You need cash, and you’re thinking about borrowing from your life insurance policy. Right now, you’re on the fence, because you don’t know whether this idea is brilliant or extremely unwise.
The last thing you want to do is make a move that will have a detrimental impact on your financial future, so you need to make a fully informed decision. Here’s a look at the pros and cons associated with taking a loan from your life insurance policy.
Pro: No Fees
You can take out cash without paying any initial fees. This can be very wise, if it’s your only source of available liquidity in the event of a personal or business emergency.
Con: Reduction in Death Benefit
If you borrow from your life insurance policy, you might end up leaving less money to your loved ones.
When you take out a loan from policy, the total outstanding balance gets deducted from the death benefit. This means that less money will be handed to your beneficiaries after your death.
Pro: Low Interest Rates
If taking out a traditional loan is your only other option, you might face much higher interest rates.
The interest rate on this type of loan is adjusted and low in comparison to the personal loan you take from the bank.
In fact, it’s possible you even took your life insurance policy out with a loan in mind. If you designed the policy to accumulate excess cash for the purpose it is being used, proceeding with this plan is a good idea.
For example, if we designed an accumulation life insurance policy so we can have supplemental retirement income or help to pay for college education, it is wise to withdraw or borrow funds from the policy tax-free.
Con: You Could Be Charged Interest
Borrowing from your life insurance policy might have a lower interest rate than a personal loan, but you still have to pay it back.
If you do not pay back the loan, the interest will be charged on the remaining cash, reducing the cash value. And if the loan is not paid even after a long period of time, chances are, your policy will be canceled.
Pro: Easy Access
Since the life insurance policy is already yours, getting the money is a notably simple process.
There is no lengthy application that you need to fill out in order to take out a loan as the insurance company uses your cash-value account as collateral. Additionally, borrowing from your life insurance policy won’t affect your credit score.
Con: Possible Tax Consequences
You might be borrowing from your own policy, but that doesn’t mean you can’t be hit with a tax bill. If you are unable to repay the loan, you could owe tax on the money you have not paid back.
Digging a bit deeper, cash-value life insurance policies are usually taxed on a first in, first out (FIFO) basis. For this reason, when one withdraws money from a policy, the first money taken out is considered principle and there is not income tax.
After the policy owner has withdrawn all of the basis, he said they can borrow from the policy and receive additional funds tax-free. The catch is, if the policy ever lapses or is surrendered before death, all of the gain received from the policy would be considered ordinary income and taxed at ordinary income tax rates.
Ultimately, borrowing from your life insurance policy can be a savvy move or a seriously unwise one, based on your individual circumstances. Thoroughly cover the bases with your research before deciding which route is best for you.
Since you are essentially borrowing money from yourself, there is no approval process or credit check. As a result, you are free to use the cash to pay for any expenses such as bills, financial emergencies or vacations.
Source: MSN Money
Life insurance is there to benefit your survivors, and it’s vital to decide which of those people should receive the proceeds of your policy after you die. The choice can help ensure the right family members receive the policy’s benefits, and quickly and simply.
Failing to choose a recipient, on the other hand, has the exact opposite effects. Life insurance that lacks a beneficiary when you die must go through the probate process. That could add “six months to a year” to the timing for the payout and cost thousands of dollars in legal fees.
Naming a life insurance beneficiary overrules the instructions in your will. Without named beneficiaries, he explains, your insurance proceeds will be distributed like any other assets, as set out in the will. Absent a will, the death benefit will be given to your closest living relative. Those default assignments may not align with your wishes for your life insurance.
We asked experts for tips on how to best ensure your death benefit reaches the people you want, and quickly, and how to manage your beneficiary designations along the way. Here’s their advice.
1. Pick the person who most relies on your income
As a rule, the proceeds from your policy should go to the person — or people — who will be most affected financially by your death, Buhrmann advises. For example, a spouse and/or children have a financial interest in the life of the insured because they likely require income…to successfully run the household.
Consider adding more than one name to the policy. For one, experts say it’s wise to pick a secondary beneficiary — someone who will receive the payout should the primary beneficiary pass away before the policy is updated. That way, you don’t need to tackle this chore as you are simultaneously wrestling with other issues associated with your beneficiary’s death.
You can also elect to have more than one beneficiary. We cover below how that can work for family members. But you might not want to limit your payout to just your family.
In particular, if you own or co-own a business, you may want to arrange for a payout to your colleagues, either from your personal life insurance policy or another designated to the business. This insurance — archaically known as key man coverage, from the days in which business owners were almost invariably male — can help the business stay afloat as it undergoes the (possibly lengthy) search for your replacement.
2. Decide how benefits will be distributed
Remember, you can name more than one person to receive death benefits from your policy. But if you do so for family members, you need to decide how the policy proceeds will be distributed.
There are two main choices, and it’s important to understand the difference between them because it determines how benefits are divvied up.
The simplest of the two is Per Capita distribution, in which the policy’s benefit is divided equally among everyone you list as a beneficiary. This is the option to choose if, for example, you want your three children to each receive a third of the payout, regardless of the number of heirs each may have.
But there are advantages to the other choice, which is known as Per Stirpes — after the Latin word for “branches.” Under Per Capita distribution, if one of your children dies before you, and themselves have children, their family would not receive any policy benefits. Instead, those would be distributed only to beneficiaries who are still alive.
Under Per Stirpes distribution, by contrast, benefits are distributed equally among all branches of the family — thus allowing you to provide for your grandchildren in the event their parents pass away before you do. The children of a deceased beneficiary would receive the share of the proceeds that would have gone to their parent, were he or she still alive, divided equally among them.
