Buying life insurance: choosing the right policy can protect and preserve your assets for your kids without costing their inheritance.Choosing the right policy can protect and preserve your assets for your kinds without costing their inheritance inheritance, in law inheritance, in law: see heir. inheritance, in biology inheritance, in biology: see heredity. inheritance Devolution of property on an heir or heirs upon the death of its owner. NO MATTER WHO YOU ARE, MORBID issues like death and dying are totally foreign concepts when you're young and beginning to acquire a few assets. Insurance isn't sexy; you can't drive it, wear it or ear it; and the big payoff doesn't come along until you're gone. Add to that the endless confusion and complexities of the costs and types of policies, and life insurance becomes the most misunderstood mis·un·der·stood v. Past tense and past participle of misunderstand. adj. 1. Incorrectly understood or interpreted. 2. area of financial planning Financial planning Evaluating the investing and financing options available to a firm. Planning includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in the form of a financial plan, and then comparing future performance against . A 1989 study by the Federal Trade Commission concluded that life insurance is so contradictory that the average consumer, not just the African American African American Multiculture A person having origins in any of the black racial groups of Africa. See Race. buyer, is unable to get an accurate understanding of what he or she is really buying. Most people don't even try to learn the basics. But the primary purpose of life insurance is and has always been to rake care of your dependents and any family members who rely upon you to have food, shelter and clothing. It goes well beyond paying for the funeral and the cemetery cemetery, name used by early Christians to designate a place for burying the dead. First applied in Christian burials in the Roman catacombs, the word cemetery came into general usage in the 15th cent. plot. If African Americans are going to build firm financial foundations for their families, a life insurance policy is the best way to prevent financial ruin for a succeeding generation. If you are responsible for the financial well-being of a spouse spouse A legal marriage partner as defined by state law , children and other family members, then you need life insurance. On the other hand, if you do nor have anyone who will starve starve v. 1. To suffer or die from extreme or prolonged lack of food. 2. To deprive of food so as to cause suffering or death. to death if you die and leave them without a basic means of survival, then you need to consider buying only enough life insurance to bury Bury (bĕ`rē), city (1991 pop. 60,785) and metropolitan district, NE England, located in the Manchester metropolitan area on the Irwell River and linked by canal with Bolton and Manchester. you. SELLING YOU INSURANCE If you rely on the insurance agent to educate you correctly about what you should buy, you could be making a serious mistake. Insurance agents and financial planners Financial Planner A qualified investment professional who assists individuals and corporations meet their long-term financial objectives by analyzing the client's status and setting a program to achieve these goals. who sell insurance are really salespeople sales·peo·ple pl.n. Persons who are employed to sell merchandise in a store or in a designated territory. , and they have a built-in conflict of interest. They are there to advise you, but they are also there to earn a commission. The higher the premiums for the life insurance that you purchase, the more money they make, which is why they prefer to sell whole-life insurance--the most expensive insurance you can buy. Insurance agents will also try to convince you to purchase a policy because it is "a forced savings plan," or a "tax-deferred" savings for college tuition The examples and perspective in this article may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. College tuition or an "additional source" of retirement income. These arguments sound good, but they are not. That's because there are much more profitable ways to invest your dollars to meet these other financial goals. Insurance is simply about buying protection for your assets and, more importantly, protection for your family. It is purchased to replace the income stream that you provide to support and care for your loved ones loved ones npl → seres mpl queridos loved ones npl → proches mpl et amis chers loved ones love npl . The death benefit of a policy is to protect your family from economic hardship and deprivation DEPRIVATION, ecclesiastical Punishment. A censure by which a clergyman is deprived of his parsonage, vicarage, or other ecclesiastical promotion or dignity. Vide Ayliffe's Parerg. 206; 1 Bl. Com. 393. when you are no longer there "No Longer There" is the first single to be taken from The Cat Empire's fourth album, So Many Nights. According to the email sent to the band's mailing list, the CD single will include "four unreleased tracks" and pre-ordered copies of the single will be signed by the entire band. to provide for them. Nothing more, nothing less. If you're young, single and childless with no mortgage and no aging parents who depend upon you for support, then skip life insurance. Although a life insurance agent will argue that you should buy it as an investment in your future while you're young and in good health and the rates are low because of your age, forget it. There are better ways to build investment assets for yourself. As long as you have group life coverage available as a benefit in a health insurance plan through your job, that is probably enough to pay your final debts and give you a decent burial burial, disposal of a corpse in a grave or tomb. The first evidence of deliberate burial was found in European caves of the Paleolithic period. Prehistoric discoveries include both individual and communal burials, the latter indicating that pits or ossuaries were . If you are married and both of you are working, then any group life insurance that you have through your job is still sufficient, especially if you have no children, no mortgage and no major expenses. But for a working couple with two or three children, school loans, future college bills, private school tuition For tuition fees in the United Kingdom, see . Tuition means instruction, teaching or a fee charged for educational instruction especially at a formal institution of learning or by a private tutor usually in the form of one-to-one tuition. , dental bills, summer camp fees, a mortgage, a car note and lots of credit cards (your typical American family American Family is a photographic artwork exhibition by Renée Cox. See also
