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BabyExamplePictureCalling all Parents and Grandparents!!

Sometimes life insurance seems like a losing proposition. You pay and pay premiums and can’t envision the time when you will need it or even worse, when your family gets the money upon your death.  While traditional products were designed for death benefits protection, today’s products are much more flexible, allowing people to use them for cash value accumulation, disability protection, long term care protection, and should none of those needs become a reality…death benefit protection.

The term we insurance people use to describe these flexible uses of a life insurance policy is  “living benefits” – meaning values created by a life insurance policy can be used during the insured’s life, not just upon their death..  These living benefits become more and more lucrative the earlier you start.

Starting early in a child’s life can allow you to provide benefits to them throughout their life. This can be through cash distributions for college funding or acceleration of death benefit for disability and long term care needs..  We’ve been structuring policies that grow to as much as $1 million of available benefit when the child reaches their 80s (i.e. when they’re most likely to need that coverage for long term care needs) for as little as $25 a month. We don’t start at a million because that would be silly, but we design the policy so it’s gets there when the time is right.

These hybrid products can allow you to use one contract for multiple needs. Cash accumulated inside the policy can be withdrawn on a tax free basis, provided the actual policy stays in force. Much more flexible than a 529 plan, these withdrawals can be used for college funding, starting a business, a home purchase and basically anything the child may need in the future. The living benefit riders allow the insured to draw down on the coverage amount for disability or long term care funding. It’s important that I note here that different carriers have different protections associated with these living benefit riders, so understanding what any given carrier is offering is essential.

These policies can be taken out up to age 90, but like we said, they perform beautifully when started in the toddler years. It’s really not about protecting those years as much as it is providing the long term living benefits we’ve discussed. Many parents and grandparents will also take out like coverage for themselves in order to protect their children and grandchildren from the financial exposure of their own long term care needs later in life. If you’ve shopped for long term care coverage you know it’s a use it or lose it proposition. When you use a hybrid life insurance product with living benefits it’s not. You use the benefit during your lifetime or it passes to your beneficiaries when you’re no longer here.

If you’d like to discuss your personal situation we’d love to hear from you. And PS…these types of policies don’t pull up on our quoting system, so don’t let that scare you.

 




 

Back in November (before all the holiday madness!), I was graciously invited to join Toni Patillo and Karla Dennis on the Call Toni Radio Show. Watch the video for a summary of our conversation…and tune in on Saturdays from 3-4pm!

September if Life Insurance Awareness Month, hosted by The Life Foundation and promoted by agents and carriers across the nation. It’s a great time to take advantage of many educational promotions geared towards learning more about how to get the right kind and right amount of life insurance.

We love it when a good infographic comes along. This time it’s courtesy of the Life Foundation, and they bring up a thought provoking question: Do you have enough life insurance?

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TermVWholeLifeBWI sigh just typing those words. Several times.

People get all sorts of riled up on this topic. Cue the likes of Suze Orman and Dave Ramsey. It’s like the Vegan argument. Full of passion, idealism, emotion, and half truths. And no, I’m not calling Vegans liars. My diet comes close, without all the emotion. Same with my views on term vs. whole life insurance.

I believe they’re both good. Depends on the client. Put into the wrong hands, a whole life policy can be like kryptonite for your finances. In the right hands, and much later down the road, a well designed whole life policy can be a diamond in the rough, just waiting to be harvested. This is where the confusion lies. The pundits like to portray this as an apples to apples comparison. It’s not. At all.

Let’s start with defining term coverage. Term is the most basic form of life insurance. At the time of underwriting your risk profile determines your premium. That premium is guaranteed for a certain number of years. 1, 5, 10, 15, 20, etc…usually in five year increments. At the end of the initial term, the premiums typically skyrocket. Why? Because term life insurance isn’t designed to go on forever.

Often times this increase in premium is described as a scam or another example of the insurance industry trying to take your money. It’s really not. It’s just that these products are not intended to go beyond their initial term. That is all. You might think someone who was uninsurable at the end of a term policy might have to continue and pay these enormous premiums. Likely not. Why? Because of something called a conversion privilege…one of the most important concepts when it comes to buying term life insurance.

What’s a conversion privilege you ask? The majority of term policies provide the ability to convert to another, usually permanent, product with no additional evidence of insurance. Huge, right? That means if during the duration of your term policy you decide you want life insurance for life you can get the same amount of coverage in a permanent product guaranteed. The devil’s in the fine print though, because some policies limit the number of years you can take advantage of this, so make sure you know what you’re getting into.

So the summary on term life: simple, affordable coverage that is intended to cover a temporary risk for a defined number of years.

Whole life isn’t so easy to explain. This is often part of the problem. Hard to explain and harder to understand if you’re not eating, drinking, and breathing life insurance every day. This is what leads to the product being SOLD instead of understood.