Should you for any reason prefer to skip benefiting a child and directly benefit a grandchild, you can do so by naming that child of your child as a beneficiary. But that can involve extra contingencies in case the grandchild is a minor when they come into their insurance benefit.
3. Elect when and how minors will receive their funds
It’s prudent to take steps in advance in case children or grandchildren become beneficiaries of your life insurance when they are still minors — defined as under the ages of 18 or 21 in most states, and 25 in a few. However, you might not be comfortable having, say, an 18-year-old inherit a large sum because what they do with that money could make you roll over in your grave.
There are several ways to prevent your children from potentially blowing their benefits on NFTs and streetwear. The easiest option, is to instruct a trusted adult beneficiary to use the money for the children’s benefit. More formally, the site says, you can also elect to name an adult custodian under your state’s Uniform Transfers to Minors Act (UTMA). Most insurance companies permit this and have forms for it.
Alternatively, you can name a family member or attorney as trustee of the funds. “A testamentary trust receiving the proceeds and managing them accordingly may be more desirable” than leaving an inheritance in the hands of a teen.
4. Let your beneficiary know they’ve been selected
The people you choose to benefit from your life insurance shouldn’t be in the dark about their status. Not only informing them that they’re a beneficiary but of the amount of the benefit they will receive, “so they can be prepared to act properly.” Inform not only family members but any business partners who will be beneficiaries.
5. Adjust beneficiaries as your life changes
Life isn’t static, and just as you should adjust the policy itself in step with changing circumstances, including a divorce, your list of beneficiaries should also be re-evaluated from time to time. When a major life event such as a divorce or death occurs, it’s so important to update beneficiaries. You’d be surprised at how often people forget to do this.
Source: MSN Money
If you are a police officer or first responder, you’ve likely already determined that you are in a risky occupation.
Every shift you are out there protecting the citizens in your community, there is always a risk that you might be injured or in the worst case, never make it home.
Knowing this, it’s critical that you take the necessary steps to ensure that if you don’t make it home, your surviving loved ones will have the financial resources to continue.
Many police officers and first responders are under the impression that life insurance companies prefer to pass insuring police officers, but the good news is that insurance companies understand the risk and many will compete for your business.
To put it bluntly, a lot more people die from car accidents each year than police officers getting killed on the job. Finding affordable life insurance if you’re a police officer is surprisingly easy.
Why is Life Insurance Important for Police Officers?
Let’s start with an important and confirmed statistic from Officer Down Memorial Page (odmp.org). In 2020, 359 police officers were killed in the line of duty, of which, 332 were men and 27 were women.
Now, compare those stats with the number of people who died as a result of a car accident in 2020 which is 1.36. Certainly, many of those accident victims may have been police officers, but you’ll likely understand one risk compare to the other.
Whether a police officer dies on duty protecting the public or as a result of a disease or in an unrelated job accident, they must have life insurance so that loved ones will not be financially devasted after a loss.
The risky issues that police officers must deal with while on the job are more than the average employed individual must deal with:
Responding to Traffic Accidents
Officers who work in the traffic division spend the majority of their time on highways and county roads or those of the city they are charged to patrol. This certainly puts them at risk when assisting at a roadside collision or dealing with an offender who attempts to escape in a vehicle.
On the job Careless Shootings
Since a police officer has been trained and then authorized to carry a weapon, being on duty or sometimes off duty exposes them to the risk of being shot at by a perpetrator or even friendly fire because of a crossfire situation.
Acting as First Responders
It is certainly not unusual for a police officer to be placed in a position of a first responder. Whether it’s a bank robbery in progress or a collapsing bridge, police officers will assist other first responders by getting involved in an investigation or canvassing a community to gather facts and evidence.
In either situation, the risk is part of the job and loved ones must be financially protected.
Are Police Officers Considered High Risk?
Being employed as a police officer entails that the officer works in many different situations throughout their employment.
An officer may be working vice for several years and then be assigned as a school resource officer. When an officer is onboarded after graduating from the academy, just like a service member, they will likely be assigned to various departments or divisions during their employment.
But when we considered the statistics mentioned previously and consider the overall risk of being a police officer, insurance companies understand that, although police officers do take risks on the job, overall, the occupation isn’t considered high-risk by most insurance companies.
Are the Life Insurance Policies Provided through Work Enough for Police Officers?
In a nutshell, no. Unless an officer is single and there are no children. Although employer-sponsored life insurance is a great benefit to take advantage of, it will fall short of your surviving loved ones’ financial needs if that is the only life insurance an officer has.
There are three primary drawbacks to employer-sponsored life insurance:
How much Life Insurance Do Police Officers Need?
If an officer has a family, and most do, the purpose of his or her life insurance policy will be to replace the officer’s income so surviving family members can financially continue after the officer’s death.
Replacing your income is more than just buying a multiple of your annual salary. When you are determining the death benefit needed to replace an officer’s income (especially if he or she is the sole breadwinner in the household) the following financial obligations should be considered:
What Types of Life Insurance Policies are Available for Police Officers?
Police officers will have the same access to life insurance products as any other individual.
Although there are quite a few types of life insurance policies available, many of them are hybrids of the basic types of insurance policies available.
Term Life Insurance
Term life insurance continues to be the most affordable type of life insurance for income replacement.
Most companies will offer term policies with policy terms of five to thirty years. And, in the last few years, several companies began offering policies with terms of up to 35 and 40 years.
Since a term policy doesn’t provide permanent coverage and there is no cash component attached, term life insurance will always be the most affordable choice.