A young father with all these financial responsibilities needs more than $1 million of life insurance to meet all these obligations over a lifetime. A single parent should carry at least $250,000 of term life insurance made out to whoever is chosen as the guardian for the children, especially if the guardian is the child's grandparent. Many African American grand parents, as senior citizens with limited financial resources, are finding themselves suddenly left with the unexpected financial responsibility of caring for small children. HOW MUCH INSURANCE DO YOU REALLY NEED? A recommended rule of thumb is five to eight times your salary, but that's not carved in stone Adj. 1. carved in stone - no longer changeable; "the agreement is not yet set in stone" set in stone unchangeable - not changeable or subject to change; "a fixed and unchangeable part of the germ plasm"-Ashley Montagu; "the unchangeable seasons"; "one of the . It really depends on how many people you support financially and what other resources you have. If your assets are tied up in real estate or a family business that would have to be sold in order for your family to survive, you may need more than that. Your need is based on your personal savings profile, family budget and present net worth. Once you know how much insurance you need, you must decide which is the best policy to buy. Term? Whole life? Universal life? No matter what names the insurance companies give them--flexible life, adjustable life, conservative life, new classic whole life, convertible premium life, modified life--there are still only two types of insurance policies: term life and cash value. (Whole life and universal life are types of cash-value insurance.) WHAT IS TERM INSURANCE? If you took out $750,000 worth of life insurance, it could cost you as much as 58,920 a year for a whole-life policy or $400 a year if you bought a term policy. Both policies will pay your beneficiary beneficiary Person or entity (e.g., a charity or estate) that receives a benefit from something (e.g., a trust, life-insurance policy, or contract). A primary beneficiary receives proceeds from a trust or insurance policy before any other. $750,000 if you die. Term insurance costs much less than whole life because there is no cash value to it. If it expires and you don't renew it, you cannot cash it in and get money back. That's the biggest difference (See Comparisons of Life Insurance table). As you get older, the cost of term will increase every year unless you buy a kind of policy called a "level-premium" policy. When you purchase term life insurance without level-premium payments, you must renew the policy each year. When purchasing term life with level-premium payments, you make a commitment to the insurance company to keep the policy for a specified number of years, which allows the premiums to be averaged out over that period of time. This means that you will pay the same premium at age 45 as you did at age 25, even though you have become a greater risk. Realize that opting for the level-payment premiums will cost you more annually in the early years to keep the premium unchanged as you age. The anticipated cost of a $100,000 policy for a 35-year-old male nonsmoker would look like this:
Term Life Whole Life Universal Life
Annual
premium $146 $862 $664
Cash value
after 5 years None $5,550 $7,498(*)
(*) Assuming 8% dividends A 35-year-old woman can buy $250,000 of 15-year level term for $230 a year. The same policy for a 35-year-old man would cost $293 a year. Buy as much term insurance as you can afford. Term policies are often overlooked and underrated, and most insurance agents will not tell you about them because the agents do not earn a large commission on these low-cost policies. The concept of "buy term and invest the difference The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. "--the difference between what you would pay for term and what you would pay for whole life--popularized in the '80s is still a feasible idea (see the Whole Life vs. Term Life table). THE ARGUMENT FOR CASH VALUE Many people buy cash-value insurance because they consider it an investment. Life insurance companies are the largest financial institutions in the world, with nearly $2 trillion One thousand times one billion, which is 1, followed by 12 zeros, or 10 to the 12th power. See space/time. (mathematics) trillion - In Britain, France, and Germany, 10^18 or a million cubed. In the USA and Canada, 10^12. in assets in government securities, long-term mortgages (usually for office buildings, shopping centers shopping center, a concentration of retail, service, and entertainment enterprises designed to serve the surrounding region. The modern shopping center differs from its antecedents—bazaars and marketplaces—in that the shops are usually amalgamated into , apartment complexes) and some corporate bonds. Maybe even junk bonds junk bond, a bond that involves greater than usual risk as an investment and pays a relatively high rate of interest, typically issued by a company lacking an established earnings history or having a questionable credit history. . If you purchase a participating policy, you get a share