a Life Insurance policy can be used to provide an income stream in retirement, while still maintaining a death benefit for your heirs. This can be achieved through annual payouts or withdrawals or 0% interest or low interest loans from your policy.
- In addition to providing a death benefit, during life, some Life Insurance policies can also provide for Long Term Care monthly expenses, thereby reducing the need for a sometimes costly separate Long Term Care policy. (Please see the section of my website titled, "You Don't Know Long Term Care".)
The amount of Life Insurance needed will vary based on your individual circumstances and level of wealth. Your peace of mind will also be a factor. There are some general guidelines that are sometimes used for calculating income replacement which are better discussed when we meet. And again, how much Life Insurance you need and the type that might work best is really customized to your particular situation.
Why All Children should have Permanent Life Insurance Shortly After Birth-
Obviously, young children have no income, and are certainly not 'bread winners' of their family, so they certainly don't need Life Insurance for income replacement. Years ago, when in my 2nd year of business, I got a call from a client referral. The referral wanted to buy Life Insurance for her 10 year old son. I remember thinking to myself, "Why in the world does this mother want to buy Life Insurance on her 10 year old son?"
Well, I went out to visit with her, and she told me her son had developed childhood Leukemia when he was 8, and she was worried that he would not be able to get Life Insurance later in life as an adult to protect his family when he married. Well, I thought certainly the big broker-dealer I was with then (who also owned a Life Insurance Company) had so much clout, surely we could get him Life Insurance. The reality was we couldn't. No insurance company would write a policy on a child with Leukemia then.
After that experience, I thought this mother indeed had a great idea in trying to get Life Insurance for her 10 year old son. I further decided then that if I ever had a child, the first thing I would look into would be getting he or she a Whole Life or Permanent Life Insurance policy so that my child would have that insurance for life, no matter what condition/conditions he developed later. (Typically, once you have Whole Life Insurance, you can never be cancelled, and will have that policy for life as long as you stay current on the premiums, which can be for as short a time as a 5-7 year period.)
Whole Life Insurance Policies are great gifts for grandmothers and grandfathers to give their newborn grandchildren. Of course, moms and dads can purchase these policies also if grandma and grandpa don't beat you to it!
Types of Life Insurance-
There are basically 2 types of Life Insurance, Term Life Insurance and Permanent Life Insurance:
1. Term - Term Life Insurance1 is the lowest cost of Life Insurance giving you the highest death benefit for a specified number of years. It is period certain, in other words, you pay premiums for a specified period of time, say 5, 10, or 15 years, and when the term is up, your Life Insurance expires. Like your car insurance, there will be no cash value remaining to a Term Life Insurance policy at the term expiration.
Advantage of Term Life Insurance- You can get a lot of coverage with Term Life Insurance for much less than the cost of Permanent Life Insurance.
Disadvantages of Term Life Insurance-
(a) When your Term Life Insurance policy expires, you may have to re-qualify with a physical, and at that time you might now be un-insurable, and be faced with no insurance coverage at all.
(b) There is typically no residual cash value in Term Life Insurance.
(c) If you rely on the Life Insurance provided in your company group benefits plan, which is most often bare bones Term Life Insurance, when you leave your company, your insurance usually terminates. If you have only relied on this group life coverage, you may now be un-insurable and left without Life Insurance, or the ability to get Life Insurance.
2. Permanent Life Insurance-Permanent Life Insurance typically will last until you die. This type of Life Insurance will build cash value based on a pre-set schedule of payments and growth. There are basically 3 types of Permanent Life Insurance:
(a) Whole Life-Whole Life Insurance2- builds cash value through the years based on a set schedule. Each anniversary date of your policy you will know the exact value.
(b) Universal Life- Universal Life3- Insurance has a guaranteed minimum rate it will earn over time. It may earn more than the minimum, but may not earn less.
(c) Variable Universal Life Insurance4- This is perhaps the most flexible policy. Variable Universal Life Insurance allows you to participate in the potential growth of the stock and bond markets. Both your cash value and your initial death benefit have the potential to grow above the growth typically available in a Universal Life Insurance policy. Your cash value can be distributed among a wide range of stock or bond mutual funds called sub accounts managed for specific goals.
Life Insurance Policy Reviews-
Your Life Insurance Policies should be reviewed annually or every 2-3 years to:
- Be sure your policy is meeting your needs, as your situation may change requiring more or less Life Insurance.
- Make adjustments needed due to marriage, death, divorce, births, etc.
- React as life expectancies are adjusted periodically, and Life Insurance mortality tables can change perhaps resulting in an opportunity to get more coverage for the same or a lesser premium.
- Insure that any new features or benefits or riders that the insurance company has added are reviewed for possible inclusion in your policy and benefit to you.
- Check to see that changes in the income tax and estate tax laws may warrant making adjustments to your policy to take full advantage of those changes.
- Possibly make adjustments to your sub accounts (investments) on an annual basis to respond to changes in market conditions if you own a Variable Universal Life Insurance Policy.
Some of the many Life Insurance companies we offer Annuities from include:
|John Hancock Life||John Hancock USA||Hartford|
I am licensed to provide Annuities for residents of the state of Texas.
1 All Term Life Insurance is subject to the claims paying ability of the issuing insurance company.
2 Protections and guarantees are subject to the claims-paying ability of the issuing insurance company.
3 All guarantees and benefits of the insurance policy are backed by the claims-paying ability of the issuing insurance company. They are not backed by the broker/dealer and/or the insurance agency selling the policy, or by any of their affiliates, and none of them makes any representations or guarantees regarding the claims-paying ability of the issuing insurance company.
4 All guarantees are subject to the claims paying ability of the issuing insurance company. Please keep in mind that the underlying investment options offered by variable universal life (VUL) policies are subject to market risk., including possible loss of principal. Also these funds are only available in variable insurance products issued by life insurance companies.They're not available to the general public.
Variable products are sold by prospectus. Carefully consider the investment objectives, risks, charges and expenses. The product and underlying fund prospectuses contain this and other important information. Investors should read them carefully before investing.