Permanent Life Insurance
Permanent life insurance guarantees a death benefit for the life of the insured as long as premiums are paid. A permanent policy (sometimes called cash-value life insurance) also has a cash component that will build value over time and earns tax-deferred interest based on the investment performance of the insurer issuing the policy.
The two most popular permanent life insurance policies are whole life and universal life.
No Exam Life Insurance
No exam life insurance is typically term life insurance but is also available as whole life insurance.
No exam policies are generally preferred by applicants who are healthy and prefer to forgo the inconvenience and privacy issues associated with a life insurance medical exam.
Moreover, since the medical exam is not required, the insurance company can typically issue a policy in a matter of days rather than weeks and months when an exam is required.
The premiums are somewhat higher with no exam policies since the insurance company is accepting a higher risk because of waiving the medical exam.
How do Insurance Companies Determine Your Premium?
A police officer’s life insurance policy is underwritten virtually the same as any other applicant. Certainly, age and health are the most dominant factors for rating but many carriers use a supplemental questionnaire once you disclose that you are in law enforcement.
You can expect to provide some information to the insurer on the following topics:
That number, one million, seems awfully large when you first consider it, especially when it comes to life insurance.
But for most individuals shopping for life insurance, the purpose for the insurance coverage should be used to determine how big or small that number should actually be.
If you’re shopping for a policy to pay off the mortgage if you die unexpectedly, a million-dollar policy could likely be too much. Or, if you want to guarantee the funds are available to send three children through an Ivy League college, a million dollars could easily fall short.
Moreover, if your intention is to leave enough money to cover living expenses for your family for a handful of years, a million-dollar policy could be sufficient.
However, if your need for life insurance is to cover all of the above, a million-dollar life insurance policy will probably not get you there. Keep reading to find out what a million-dollar life insurance benefit can or cannot do for your family when you’re gone.
What is a Million Dollar Life Insurance Policy?
Simply put, a million-dollar life insurance policy is a promise from an insurance company to pay a $1,000,000 death benefit in exchange for a premium.
This million-dollar promise and your obligation to pay the required premium are always spelled out in the terms and conditions of your life insurance contract with the company.
The contract between the applicant and the insurer will become effective when the application is approved (accepted) by the insurance company and the policy is issued.
Of course, the policy will only be issued after the insurance company receives your initial payment required by the company. And, your policy will remain in force as long as you continue to make the agreed-upon periodic payments. If you don’t, your policy will lapse.
If you die during the policy period (term of the policy), the insurance company will pay the death benefit to the beneficiary or beneficiaries who are listed in your policy. If you fail to list at least one beneficiary (person or entity) in your policy, the death benefit will be paid to your estate.
Who Should Get a Million-Dollar Life Insurance Policy?
Certainly, not everyone needs a million-dollar insurance policy. And in many cases, the insurance company will look for evidence that will demonstrate why an applicant is applying for a death benefit that size.
But if you think about it, in today’s economy it’s not difficult for a family to need a large life insurance policy on the breadwinners in the household when you consider the cost of a home, two or three vehicles, credit card debt, savings for college expenses, and savings for retirement. Not to mention the cost of a funeral and burial service.
So, once again, if your intention is to replace your income that your family depends on, you’ll likely need $1million in coverage to handle it.
What is Covered in a Million Dollar Life Insurance Policy?
Unless you’ve opted for some optional riders that provide living benefits, your million-dollar policy will only pay off if you die during the policy term.
Soon after your death, the insurance company will pay the death benefit to the beneficiaries you’ve listed in your policy in the percentage or amount you’ve listed.
However, be forewarned that your beneficiaries can spend that tax-free death benefit in any way they please and that money is outside of any will you may have left behind.
If your life insurance is intended to replace your income after you die, the common things that beneficiaries will spend it on are:
Remember, if you opted for one or more insurance riders that provide living benefits like a terminal, chronic, or critical illness rider, and you had to trigger that rider, the amount you received as an advance on your death benefit will be deducted from the death benefit.
How Much Does a Million-Dollar Policy Cost?
There are many things that are factored in to consider the cost of a million-dollar life insurance policy:
The benefits of choosing term life insurance are:
The benefits of choosing universal life insurance are:
Eligibility Requirements for a Million-Dollar Life Insurance Policy
If you are considering a million-dollar policy, most insurers require information concerning your risk to the company and whether or not your earnings and expenses justify this amount of coverage.
Not only will you have to pass the medical underwriting requirement, but the insurance company will also want to verify that you are an acceptable risk when it comes to:
Your Age – Most carriers are okay issuing an insurance policy with a death benefit that is up to 40 times the annual income for applicants under age 40. Up to 25 times the annual income for applicants between 40 and 60, and up to 10 times the annual income for applicants between age 60 and 70.
Existing Coverage – If you’ve justified your need for a million-dollar policy, the insurance company will want to know if you have other life insurance in force and whether you plan to keep that coverage. If you’re asking for a million-dollar death benefit but are already insured for $300,000 and planning to keep that policy, the insurer will likely make an offer for $700,000 in coverage.
Income – An insurance company is unlikely to offer a million-dollar policy to anyone whose income and net worth don’t justify the amount of coverage. Applicants should expect to show proof of annual income as well as his or her current net worth.
Health – Any current and past health conditions will certainly come into play when asking for a million-dollar limit of coverage. Health is always a primary underwriting issue when purchasing life insurance, and in many cases, the insurer will also inquire about the health of your parents and siblings.
Can You Get a Million Dollar Life Insurance Policy without a Medical Exam?