Whole life is best used as a savings product, not strictly for death benefit protection. And it’s a LONG TERM savings product when used this way. While there are many different uses for whole life products, I’m going to stick to its application as a safe money savings tool.

Treating it as an apples to apples comparison with term life products, the premium numbers immediately point out we’ve got big differences. For the healthiest 35 year old man, a $1 million 20 year term policy will run something in the neighborhood of $40 per month for 20 years. For the same guy, a $1 million dollar whole life policy will cost $820 per month through age 65. Say what?!? No that’s not a typo. $40 a month vs. $820 a month. Who in their right mind would pay $820 for something they can get for $40?

No one. Because it’s not the same policy.

The difference in this example is what happens INSIDE the policy and what you can do with it. Some call it a “living” benefit. If we look at the whole life policy at the end of twenty years (when the term policy expires), the whole life policy has a minimum guaranteed cash value of $231,360, where as the term policy has no cash value built up. If the client pays premium to age 65 and uses the cash value to supplement his retirement income, he has the potential of adding over $27,000 to his annual income from age 65 to 95. So for a total of $196,900 paid over 30 years, the client can potentially draw $834,600 (over the next 30 years) out of the policy on a tax free basis. Yep, you read that correctly. On a tax free basis.

The next argument against whole life typically comes in the form of “buy term and invest the difference.” Often times they’re right, particularly when the client doesn’t have 30 years to let their money accumulate. But rather than lose your attention completely, I’ll stop here and take a break. In a follow up post we’ll tackle that one, with numerical examples so you can see where this does and doesn’t make sense.

One thing to point out here is while we are using the same theoretical client for this example, in real life, the two product examples I’ve used would be applied to two COMPLETLEY different clients. One with a need for basic life insurance protection (i.e. the term product) and one with a decent amount of discretionary cash available to contribute to a long term savings plan. The need for term insurance can be easily identified and solved. The suitability of a whole life policy should only be determined after a thorough discovery process. If someone’s trying to shove it down your throat, run fast.

Thanks for listening. I’m happy to take any questions, and I’ll be back with more on this topic in a future post. Until then…

 

**Please note: there are all sorts of disclosures about theoretical explanations of insurance products. Things like “this example is only for a 35 year old healthy male in California who’s never been skydiving, didn’t party like a rockstar, and doesn’t play with tigers.” You get the picture. The figures here are for explanation purposes only and represent no guarantees related to any specific person reading this. Play nice kids.

This article was previously published on Daily Money Shot.

bigstock-Cognac_and_Cigar_with_Smoke_on_black_background-34830566 (1)Quite simply…premium. Like, a lot of it.  Like the difference between, say, $70 a month and $240 a month. I know, painful right?

It’s a quick story, but one worth repeating.

Recently I was underwriting a guy who was an occasional cigar smoker. Only he answered no to the smoking questions when I asked them. You know, questions like “Do you smoke? Have you ever? Cigars? Anything else?”

It’s not that us insurance agents are out to learn every detail of your existence, but we need to have honest answers to these questions in order to get you the best underwriting results possible. Answers like, “I tried it in college” are appropriate to share (and not just for smoking!) because it allows us to determine what you’ll need to disclose.

It’ll also help us in coaching you for the exam. Because if you’re an occasional cigar smoker we can still get you non smoker rates. BUT, we need to know about it so we can say things like, “WHATEVER YOU DO DON’T SMOKE A CIGAR THE WEEKEND BEFORE YOUR MONDAY MORNING EXAM!!”

My guess is I don’t need to explain to most why that might be a bad idea, but in case you’re still wondering…YOU DON’T WANT TO HAVE NICOTINE SHOW UP IN YOUR LABS. It limits your options for carrier selection and may get you stuck with a smoker rating.

Plus, that result sticks with you for 12 months. Your results go to something called the Medical Information Bureau or MIB and anything that lands there is accessible to ALL of the insurance carriers. Which means that “I’ll just go to another carrier and say I don’t smoke” thought won’t really work. To get back to a non smoker rate you’ll have to be smoke free for 12 months (by most carriers standards) and go through underwriting again. So if we pretend that one cigar was indeed your first it’s going to be a) a very expensive cigar in terms of insurance premium and b) one that maybe should have been delayed another week.

All this said, we’ve got a few ideas on how to avoid this surprise nicotine in your blood because you smoked your very first cigar right before your life insurance exam problem. Nope, that wasn’t even close to a run on sentence…

1) Don’t ever smoke a cigar.

2) Definitely don’t attend any bachelor parties in the month before your life insurance exam.

3) Don’t hang out in cigar clubs.

4) By all means stay out of Vegas!!

5) Lock up any and all cigars within a 10 mile radius.

