Life Insurance Policies Explained

Life insurance is an essential part of financial planning. One reason most people buy life insurance is to replace income that would be lost with the death of a wage earner. The cash provided by life insurance also can help ensure that your dependents are not burdened with significant debt when you die.

When you buy life insurance, you want a policy which fits your needs without costing too much. Your first step is to decide how much you need, how much you can afford to pay and the kind of policy you want. Then, find out what various insurance companies charge for that kind of policy. If you compare Surrender Cost Indexes and Net Payment Cost Indexes of similar competing policies, your chances of finding a relatively good buy will be better than if you do not shop.

Six Basic Kinds of Life Insurance

Regardless of how fancy the policy title or sales presentation might appear, all life insurance policies contain benefits derived from one or more of the three basic kinds shown below. Some policies due combine more than one kind of life insurance and can be confusing.

Term Life Insurance
Endowment Life Insurance
Whole Life Insurance
Variable Life Insurance
Universal Life Insurance
Variable Universal Life Insurance

Term Life Insurance

Term life insurance is death protection for a term of one or more years. Some companies are offering policies with terms up to thirty years. Premiums on term insurance remain level during the life of the policy. Term Life Insurance has no cash value account. Death benefits will be paid only if you die within that term of years. Term insurance generally provides the largest immediate death protection for your premium dollar.
Some term life insurance policies are renewable for one or more additional terms even if your health has changed. Each time you renew the policy for a new term, premiums will be higher. You should check the premiums at older ages and the length of time the policy can be continued.

Some term insurance policies are also convertible. This means that before the end of the conversion period, you may trade the term policy for a whole life or endowment insurance policy even if you are not in good health. Premiums for the new policy will be higher than you have been paying for the term insurance.

Life Insurance “Endowment”

An endowment insurance policy pays a sum or income to you, the policyholder, if you live to a certain age. If you were to die before then, the death benefit would be paid to your beneficiary. Premiums and cash values for endowment insurance are higher than for the same amount of whole life insurance. Thus endowment insurance gives you the least amount of death protection for your premium dollar.

Whole Life Insurance

Whole life insurance gives death protection for as long as you live. The most common type is called straight life or ordinary life insurance, for which you pay the same premiums for as long as you live. These premiums can be several times higher than you would pay initially for the same amount of term insurance. But they are smaller than the premiums you would eventually pay if you were to keep renewing a term insurance policy until your later years.

Some whole life policies let you pay premiums for a shorter period such as 20 years, or until age 65. Premiums for these policies are higher than for ordinary life insurance since the premium payments are squeezed into a shorter period.

Although you pay higher premiums, to begin with, for whole life insurance than for term insurance, whole life insurance policies develop cash values which you may have if you stop paying premiums. You can generally either take the cash, or use it to buy some continuing insurance protection. Technically speaking, these values are called nonforfeiture benefits. This refers to benefits you do not lose or forfeit when you stop paying premiums. The amount of these benefits depends on the kind of policy you have, its size, and how long you have owned it.

A policy with cash values may also be used as collateral for a loan. If you borrow from the life insurance company, the rate of interest is shown in your policy. Any money which you owe on a policy loan would be deducted from the benefits if you were to die, or from the cash value if you were to stop paying premiums.

Variable Life Insurance

Variable life insurance, provides permanent protection for you and death benefits to your beneficiary upon your death. The value of the death benefits may fluctuate up or down depending on the performance of the investment portion of the policy. Most variable life insurance policies guarantee that the death benefit will not fall below a specified minimum, however, a minimum cash value is seldom guaranteed. Variable is a form of whole life insurance and because of investment risks it is also considered a securities contract and is regulated as securities under the Federal Securities Laws and must be sold with a prospectus.

Universal Life Insurance

Universal Life insurance is a variation of Whole Life. The insurance part of the policy is separated from the investment portion of the policy. The investment portion is invested in bonds and mortgages, the investment portion of Universal Life is invested in money market funds. The cash value portion of the policy is set up as an accumulation fund. Investment income is credited to the accumulation fund. The death benefit portion is paid for out of the accumulation fund. Unlike Whole Life Insurance, the cash value of Universal Life Insurance grows at a variable rate. Normally, there is a guaranteed minimum interest rate applied to the policy. No matter how badly the investments go by the insurance company, you are guaranteed a certain minimal return on the cash portion. If the insurance company does well with its investments, the interest return on the cash portion will increase.

Variable-Universal Life

Variable universal life insurance pays your beneficiary a death benefit. The amount of the benefit is dependant on the success of your investments. If the investments fail, there is a guaranteed minimum death benefit paid to your beneficiary upon your death. Variable universal gives you more control of the cash value account portion of your policy than any other insurance type. A form of whole life insurance, it has elements of both life insurance and a securities contract. Because the policy owner assumes investment risks, variable universal products are regulated as securities under the Federal Securities Laws and must be sold with a prospectus.

Rates and coverage vary form state to state. Shop around on your own and talk to an independent insurance agent to make sure you get a plan that’s right for you. It’s amazing how much rates may vary from company to company for the same coverage.

For more information or a quote on life insurance fill out our free life insurance quote request form.