Yes, you can. Because of today’s technology and innovative underwriting processes, some insurance companies will offer life insurance with a million-dollar death benefit while a few carriers will go even higher.
Keep in mind that you’ll likely pay higher rates because the insurer has allowed you to forgo the life insurance medical exam and blood/urine analysis.
For example, we are aware of nine life insurance companies that we represent that will offer a million dollars in life insurance without a medical exam. Of those nine insurers, four of them would charge less than $50 per month for a 30-year-old male non-smoker in very good health.
More importantly, each of these companies is very well known and earned “A” or better ratings from the national rating services.
If you’re like most people, you probably have several insurance policies in place. From health insurance to homeowners or renters insurance, having the right policy can help protect you in the event of a medical or financial hardship. However, many people are reluctant to think about their need for life insurance. After all, why worry about something that won’t be useful until after you pass away?
The reality is life insurance isn’t right for everyone, but there are circumstances where having life insurance in place as a sort of emergency fund makes financial sense. It’s an important tool if you have loved ones who depend on you and your income, or if you have outstanding debts that will pass on to someone else when you pass away. Below is some basic information about life insurance coverage and how you can tell if life insurance is a good investment for you.
Should I get life insurance?
Life insurance is a financial tool everyone should consider buying, but that doesn’t automatically mean it’s the right fit for every person or family. Life insurance is only worth it if it helps you offset financial risk for your loved ones after you die.
If you’re single and have no dependents, life insurance may not be worth it. However, for those who have dependents or debts, life insurance is likely a worthwhile investment.
The first step to figuring out whether you need to buy life insurance is figuring out who needs it in the first place. Below are five profiles of people at different stages of life and a breakdown of whether life insurance is necessary for them.
The student with debt
If you’re like most students or recent graduates with significant student loan debt, life insurance may be appropriate for you. It depends on who else may be on the hook if you pass away.
For instance, federal student loans are discharged upon death, so life insurance wouldn’t be required to pay them off after the borrower passes. Some private student loan lenders, however, may not offer a death discharge — especially if you were required to have a cosigner. If you’d rather not leave your parent, spouse, or other family members on the hook for your private student loan balance, life insurance could come in handy.
The well-paid bachelor
If you’re young, earn a sufficient income, and have little to no debt, you’re unlikely to have a huge need for life insurance coverage. No one is depending on you to provide income for their living expenses, so there is little to no financial risk should you pass away.
The young parents
For young families, decades of parenthood lie ahead. Minor children need all the financial assistance they can get, from putting food on the table and childcare costs to school and medical expenses. If you were to pass away, your children would still need these expenses covered, so life insurance is necessary for them to be cared for in your absence.
The new homeowner
New homeowners have a lot to be excited about, most importantly the ability to call a place their own. However, a new home often comes with a significant amount of debt in the form of a mortgage. If you were to pass away, your loved ones might not be able to keep up with the mortgage payments, or they may be forced to sell the property to cover other financial needs. For these reasons, life insurance for a new homeowner is definitely worth it.
The parents with college-bound kids
If you’re about to send your children off to college, life insurance may not be at the forefront of your mind. However, for parents who are planning to pay for the cost of education for their children, life insurance can help their kids continue with their education if they pass away. When children plan to cover their own education costs — or if they’ve already landed a job post-graduation — life insurance may not be necessary.
These are just a few of the possible situations you may find yourself in. But once you’ve decided you do need life insurance, you have to figure out how life insurance works and which type to get.
How does life insurance work?
There are several different types of life insurance, including whole life, term, and universal. Some policies, like term insurance, are fairly straightforward but offer temporary coverage. Others, such as whole or universal life, mix an investment component and insurance together in one policy known as cash value life insurance. These are more complex but offer permanent insurance coverage.
Deciding which type of life insurance you need for peace of mind can be challenging, but it starts with understanding how the two broad types of insurance work.
The two most common types of insurance are term and whole life. Like universal life insurance, whole life is a type of permanent life insurance that provides a guaranteed death benefit at the end of your life, so long as you pay your premiums. Whole life insurance helps cover final expenses, such as outstanding debts, burial costs, or other financial obligations passed down to your loved ones, such as potential estate taxes.
Because a whole life policy is permanent, the costs can be far higher than a term policy. Depending on the amount of coverage, your health, and your age at the time of application, a permanent policy can range from $50 per month to several hundred dollars per month. For example, a 35-year-old male in excellent health could pay around $517/month in life insurance premiums for $500,000 in whole life coverage.
Term life insurance differs from whole life insurance in that it is temporary coverage. With a term life insurance policy, you select an amount of insurance to help cover decreasing financial needs over a certain amount of time. These needs may include a mortgage balance, student loans, or expenses for a minor child. The general idea is that these financial needs diminish over time, so life insurance is only needed temporarily.
Term policies are generally sold for 10-, 20-, or 30-year increments, with fixed premiums for the life of the policy. A 20-year term policy for $250,000 for a healthy 30-year old can cost less than $14 per month. Like whole life insurance, the cost of a term life policy is based on your age, the amount of insurance you want or need, and your health status when you submit an application.
How much life insurance do I need?
The amount of life insurance you need depends on why you need it in the first place. Most financial experts suggest having five to 10 times your salary in total coverage if you are looking to replace your income for beneficiaries. If you are trying to cover outstanding debts, like a mortgage or future college tuition, your coverage should take those numbers into account.
Everyone is different, so how much money you need in life insurance coverage you put in place is specific to your financial needs. An online life insurance calculator or an insurance agent can also help you crunch the numbers based on your situation.