6) Just admit you smoke them from the start and find an insurance agent knowledgeable in underwriting cigar smokers (we’re one of them in case you were looking).

That last one is likely your best method. Message us for help. Before you smoke the cigar.

bigstock-Child_with_many_question_marks-40193056Like most Americans, you probably have insurance on your home, your automobile, and even on your iPhone. This is great, as should something happen to any one of these high-priced commodities, you’ll be taken care of. Yet alarmingly, when it comes to insuring one’s life, Americans tend to be far more lax in their approach to ensuring that their loved ones are taken care of should the unthinkable happen.

Perhaps that’s just the reason that we are so collectively underinsured: Who wants to think about their own mortality? While it may not be a pleasant thought, you know it’s an inevitability. And while it’s not inevitable that your house may burn or you’ll be in a car accident, the time comes for us us all — no matter how prepared we may be.

And the statistics support the fact that we are not nearly as prepared as we should be. According to LIMRA (the Life Insurance Marketing and Research Association), a full third of Americans have no life insurance at all, and of those that do, their coverage amounts to less than four times their yearly income. However, according to the LIFE Foundation, a nonprofit organization dedicated to assisting consumers to make smart insurance decisions to protect their families’ financial futures, most insurance professionals agree that you need at least 10 times your annual income to ensure your family is comfortable now and into the future.

So, before you decide that a $250,000 life insurance policy should be plenty of money for your family to survive on should you die unexpectedly, the LIFE Foundation encourages you take the following into consideration when determining if you have enough coverage:

Your family’s immediate needs, such as:
● Health care costs
● Funeral and burial costs
● The need to take time off from work or school to grieve
Everyday or ongoing needs, such as:
● The mortgage or rent
● Car payments
● Traditional cost-of-living expenses such as heating and cooling, cable, Internet and food
● Paying off credit card or other debts
Future needs, such as:
● Your childrens’ college education
● Your surviving spouse’s retirement needs
● Paying for weddings or celebrating the birth of grandchildren
Your family’s existing resources, such as:
● Your collective savings
● A spouse’s income
● Any life insurance you might already own
● Investments

After adding up all of these costs and available resources, if there is a gap between the sum at which you arrive and what would equal 10 times your annual income, it’s time to get more insurance. What’s more, since every year tends to brings change, no matter how large or small, if you’ve experienced any of the following life changes, be sure to review your existing coverage to make sure you’re adequately covered. Sometimes you might even find you have too much and can take it down a notch.

A list of common life changes to review with your insurance professional:
● The birth or adoption of children or grandchildren
● Marriage, separations or divorce
● Changes in you or your spouse’s employment situation
● The purchase of a new home, or the unfortunate loss of a home
● Refinancing a home or exploring reverse mortgages
● Serious changes in your health or that of your spouse
● The long-term care needs of family members
● The need to provide financial, health care, or other assistance to a parent
● Your current retirement-savings status
● Receiving an inheritance or a financial gift
● Any new tax or estate-planning concerns

With all this in mind you’ll be better prepared to confidently address your life insurance needs when trying to determine how much and what kind of coverage would be best for you… and for your family.

LifeInsuranceMythsLife insurance may not sound all that exciting, but when you do stop to think about life insurance and you, it’s not uncommon to assume that since the concept of life insurance is simple enough, so too are the products. It’s also fairly easy to rationalize the things you really don’t understand about life insurance, and before you know it, you’re harboring potentially damaging life insurance myths.

In addition to your own edification, and frankly, for the safety of your loved ones’ financial futures, it’s important to understand exactly what life insurance is, what it does, and how — not to mention if — you should make a move either to purchase or upgrade your coverage. Read the myths below to see if you need to adjust your thinking when it comes to life insurance.

1. The coverage you get at work is enough.
While this may, in fact, be the case if you’re single, in good financial standing, have no dependents and aren’t worried about estate taxes, for most people, the term policy offered through their employer just won’t be enough to sustain their families’ needs. After all, your insurance payout must not only support your family financially, it must also pay off any debts, such as the mortgage or even the MasterCard, as well as settle up with Uncle Sam.

2. Only the working spouse needs life insurance.
This is a curious — and wildly inaccurate — belief, yet it somehow persists. Life insurance on the breadwinner is intended to fill in the gap left by the loss of a paycheck, but that discounts all the valuable work a stay-at-home partner contributes to the relationship. If you’re used to this arrangement, how would you pay for child care or the cleaning, or even manage the household without a little financial help in the event of such a loss? It can be easy to overlook the many contributions of the non-breadwinner, but to do so would be remiss.

3. The value of your life insurance coverage should equal two years’ salary.
Everyone’s financial circumstances are different, and so are their life insurance needs. You might require more coverage than two years’ salary if you incur medical bills or other debts, have a young family, a mortgage to pay, or any number of life obligations to meet. If your lifestyle is more modest and you’re not financially responsible for anyone, on the other hand, then two years’ salary may even be excessive.