of the income from these investments in the form of dividends. If you get a non-participating policy, you receive what is called "excess interest," but there is no legal contract that says the company has to pass it on to you. The only "guaranteed" rate of return on your cash value in a non-participating policy is the 4% required by law, which is what you would earn from an account in most savings banks savings bank, financial institution that, until recently, performed only the following functions: receiving savings deposits of individuals, investing them, and providing a modest return to its depositors in the form of interest. . When you buy whole-life or cash-value insurance, you pay the highest premiums for coverage. Most of what you pay in the first year goes into the agent's pocket as a commission plus administrative charges and front-end expenses levied by the company. Whatever is left over, which is usually nothing until after the second year, is invested. An agent will tell you that one reason to buy a cash-value policy is that you can borrow from your policy for retirement or for college tuition. The insurance company will allow you to once you have made enough payments, although it may take up to six weeks to receive the funds after you've requested them; also, the company will charge you interest on the money you borrow, which seems outrageous since it's your money. If you do not pay back the loan, the company won't bill you or harass harass (either harris or huh-rass) v. systematic and/or continual unwanted and annoying pestering, which often includes threats and demands. This can include lewd or offensive remarks, sexual advances, threatening telephone calls from collection agencies, hassling by you to repay it, but your heirs will suffer the cost by the decreased death benefit. The total loan plus all accrued interest Accrued Interest The interest that has accumulated on a bond since the last interest payment up to but not including the settlement date. There are two methods for calculating accrued interest: 1) 360-day year method, used for corporate and municipal bonds. will be deducted de·duct v. de·duct·ed, de·duct·ing, de·ducts v.tr. 1. To take away (a quantity) from another; subtract. 2. To derive by deduction; deduce. v.intr. from the final death payment. If you cancel the policy at any time, the loan plus interest will be deducted from the cash value that has built up in the policy. Borrowing on newer policies can cost you as much as 10% interest; if the company is paying dividends of only 8%, you're losing money when you take out the cash value. It would be more economical to buy the extra coverage with a low-cost term policy that you will keep for about 10-15 years. By then you won't need as much coverage. Another favorite sales pitch used with young applicants is: "Purchase a low-cost 10-year-payment vanishing premium policy. You can always borrow out the cash value later if you need it for retirement or college tuition." What they don't tell you is that this method usually doesn't buy enough coverage. The fine print in a vanishing premium policy also carries a warning that if future dividends are not enough to cover the true cost of the insurance, additional payments may be required. If you must buy a cash-value policy, universal life is cheaper than whole life and builds cash values sooner. Comparing premiums is not the best way to judge the true cost of a policy The interest-adjusted index gives you a more accurate cost per $1,000. Ask your agent to give you the formula and explain the indexed-adjusted net costs. Most of what you pay in during the first year goes to cover the commissions for the agent, setup See BIOS setup and install program. fees for the insurance company, administrative expenses and mortality charges. People also forget that the proposed illustration is just a projection of future earnings based on an interest rate that may or may not be realistic over the next 10 years. Nothing is guaranteed about those future dividends. A good compromise suggested by some industry experts is to buy two policies. One should be a low-cost universal life policy for $50,000 or $100,000 that will last for a lifetime. The second should be a term insurance policy for $500,000 or $600,000 that will expire expire /ex·pire/ (ek-spi´er) 1. to exhale. 2. to die. ex·pire v. 1. To breathe one's last breath; die. 2. To exhale. in 15-20 years. The major concern is to get the coverage you need at a rate you can afford. Compare and shop for the best rates. When you are looking for Looking for In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. an insurance company, don't bypass smaller, lesser-known companies. Many of them have better dividend records and lower expense charges than the industry giants because they have lower overhead costs overhead costs see fixed costs. . TAKE CAUTION WHEN SWITCHING POLICIES If you're thinking of switching policies, talk to several companies and ask for comparable illustrations using the same interest rates and payment schedule. If you have had your current cash-value policy for more than five years, it probably isn't a good idea to switch to a cheaper policy with better cash-value projections because those projections aren't guaranteed. Changing cash-value policies is complicated. You've already paid for the front-end commissions and administrative expenses, and It isn't worth repeating the expense. If you have held a dividend-paying policy for more than five years, whether it is whole life or universal with a limited-payment premium, you will also trigger a tax bill if you switch. Uncle Sam Uncle Sam, name used to designate the U.S. government. The term arose in the War of 1812 and seems at first to have been used derisively by those opposed to the war. Possibly it was an expansion of the letters "U.S. wants his share of those tax-deferred dividends. In any event, don't switch or cancel any existing policy until the second replacement insurance company