Answering the question, “Is life insurance worth it?” is not always an easy task. However, knowing what life insurance can be used to pay for can help you start the process. If you have financial obligations that will pass on to someone who depends on you, making sure you have enough coverage from your life insurance company is vital. If you have minimal debts or obligations for covering financial needs for anyone else, life insurance probably isn’t necessary.
Source: MSN Money
Dropping life insurance coverage may seem risky, but there are times when it makes good financial sense.
The main purpose of life insurance is to support dependents when you die. If others no longer rely on your income, the money you spend on premiums could be put to better use — perhaps spent on day-to-day living expenses or saved for retirement.
If you keep a policy that you no longer need, you’re wasting money.
Following are circumstances in which you might be better off without life insurance.
1. You’ve found a better deal
The life insurance industry is competitive, so it pays to comparison shop.
To protect your dependents, don’t cancel your old policy until you’re certain that the new one has taken effect.
Also, check the financial strength of any insurer you do business with. The Insurance Information Institute’s website explains how to contact financial rating agencies and what you should know about their ratings of insurance companies. A less-expensive policy won’t be a good deal if there’s no payout when you die.
2. It’s time to cash out your whole life policy
There are two types of life insurance, term and whole life.
Term life insurance lasts for a fixed period, but it is cheaper.
Whole life insurance provides coverage for your entire life but is more expensive. It also includes a savings component that grows over time. You can borrow against or cash in that savings.
If you are approaching retirement and have a whole life insurance policy that you purchased when you were younger, your best financial bet may be to cash it in.
3. You’ve gone through a divorce
When people cut marital ties, they often need to make new financial plans. If you purchased a life insurance policy to provide security for a spouse, there may be no reason to keep it once the marriage is dissolved.
4. You need long-term care insurance
At some point, you may decide that the money you’re spending on life insurance would be better spent on a long-term care insurance policy. This type of policy helps pay for nursing homes, assisted-living facilities or home health care if you need help with daily tasks, such as eating and dressing. These expenses typically aren’t covered by health insurance. If you plan to buy a long-term care insurance policy, consider doing so before you develop age-related health problems that could increase the cost of the policy. If you need help deciding whether you need long-term care coverage, consider seeking advice from a fee-only financial planner who won’t steer you toward an insurance company that he or she works with.
5. Your children are grown
Typically, people have the greatest need for life insurance from their 20s or 30s through their 50s or 60s — when financial demands often are the greatest. In addition to raising children, people in this age range often are paying off mortgages and setting aside money for their children’s college educations. If a family’s main wage earner dies at this stage of life without life insurance, the home can be lost and any plans to send children to college may be canceled or postponed. However, as people age into their 50s and beyond, children grow up and associated financial pressures tend to diminish or even disappear.\
6. You’re self-insured
Some people are so financially secure that they don’t need a life insurance policy.
If you’re able to set aside enough money to provide for your dependents after your death, you have no need for a life insurance policy. This is called self-insuring. Before you decide to self-insure, make sure you truly have enough money in reserve to pay for your dependents’ needs. If you have children, you’ll need to set aside enough money to support them until they complete their educations and become financially self-sufficient. If you have a spouse, he or she will need enough money to maintain a home and lifestyle after you’re gone.
7. You need a smaller policy
The amount of life insurance coverage you need can diminish over time. If your children are grown and your mortgage is paid off, perhaps you only need a small payout to cover final expenses when you die.
If you’re considering dropping a life insurance policy for a smaller one, use a free online life insurance calculator to help you determine the amount of coverage you need.
Source: MSN Money
If you're buying life insurance, why not try to save a little money along the way? Check out these money-saving tips for buying life insurance.
It's your first time buying life insurance and you've done your homework — researching the different types of life insurance policies and shopping around to compare prices from different companies. (Your parents should be proud.)
But don't sign on the dotted line just yet.
With a little help, you might be able to save money on the coverage you need to help financially protect your loved ones.
Here are some money-saving tips for buying life insurance.
Compare Apples to Apples
You wouldn't stay in a hotel or eat at a restaurant without comparison-shopping. The same should be true for buying life insurance. However, just as it wouldn't be fair to compare the cost of an all-inclusive resort to a hotel that only provides a room, it's important to always compare apples to apples when looking at life insurance policies from different companies.
For starters, make sure that both are classified as the same type of life insurance policy, such as permanent life insurance or term life insurance. A term life insurance policy from one company will likely be less expensive than a whole life policy from another — and the features of the policy will be completely different. So, if you're getting quotes from different companies, always compare like policies.
Choose a Reputable Life Insurance Company
When you buy a life insurance policy, you do so with the expectation that the company will still be there when it's time for your loved ones to cash it in. Choosing a reputable company now can save your family time, money and hassle later.
How can you find a life insurance company worthy of your trust?
Take into account their rating from third-party agencies, such as A.M. Best. That can help give you an indication of the company's financial strength (or lack thereof).
You might also consider the life insurance company's longevity. How long has the company been in business? If it's been around for decades, it's a sign of durability. That means the company is more likely to still be around when you and your loved ones need it most.
Look for Ways to Save Money on Life Insurance
You know that life insurance is important — as it can help your loved ones stay afloat financially, should you pass away.
So, if you know you need to buy it anyway, why not try to save a little money along the way?
Fortunately, there are a number of money-saving tips for buying life insurance.
Here are some of them:
1. Ask About Life Insurance Price Breaks
To save money on certain types of life insurance policies, such as term life insurance, ask about more coverage, not less. Some companies offer life insurance price breaks, also called "milestone discounts," for higher coverage amounts.
