Types of Whole Life Insurance

There are Many Types of Whole Life Insurance

We’re talking about Whole Life policies here … the kind that stays with you until you stop paying (or maybe a little after) or die.  Most Whole Life policies have some sort of savings plan attached.

Standard Whole Life, sometimes called Ordinary Life, is the most common and easiest to understand of the Whole Life family. It combines a savings account with a death benefit to keep your payments and benefits from changing throughout your lifetime.  In your younger years when your insurance risk is lower, some goes towards insurance and the rest goes into the savings portions to help pay the insurance part when you are older.  This savings portion can sometimes be borrowed as Cash Value.

Universal or Adjustable Life is a modified Standard Whole Life that offers some flexibility. The savings account part of the policy may be invested in a money market type account that may earn a better return than the standard account (or may not). As the money has accumulated, you have the option of “adjusting” your payments to raise or lower your payments. Lowering, or even skipping payments sounds great, but keep in mind that it’s your own money that you’re using, and there may not be enough there for later years.

Variable Life policies combine the death benefit with a savings account that can be invested in stocks, bonds, and mutual funds. If your investments do well, your policy value may grow, but if your investments do poorly, your benefits may decrease. To their credit, many companies cap your losses so that the death benefit will not fall below a certain level.

Variable Universal Life combines the ability to adjust premiums and benefits of a Universal Life policy with the investment possibilities of a Variable Life policy.

Term Life Insurance

Save Money with Term Life Insurance

If you want insurance protection only, and not a savings and investment product, buy a term life insurance policy. Initial premiums generally are lower than those for permanent insurance, allowing you to buy higher levels of coverage at a younger age when the need for protection often is greatest, but keep in mind that the premiums will increase as you grow older.

The insurance company will probably require a medical exam before issuing a policy (some companies only require a medical exam for larger policies). The examination is basic, covering your height, weight, medical history, and blood and urine testing. The results of your medical exam and your status as a smoker/non-smoker can affect how much you have to pay, or even your ability to buy a policy. If your medical exam results prevent finding life insurance, there is guaranteed issue life insurance coverage, sometimes called “quick issue” or “simplified issue” insurance. Guaranteed issue policies require no medical exam, but charge a higher premium or have reduced coverage during an initial period in exchange for the guaranteed coverage.

As you age, the likelihood you will die sooner increases, so older individuals pay more for life insurance. Many term policies offer the option to renew your coverage at the end of the term without undergoing another medical exam. You also can lock in low premiums by asking for a “level premium” policy. That means for a specific time period, say 20 years, your premium rate stays the same. After that term expires, your rates will increase.

The greatest advantage of a term life insurance policy is that the premiums will be lower (usually a lot lower) than whole life insurance.  And because it’s only for a limited term, it can be purchased to meet a certain need, like a mortgage or college education for your kids in case you die.  On the flip side, the main disadvantage to term insurance is that it’s only for a limited time.  Premiums may go up substantially as you age.  And some policies may not be renewable when the term expires.

Life Insurance Medical Exam

The Dreaded Life Insurance Medical Exam

Your Life Insurance application may require a life insurance medical exam. These exams are usually done by paramedicals and sometimes at your home or office. They generally include a blood pressure check, blood and urine specimen, height and weight measurement, and sometimes a series of questions regarding your medical history. The insurance company will pay for this exam.

The insurance company is looking for any health condition that could shorten your life which would increase their risk. Expect this testing to be a lot more comprehensive for older applicants and high face value policies, and may also include a stress test and EKG. The test might be waived for lower face value policies and younger applicants.

Test results are reviewed by medical underwriters at the insurance company, and if you have any major risks, your premium might be adjusted up to compensate or they might refuse to insure you. Your results are kept on record at MIB (Medical Information Bureau) and is available to most other insurance companies. You can check your MIB file or dispute information in it at www.mib.com.

Since this is an exam that can cost or save you some money, it’s important to prepare as best that you can:

  • Get a good night’s rest.
  • Don’t eat anything for about 12 hours before the exam. Stay away from salt and high fat/cholesterol foods for at least a full day.
  • Stay away from caffeine for two days before your exam. A cup of coffee, tea, or cola could raise your blood pressure and cost you $.
  • Don’t smoke for several hours before your exam. Although you can’t hide that you’re a smoker (it shows up in your blood test), holding off will allow your blood pressure and breathing to be closer to normal.
  • Avoid alcohol for at least a day, it shows up in blood tests and can skew other results.
  • Chill out and relax, avoid exercise or strenuous activity for 24 hours.

In most cases, you’re best off completing the life insurance medical exam and then negotiating with the company if needed, but there are several ways to get around an insurance examination if needed. Some companies offer Simplified Plans, or Guaranteed Plans which require only a written application or, in some cases, offer coverage to all. These plans generally offer less coverage, or cost more.

Most group policies (sometimes available from work) cover everyone in the group without an exam. They are sometimes limited in coverage, and the biggest drawback is that they end when you leave the job.

Life Insurance Salespeople

Find Good Life Insurance Salespeople

Before a life insurance companies hires life insurance Salespeople, they are put through multiple interviews and personality tests to make sure that they have the right combination of friendly appearance, determination, pushiness, and detail retention ability to sell insurance. Then they’re put through weeks of training, split between product knowledge and sales techniques. Even after this highly selective process, the washout rate is tremendous, with only the most skilled surviving.

What can you, the untrained consumer, do when dealing with these hired guns who spend hours each week studying and honing their sales closing techniques?

The answer is to listen carefully and don’t be afraid to say “no”. This is a major purchase, you’re going to be paying for it for the rest of your life, and it will greatly influence the lives of your survivors. You have the right to understand every part of your insurance, don’t be rushed. For every pushy sales jerk out there, there’s a knowledge pro, so don’t be afraid to say “no” and find someone else.

Get everything documented in writing. Some salespeople are going to be reluctant to do this and that’s a good sign that it’s time to look somewhere else. Take time to consider your choice, or, better yet, get a second quote from a different company. You wouldn’t believe how much time is spent training salespeople how to close the sale on the spot and get around the “I want to sleep on it” objection.

Finally, keep in mind that this is your decision, not theirs. Life insurance salespeople makes a lot of money on a whole life sale, and in many situations, they keep on getting commissions as long as you pay premiums. Make them earn the sale by giving you the service that you deserve.

Life Insurance – How Much to Buy

How Much Life Insurance Should I Buy?

The answer to the question of “how much life insurance should I buy” is “as much as you need”! It all depends on what you are buying the insurance for. If you have no dependents, and already have enough put aside to clean up all of your debts and pay final expenses, then you might not need any insurance at all.

If you are buying insurance to provide for dependents, then you need to do some calculations. This might be a task for a financial planner, or there are some good calculators out on the web. You need to calculate what you have already and how much will be needed. The difference is what you need for insurance.

Start with looking at your obligations.  All will have to be paid off at your death. Add in your mortgage, car loans, credit cards and other loans.  Compare your debts to your assets and other family resources.  For example, if your spouse has a good job or savings, then maybe they can assume or cover your debts.

Then look at income replacement.  If you supply the primary income for your family, then calculate what will be needed for a replacement … well we know that you can’t be replaced but we’re talking about income replacement.  This number is often surprisingly high.

And finally, add in any future obligations.  Will your kids need any money for college?  Will your pension stop if you die leaving your spouse high and dry?

As you tally these figures, keep in mind that you are looking to insure your financial loss.  Your death will bring a loss that no amount of insurance will be able to replace.  Insurance only covers the financial part.