has accepted you and issued a new policy. If you have a term policy, switching is no problem because there is no cash value to consider. If you pay annually, you may get some of your premiums back if you decide to change in midyear mid·year n. 1. The middle of the calendar or academic year. 2. a. An examination given in the middle of a school year. b. midyears A series of such examinations. . Keep in mind that switching policies may also require that you take additional medical exams. Since the AIDS epidemic epidemic, outbreak of disease that affects a much greater number of people than is usual for the locality or that spreads to regions where it is ordinarily not present. , many companies request physical exams and medical records for all policies--term or permanent--of $100,000 or more. Review your policies every five years. As you get older and plan to retire, your insurance needs should decrease. By then, the mortgage is usually paid off, the children are gone and you've accumulated ac·cu·mu·late v. ac·cu·mu·lat·ed, ac·cu·mu·lat·ing, ac·cu·mu·lates v.tr. To gather or pile up; amass. See Synonyms at gather. v.intr. To mount up; increase. a good pension, or should have. You will probably only need about $50,000 or $ 100,000 of insurance, if any, to supplement a retirement income for your spouse and to pay off any estate taxes that may arise for your children. If you choose to buy cash-value life insurance cash-value life insurance A type of life insurance in which part of the premium is used to provide death benefits and the remainder is available to earn interest. Thus, cash-value life insurance is both a protection plan and a savings plan. , buy your policy directly from the company. This can save you $300-$500 because your payments the first year will not go to paying an agent's commission. This means that you start building up cash value almost immediately. Several companies have begun offering no-load (no-commission) or low-load (low-commission) insurance policies by mail order. Contact the Council of Life Insurance Consultants, 303 E. Wacker Drive Wacker Drive is a major street in Chicago, Illinois, United States, running along the south side of the main branch and the east side of the south branch of the Chicago River. , Suite 210, Chicago, IL 60601; or call 312-819-0791. Do some homework. Go to the library and check the A M. Best rating book on insurance companies. Best, the most well-known independent insurance company rating service, offers free publications that tell you everything you need to know about insurance companies. Look in Best's Review, Best's Insurance Reports and Best's Flitcraft Compend com·pend n. A compendium. in the business section of any large public library and try to select a company that has been given an A rating. Insurance companies are also rated by three other independent research services that may assist you in getting information: Duff& Phelps, 312-368-3657; Moody's Investor's Services, 212-553-0377; Standard & Poor's, 212-208-1527. Or contact the following rate comparison firms. Each gives rate comparisons for at least five nationally known companies, and no agent will call you to make a sale: MasterQuote of America, 800-337-5433; TermQuote, 800-444-8376; SelectQuote Insurance Services, 800-343-1985; LifeRates of America, 800-457-2837. Insurance Information Inc. (23 Route 134, South Dennis, MA 02660; 800-472-5800) is an independent consulting firm Noun 1. consulting firm - a firm of experts providing professional advice to an organization for a fee consulting company business firm, firm, house - the members of a business organization that owns or operates one or more establishments; "he worked for a that can help you with honest answers and no sales pressure since it does not sell insurance. For a $50 fee, it will review your existing policy and compare it with the same type of policy from at least five other companies.
Saving in a Whole-Life Policy versus the
"Buy-Term-and-invest-the-Difference" concept $100,000
Whole-Life Policy for a 35-Year-Old-Male Nonsmoker
(based on after-tax values)
Cash Value in
Whole-Life Term-Life Annual Whole-Life
Age Annual Premium Premium Policy(*)
40 $1,968 $ 180 $ 7,770
45 $1,968 $ 249 $ 21,490
50 $1,968 $ 367 $ 39,420
55 $1,968 $ 574 $ 63,230
65 $1,968 $1,025 $134,590
Money- Tax-Deferred
Market Fund Annuity Yielding
Age Yielding 8% 10% Annually
40 $ 10,892 $ 11,545
45 $ 26,132 $ 29,338
50 $ 47,315 $ 56,726
55 $ 76,469 $ 98,766
65 $168,098 $262,736
(*) Dividends have been used to buy added insurance. Keep in mind that the cash values exceed the premiums paid and the policyholder Policyholder An individual who owns an insurance policy. must pay taxes on the difference when it is withdrawn and the policy is canceled. SOURCE: Lifestyle Planners Inc., Brooklyn, New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of
Types of Life Insurance
Policy Type Cost Return in Cash Value
Term Low None
Whole Life High Poor: Avg. 5%-7%
Variable Life High Varies: Tied to stock and
bond markets
Universal Life Medium Varies: Tied to selected
financial indexes such as
T-bills
Control Over Fees and
Policy Type Investment Mix Service Charges
Term None Low
Whole Life None Not disclosed but very
high
Variable Life Some: Client may choose High commission and
from mutual funds service fees
managed by company
Universal Life None: Company sets High in first years;
interest rates decreases in later
years
Policy Type Flexibility Tax Treatment
Term Very flexible: Amount Premiums not deductible;
can be changed at will proceeds not taxable
Whole Life Poor: Money locked into Same as term; cash value
cash value tax-deferred. Interest
on loan only deductible
as other interest under
1986 tax return
Variable Life Average: Withdrawal of Same as whole life
money is very
complicated
Universal Life Good: Dividends can be Same as whole life
withdrawn and premiums
can be varied
SOURCE: Warren, Corham & Lamont Inc., Bostob |
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