For example, you might get a break for getting $250,000 in coverage instead of $200,000. So even if you figure out that you only need a certain amount of coverage to protect your loved ones, it may be worth asking how much a higher level of coverage would cost.
You could end up saving money on life insurance, while getting your loved ones greater protection.
2. Choose a Life Insurance Policy That Requires a Medical Exam
To get approved for certain types of life insurance, such as term or permanent life insurance, you often have to first take a life insurance medical exam. The results from that exam, along with your answers to a health questionnaire, help the life insurance company assess your level of risk for passing away prematurely.
However, there are also certain policies that allow you to forgo the life insurance medical exam and questionnaire completely. There are a number of reasons why one might want to skip a medical exam, such as health issues.
But, if you're generally in good health, buying a life insurance policy that requires a medical exam will typically be less expensive than buying one that doesn't.
3. Customize Your Term Length
Term life insurance policies last for a specific duration of time, typically between 10 to 30 years.
However, some life insurance providers allow you to choose the amount of time that best serves your needs, in one-year increments.
For example, you might be 17 years away from paying off your mortgage. You can get a 17-year term life policy to match that mortgage commitment.
The longer your term duration, the more you'll likely be paying for it. By customizing your term length, you'll only pay for coverage during the years you need it most.
4. Get Extra Life Insurance Coverage Through a "Life Insurance Rider"
A life insurance rider is an addition or an amendment to a life insurance policy. Often times, it's a great way to get extra life insurance coverage for minimal additional cost.
There are number of different types of riders, such as accidental death benefits, child riders, terminal illness riders, or waiver of premium riders.
For example, you may be able to get accidental death benefits, which would pay out money in addition to the benefit amount of your life insurance policy. It's also advantageous because accidental death coverage is typically offered as a separate policy. By adding it as a rider to your life insurance policy, you'd only have to manage one policy instead of two.
5. Ask About Life Insurance Renewal Guarantees
With a life insurance renewal guarantee, you're guaranteed the chance to renew your term life insurance policy — without retaking the medical exam.
It's true that your life insurance premium will be based on your current age — not the age you were for your initial term, but you won't have to start the shopping process all over again.
This is particularly valuable if your health has declined. Trying to buy term life insurance from scratch with poor health could mean paying a higher premium — or not qualifying for coverage at all.
6. Compare Your Life Insurance Payment Options
Some insurers allow you to pay monthly, quarterly, semi-annually or annually. Paying annually can often save you money. Also, there are often fees for monthly billing (these are called "fractional premiums"). It might pinch to make an annual payment, but it's worth asking about in order to save money in the long run.
7. Buy Life Insurance While You're Young
Term life insurance is generally less expensive when you are younger and in relatively good health. That's not generally the time in life when most of us think about buying term life insurance, but actually, it's the best time to save money.
Waiting until later in life when you're older or might be dealing with medical issues can drive up your premiums — or it could even prevent you from qualifying for term life insurance at any price.
8. Buy Life Insurance that Aligns with Your Lifestyle
Are you a skydiver? Underwater welder? Pilot? If you have a high-risk hobby or occupation, be sure to shop different companies when buying life insurance. Each life insurance provider rates risks differently, so you might be able to find one that charges less for high-risk activities. Quality term life insurance may offer a good price for your lifestyle.
9. Look for Life Insurance with Living Benefits
Some companies may offer term life insurance policies with "living benefits." All term life policies offer your loved ones some degree of financial protection, should you pass away. But term life policies with living benefits may be able to provide you or your family with financial help during your lifetime — when you need it most. Living benefits are typically available to those who have a chronic, critical or terminal illness.
It can help to offset the cost of medical bills or other expenses, allowing you and your loved one to focus on what matters most — enjoying every moment together.
Source: AIG Direct
If you’ve received a diagnosis of terminal illness, and need funds from a life insurance policy before you die, several options are available to help address those sad circumstances. None, alas, is a perfect choice for all who have only a short time to live.
The insurance transaction that’s often pitched to the terminally ill is what’s known as viatical settlement, which involves the sale of your policy outright before you die. But many policies also offer other alternatives to those who are cash-strapped and aren’t expected to live very long.
Here’s more on settlements and the other ways to tap your insurance if your time is short, along with advice on choosing the option that works best for you.
What is a viatical settlement?
This is a type of life settlement, the term used to describe the sale to a third party of a whole, universal or convertible term life insurance policy. The sales process for a viatical settlement is structured the same way as a life settlement — the policyholder gets a lump sum in exchange for the buyer taking over premium payments and collecting the death benefit.
Unlike life settlement, though, the viatical option is available only to people who are terminally ill, or have serious, chronic and debilitating conditions, generally coupled with a life expectancy of two years or less.
Viatical settlements came into being nearly four decades ago, in the early years of the AIDS epidemic. In that period, getting HIV represented a death sentence, and many of its victims had been actuarially projected to live much longer.
The settlements offered a way for early AIDS patients to use their policies to offset end-of-life medical costs and living expenses. As medical advancements made it possible for people to live much longer after contracting HIV, viaticals remained as an option for anyone who is terminally ill and holds an eligible insurance policy.
The advantages of viatical vs. life settlements
For all their similarities, life settlements and viatical settlements differ in two key respects that can make the latter the more lucrative option.
To begin, a viatical settlement can yield a higher price. Since the buyer theoretically will be paying premiums for no more than two years before they collect the death benefit, they’ll likely make a better offer than if the policyholder were expected to live longer. (However, as with a life settlement, you can expect a viatical settlement on permanent life insurance, such as a whole life or universal life policy, to yield an offer that’s higher than the policy’s cash value but below the value of the death benefit.)