4. Single people without dependents don’t need to own life insurance.
While it’s true you might not have a family to provide for, odds are you’ll still have to cover the cost of your funeral, pay off a few debts, and maybe leave a little bit behind for your parents. And as one MSNBC article on the topic suggests, using a life insurance policy to fund a gift to a favorite charity can be a wonderful legacy for a single person to leave behind.

5. You don’t need professional services to buy life insurance.
You now have the choice to shop online or in person. The tools a professional life insurance agent has to offer can help you identify the needs you have, what you must protect and how best to protect it. With the knowledge of myriad different policies, if you’re honest about your financial and life circumstances, a professional can not only help you determine how much coverage you need, but also help decide whether a term or permanent policy is right for you. They can even customize a plan to meet your unique needs. Our suggestion? Do as much research as you can online paying attention to the credibility of the sources you find. If you’re still confused about your needs, take it to the next level and talk to a professional.

Life insurance is an important product for most everybody to consider, but it helps if you have your facts straight. So whatever else you think you know about life insurance, you might consider running it past an agent or using a credible online source with the right tools to help in your decision making.

Insurance Forms

The bain of my existence sometimes. Don’t make it yours too. Nobody likes filling out paperwork, but if you get it right the first time you don’t have to look back. Insurance forms can be quite specific in how they need to be completed and silly little errors can prolong the underwriting process for weeks unnecessarily.

Some carriers are more persnickety than others, but as a general rule of thumb, DON’T TAKE SHORTCUTS. A good insurance agency will have someone to walk you through your insurance forms to eliminate any guesswork on your part. But every now and then there are blanks to fill or assumptions to make outside of that. RULE #1: PICK UP THE PHONE AND ASK. Even if it seems obvious, if you have any doubt on what to complete, ask your agent’s office.

Some of the common issues on insurance forms:

1) Beneficiary information is not clear. Some of these can be tricky if your wishes aren’t a straightforward “please allocate _____% of the death benefit to Alice Smith.” Your agent should be able to advise you on correct language to use for most beneficiary designations.

2) Completion of ETF forms. These are the forms used for setting up ongoing automatic deductions from your bank account of choice. Often times these are used for initial premiums required to activate a new policy and when they aren’t completed correctly you’re stuck in administrative mud. Also, you’ll need to submit a voided check along with it and those directions are often in the fine print and get missed. And if you don’t see those directions, send one anyways just to be safe.

3) Medical information. It’s best to be honest, but let’s face it, when we go to our doctors in need of a health solution we might just exaggerate because we’re impatient for that solution. Keep in mind those records work against us when we’re talking about insurance. A good example is the use of sleep aids. When we’re having trouble sleeping we’re cranky and impatient. As a last ditch effort we head to our doctor seeking some “assistance.” And in our explanation our occasional sleepless night becomes chronic causing a whole host of other “ailments” that warrant the need for sleep aids. And the doctor writes down exactly what we tell them as fact, because they need to document their use of a prescription. When you translate this situation into insurance applications you’ll need to come back down to reality and remember you’re not trying to get medication or any sort of solutions, but an insurance policy. Keep your descriptions light and factual. Leave the exaggerations for the docs.

4) Extracurricular activities. When you’re talking about skydiving, dune buggying (yes, this does specifically show up on some carrier’s application), tarantula hunting, or the like, the application is asking for codified events that have happened or are planned (with dates). If these crazy activities are still in a dream state, no need to talk about what MIGHT happen, because it might NEVER happen and now you’re paying the price for it in your premiums.

5) Financials. If you’re applying for a large amount of insurance (each carrier has a different limit here) and financial documentation is going to be needed, get it in ahead of time. Like at the time of application. This makes underwriters happy and content. And happy and content underwriters make better decisions. It also makes you look more upfront about it all, and underwriters also like people who are more upfront about it all. “Upfront about it all” is technical insurance language in case you aren’t in the know.

Above all, be honest and concise. Underwriters don’t want to read pages of your life story if it can be stated in a few simple sentences. And be realistic. Juvenile offenses and experimentations can often stay behind that little under 18 protective curtain. Best case scenario if you have any doubts is to talk them through with your agent. We like those crazy stories from your youth. And we’re bound by confidentiality. Plus, agents have been known to do a crazy thing or two in their lifetime, so you might just hear a fun story in the process…

Life insurance is about love. If you love someone, and they depend on you, and that dependency would be a problem if you were gone, you need life insurance. In honor of Valentines Day, we’re posting this message from the Life Foundation. The Life Foundation is a non profit dedicated to educating people on the values of life insurance. Their website is a fantastic resource. Just come back to us when you’re done checking it out ;)

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