Insurance Open Enrollment: Understanding The Affordable Care Act

On Saturday open enrollment begins for those who have yet to add health insurance, and it’s expected to be higher than it was last year. Of course, the rising cost of healthcare is a yearly thing. While auto insurance rates can actually go down for customers over time, medical insurance is a different ballgame entirely.

Because of the expense, many customers may opt to pay the penalty and go without insurance, but that is a huge mistake, especially if they experience a major medical event, such as pregnancy or cancer treatment.

In that sense, 2015 will see modest gains with an average of six percent expected nationwide, according to PricewaterhouseCoopers LLC consulting firm. However, that’s only a small part of the story. The Affordable Care Act (ACA) and traditional health insurance are fueled by the premiums of healthy people. Costs go up when there are more unhealthy people in the system than healthy people, and from the first year of ACA (aka Obamacare), it’s now known that many of the newly signed were from a higher risk pool of applicants.

Young people largely decided to sit out 2013-14’s open enrollment period and as a result, many could see increases that go well beyond the six percent quote. In fact, Blue Cross Blue Shield estimates that there could be much larger increases even for those who get traditional insurance through their employers, with young people bearing the brunt.

“The key is to get the uninsured insured and that will help us all,” BCBS VP of Sales Ron Rowe said in comments to KSHB, adding that some of the increase is also due to people who don’t understand the workings of health insurance so they stay out of the system. “We found a lot of people just don’t know and understand or have even heard of Obamacare. They thought in January they would walk to their mailbox and there’d be an ID card there; it’d be free and off we’d go.”

The federal government has spent hundreds of millions of dollars just trying to spread the word about the healthcare law. While most Americans have heard of it, far fewer have actually tried to find a place within the system.

Existing economic hardships are keeping many from enrolling because family budgets are already spread thin and many families feel like they have nothing to lose since a $2,000 bill is as impossible to pay as a $20,000 bill.

While subsidies would help many of these families afford coverage, the system is still unproven after a disastrous rollout in 2013 and 2014, and many simply don’t have enough confidence or patience to get through the enrollment process.


So what’s an agent to do?

For starters, even if you do not directly sell health insurance to customers, it can be beneficial to speak with them about their health insurance needs as part of basic family planning.

If it’s possible to afford a $150 per month payment, for example, that could save clients tens or even hundreds of thousands of dollars over time in case of a major medical event (and in the event they qualify for subsidies).

For families that are too cash-strapped, they might even qualify for Medicaid.


In Summary

With most agents committed to improving the lives of their customers, having the health insurance talk is just one more way that you can help clients get their financial acts together. Even if they are buying a policy directly, you can use the ACA as a way of emphasizing the importance of insurance products, the repercussions of not having them, and as a means of building trust with your clients.

Home Insurance 101: How Claims Work For Structure, Personal Belongings

Filing a home insurance claim is something that your customers will hope they never have to do. After all, they buy a house looking at it as a safe haven — an impenetrable place where they can come home and escape the pressures of the outside world. But inevitably in the life of of a home, things will arise that require action, and getting them through the process is a lot easier if you can help them understand how claims work. Generally, there are two key areas that may need to be addressed when filing a home insurance claim, the Insurance Information Institute (I.I.I.) notes — structural claims and personal belongings claims.

Before we get to that, though, here are some general things to share with customers about the overall process.

First, an adjuster will inspect damages and offer a certain amount of money for repairs. This check is not considered the final payment, but an advance against the total settlement amount. With an on-the-spot settlement, I.I.I. points out, one can “accept the check right away” and then “reopen the claim and file for an additional amount” generally within one year of the date of the disaster. This hinges on state insurance department regulations, but is generally true because it gives one a chance to catch related damages that may have initially gone overlooked.

If both structure and personal belongings are subjected to damage, the insurance company usually provides the claimant with two separate checks, one for each category, and there may also be a third check involved for additional living expenses should any be incurred during renovation/rebuilding.


On Structure

Checks for structural damages are typically made out to both the home insurance customer and the mortgage lender. As I.I.I. notes, the lender “gets equal rights to the insurance check to ensure that the necessary repairs are made to the property in which it has a significant financial interest.”

In other words, the mortgage company or bank will have to endorse the check.

“Lenders generally put the money in an escrow account and pay for the repairs as the work is completed,” the I.I.I. states, adding that a claimant should show the mortgage lender a contractor’s bid “and let the lender know how much the contractor wants up front to start the job.” Mortgage companies may also wish to inspect the final work before endorsing payment to the contractor.


On Personal Belongings

For this aspect of a home insurance claim, the I.I.I. recommends adding up the cost of everything inside the home that has been damaged in the disaster, adding that now is the time to review personal inventory, to help recall possible overlooked losses.

If one doesn’t keep an inventory, they should “look for photographs or videotapes that picture the damaged areas” and contact the bank or credit card company for proofs of purchase.

When making a list, “don’t forget items that may be damaged in out of the way places such as the attic or tops of closets,” the Institute adds.

Replacement cost policies reimburse for the cost of buying new items, while actual cash value policies reimburse for the cost of the items minus depreciation. The first check will be calculated on an actual cash value basis regardless of what the policy is, with the difference being made up later.

In Summary

Home insurance claims may take a little time and coordination, but as long as your customers are aware of the steps in the process and what to expect regarding payment, you can help them maintain their patience and peace of mind throughout.