In addition, the proceeds from a viatical settlement can receive more favorable tax treatment. While proceeds from a life settlement are taxed as income, those from a viatical settlement may not be. If the money is used to pay for qualifying healthcare expenses, for example, you might be eligible for favorable tax treatment, according to I.R.S. regulations.
Pros and cons of a viatical settlement
Getting money upfront for life insurance is a welcome option for a policyholder who’s in need of expensive care at the end of their life, to cite just one financial challenge. But as with life settlements, those considering a viatical settlement for themselves or a loved one should carefully consider the ramifications of selling a life insurance policy to a third party.
Selling a permanent life insurance policy means that its death benefit will no longer be available for that person’s heirs. It also means the loss of a key financial safeguard. If the policyholder has outstanding debts, creditors or collection agencies could lay claim to the money they’re owed out of the sale proceeds. By contrast, a death benefit paid out to your heirs after you die is protected from such a claim.
In addition, the usual cautions about not rushing into a deal apply, particularly if the offer to buy the policy comes unsolicited or is accompanied by a high-pressure sales pitch. The AARP warns seniors and their families that unscrupulous operators might exploit the distress or panic that a terminal illness can trigger.
Alternatives to settlement
Fortunately, a settlement is by no means the only financial option if you have a dire health prognosis and need cash. The unfortunate few who are battling severe medical issues have a couple of other options.
A death benefit loan
If you have permanent life insurance, it’s possible you’ll be able to borrow against the cash value that’s built up in the policy. Such loans have potential disadvantages, but they do give you access to cash without having to sell the policy. And while the loan would be deducted from the death benefit upon your death, and is subject to interest, it would allow you to leave the remainder of the policy’s proceeds to your heirs, free from possible seizure by your creditors.
Accelerated death benefits
Some permanent life insurance policies allow policyholders experiencing a terminal or catastrophic illness, or in need of long-term care, to access some of the policy’s death benefit while they are still alive.
The sum that can be tapped is typically limited to 80% of a policy’s face value, according to the AARP. Also, receiving accelerated death benefits lowers the benefit payout the policy beneficiary will receive after the policyholder’s death. The policyholder also remains responsible for making premium payments on their policy.
To qualify, one usually has to have a life expectancy of 6 months or less, or maybe 12 months, at most. In some cases, that may be an option worth considering.
Deciding how to tap your life insurance
The emotion that can follow a terminal diagnosis, on top of pressing financial needs, hardly creates ideal conditions for a careful financial decision on what to do with a life insurance policy. Nonetheless, you should proceed with due diligence as you wrestle with whether to sell a policy or access some of its money before you die.
The decision process should begin with seeking guidance from your financial advisor or attorney, as the non-profit Women’s Institute for a Secure Retirement (WISER) points out. If seeking a settlement is a strong possibility, shop around among several companies and/or brokers to find the best offer, and check with your state insurance department to verify that the company or broker you are considering is licensed. Finally, remembering that you don’t have to accept an offer [on your policy] and you can change your mind after one is made.
As for taxes, even if the funds from a viatical settlement are to be used for long-term care, it is important to discuss the tax implications with a qualified tax professional to determine whether the funds you receive will be subject to federal income tax.
Finally, keep in mind that the alternatives to a settlement that provide cash before you die are not all-or-nothing propositions.
Source: MSN Money
The pandemic has fundamentally changed the way Americans shop for essentials. Clothing, groceries and even prescription drugs are increasingly purchased online.
What they’re shopping for has changed as well. Applications for life insurance policies jumped 4% in 2020 — marking the highest year-over-year annual growth rate since 2001.
But while you can shop for almost anything else from the comfort of your couch — even other other forms of insurance, like auto, through comparison-shopping sites — until now, the process of buying life insurance has been much more complicated, including going to an in-person doctor’s appointment for a medical exam.
Some consumers have been left wondering whether finding an affordable life insurance policy means having to ignore public safety guidelines.
But the pandemic has caused a proliferation of the availability of no-exam life insurance, which you can get without leaving your home — meaning you don’t have to choose between protecting your family’s future and your own health.
How has the pandemic changed life insurance?
No-exam life insurance has been around for a long time. Until recently, it was the only option for high-risk individuals living with medical conditions or working dangerous jobs that make it hard to lock in life insurance.
But when the pandemic hit, having to travel to do a medical exam became more than an annoyance — it suddenly wasn’t safe.
In response, more than a third of life insurers have now expanded their offerings of accelerated underwriting during the pandemic.
With no-exam life insurance, you can skip the medical exam with its blood draws, urine tests and uncomfortable questions. You’ll simply fill out an application, and within minutes you’ll see the option you qualify for — and be able to immediately secure the coverage your family needs.
How does the process usually work?
Medical exams have long been an important part of the underwriting process for life insurance.
Each insurer has its own underwriting process, but generally after you submit an application, you’ll have to do a phone interview with an underwriter, take a medical exam and then allow the insurer to check whether you’ve applied for other life insurance policies and look into your prescription drug and driving history over the last few years. From there, an adviser will go through all the information to come up with a life expectancy and based on that, give you a quote.
This whole process can take up to two months.
How are some insurers adapting?
While insurers are aware consumers want the process to be easier, they also can’t just assign rates without some underwriting.
They first need to make sure they’re not overpromising because underdelivering in this situation would mean being unable to pay out claims as they come in — which could be disastrous.
And in some states, they also need to be able to legally justify their reasoning for coming up with rates in case an applicant ever contests their offers.
So getting rid of underwriting isn’t realistic. But over the last few years, some insurers have been using data and analytics to speed up and streamline the process.
At this point, there’s more than enough data out there on most categories of life insurance applicants to accurately calculate a fair premium without having to subject the person to a medical exam.
Some brokers can now even show you a quote within minutes of submitting your application.
What this means for you
Some online insurance companies can now take the information you provide through your application and run it through an algorithm that assesses your risk.
If you qualify, you’ll get coverage right away, without ever having to talk to anyone on the phone or taking a medical exam.
At a time when it feels like so many choices have been limited for us, you won’t have to choose between security and safety.
If you’ve been holding off on buying life insurance because you can’t safely leave your home or you think it’s going to cost an arm and a leg to opt out of a medical exam, you now have options.
Source: MSN Money
If you’re going through a divorce, life insurance may be low on your list of priorities, but any policies you purchased during your marriage could be considered marital property and may be subject to distribution. That said, the reason to sort out your life insurance with your former spouse is less to protect your financial interests than those of your children — if you have any.
Divorce proceedings typically differ from state to state. Still, insurance will likely come up during a divorce settlement negotiation, especially if there are children involved and the primary parent earns significantly more than the non-primary parent. Almost anything can be negotiable in a divorce case, and life insurance may be no different.
Here’s a quick guide to what to expect if you’re divorcing and one or both of the partners has insurance.
Term life insurance simplifies the split
Whether or not you’ll have the option of splitting your life insurance with your ex will mainly depend on the type of policy you have: term or permanent.
As the name implies, term life insurance covers a temporary financial need with a death benefit that expires between 10 to 30 years. If you, the insured, died within that timespan, your beneficiaries would receive a payout for the face value of the policy.
Commonly, policyholders tend to choose a term that expires right around the time their significant expenses are over — after the kids have moved out or their mortgage is paid off. As for the death benefit, the golden rule of thumb is to purchase 10 to 15 times your annual income, although that will depend on your financial needs.
Since term life insurance is a simple product that holds no cash value while you’re alive, this type of policy would not be treated as a marital asset during divorce proceedings. If you bought a term life policy while you were with your ex, the policy would likely be considered separate property because the financial asset in the term policy is the death benefit.
Whole life insurance can complicate matters
Conversely, permanent policies such as whole, indexed, variable, and universal life insurance do not expire as long as the policyholder pays the premiums. And these policies have an investment component known as “cash value” that could be considered a marital asset and may need to be split.
Since the life insurance policy itself cannot be split in two, both parties can negotiate the value of that cash component in exchange for another asset. This means that if you wanted to split your shared permanent policy, you’d have to cash it out and divide the proceeds or use the cash payout to cover legal fees or joint debts. And this is typically the most viable course of action for many, as permanent policies are expensive to maintain.
Naturally, many divorcées have a change in their monthly cash flow after splitting. Taking the expensive monthly premium of a whole life policy out of the picture can help alleviate costs.
Life insurance for the sake of the kids
If there are children involved, you may still have a financial obligation to your ex after the divorce settlement — or they to you. In these instances, there may be the need to maintain an existing life insurance policy or take out a new one, in the ex-spouse’s name, to protect alimony payments, child support, and pension or retirement funds.
A new policy may be needed if your spouse is in danger of not being able to cover their obligations to the kids were he or she to die. Ideally, the spouse themselves recognizes this vulnerability and is willing and able to take out (and pay for) the policy, or at least agrees to do so as part of a divorce settlement.
If that isn’t the case, though, you may want to consider taking out a policy on your ex, to benefit you and your kids. Even if you plan to pay the premiums, however, you will need your ex’s co-operation to buy the policy. Its approval will require their agreement to share personal medical information and perhaps to undergo a medical exam.
The process is potentially simpler with an existing policy, especially if you’re prepared to pay the premiums. Keeping a policy on your ex-spouse especially makes sense if they have developed potentially life-threatening medical issues since the policy was taken out.
It may also be wise if he or she is in a risky line of work, such as firefighting, policing, or construction. In that case, you could keep a term life policy on them as a precautionary measure. “If your ex runs into burning buildings or operates dangerous equipment for a living.
Expect life insurance to be part of divorce negotiations
The decision on whether or not to keep a life insurance policy on an ex will be part of the settlement agreement negotiation. If the ex that is paying for the policy is comfortable with maintaining it, the policy can remain. If the ex has no interest in providing coverage, it will be impossible to keep the policy, as it has to be a mutual agreement.
Once you get a divorce, you should aim to gain ownership of any policies your former spouse took out on your life because only they can modify the beneficiary designation on the policies. Even if you’re the policyholder, the judge could allow your former spouse to remain as a beneficiary if you owe them child support or alimony.
While you can name your children as beneficiaries, it can be complicated if they are minors. Therefore, you could establish a trust with a managing trustee that can help legally divide your death benefit between your children. This can be a good option when you don’t want or can’t trust your ex-spouse with the responsibility.
Choosing between term life and another policy type
Legal wrangling aside, if you and your ex need to purchase a new policy after your divorce, you’ll need to determine if term or permanent life insurance is the best choice. Term life will cover you for a predetermined period and is a popular option for most people looking for standard coverage, but higher net-worth individuals or people with special needs children could benefit from a permanent policy.
Finally, one of the most important things you can do to stabilize your financial future when getting divorced is to plan for the long term. After divorce, before you make any big moves, meet with a financial planner to understand the role life insurance plays in your larger financial picture. This should be a central part of your financial plan, especially if you have kids.
Source: MSN Money