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A Look at Your Insurable Interests.Oct 22 '03 (Updated Oct 09 '04) Write an essay on this topic.The Bottom Line Different Products offer unique benefits for different needs. Most of us will need Whole Life in the end, Term Life for short periods, and Universal for Long term Periods. It seems many epinion folks are of the opinion that everyone should bye term and invest the difference. Although I am an insurance agent and not a financial advisor I have to disagree with that idea. Sure it's a good idea for some folks but not everyone. And yes there still exists insurable interests after all the kids have graduated college. Let me explain: There are three types of life insurance TERM, WHOLE LIFE, and UNIVERSAL LIFE, and within each of those types there are varieties designed to meet specific insurance needs. ie. Decreasing term, level term, and increasing term. Whole Life is usually a level premium for as long as you live but variations of whole life offer Single Premium Whole Life, or Paid Up in Twenty Years. Then there is Universal Life which offers a range of premiums. Some even offer investment vehicles that the policy owner can choose from and alter through out the life of the policy. SHORT TEMPORARY NEEDS If you want to cover a temporary debt such as your mortgage then decreasing term is ideal, it offers the lowest premiums which will not increase however the death benefit decreases with time, if you pay off the mortgage early you cancel the policy otherwise it will "term"inate at a predetermined time. The downside is if you take out a second mortgage or move into a more expensive home you may not be able to increase your insurance if your health has deteriorated. If you want to cover your income until your children are grown then Level term or in some instances increasing term may be all you need. With level term your premiums and face value are locked in for a predetermined number of years usually 15, 20 or 30, the longer the term the higher the premium. At the end of the term you could be uninsurable due to age or health, although most companies have renewable and/or convertible guarantees up to a certain age, usually 65 or 70. But at the end of each renewal period your premiums will go up so term is not a good choice if you have other insurable interests. Such as a permanently disabled dependent. One more thing if your sure the interest is temporary then you can get a product that doesn't have the renewable and convertible guarantees a little cheeper so be sure to ask or you will be paying for something you don't need. WHOLE LIFE best suited for final expense insurance Whole Life is the safest form of permanent insurance and offers some limited features such as loan values which do not have to be repaid, however an unpaid loan balance will be deducted from the face value of the policy along with any interest owed on the loan at the time of your death. A paid up policy can also be used as collateral on a conventional loan. The creditor of course becomes a beneficiary of the policy up to the balance on the loan. Even if you cannot repay the loan the creditor knows that eventually the policy will pay off. The down side to Whole Life is high premiums and if you live a long life it is possible to pay more for the insurance than the benefit, although this is rare and would only occur if you were paying higher premiums for health reasons and outlived medical expectations. Most of us we would half to live well over 100 years for that to happen and Insurance companies will usually pay the face value at age 100. Whole life is Ideal as a Final expense product especially if you take it out at a young age. The premiums will be low enough on a small policy say $20,000 - $50,000 for someone in their 20's or 30's and the benefit is sufficient to cover funeral costs with something left over to add to the overall insurance needs. Later in life the policy can be converted to a reduced paid up plan if your needs have decreased. UNIVERSAL LIFE a long term solution for large policy needs Universal Life is a little more risky than whole life especially if you don't put enough into the policy while you are young. Basically Universal Life is a "one year renewable term policy for life" coupled with an investment product. What this means is that although the premiums may remain level the cost of the insurance will go up each year and the amount of investment will decrease by that amount. The increase is determined by mortality tables so it is not evenly spread out but accelerates as you get older. If the policy is underfunded in the early years your premiums will likely increase before you are 50 now you will have to try and catch up by pouring extra money into the policy instead of allowing your money to work for you. Remember that the death claim on an insurance policy is tax exempt an important reason to have a large policy if you have a large estate and especially if you are juggling a lot of debt. After your death creditors and the IRS could leave your beneficiaries penniless. If you own a small business that you plan to leave to your heirs you may need enough insurance to keep creditors from bankrupting the company. The best plans to meet these types of needs are Universal Life, usually you can get a low premium rate for a large face value that will remain in force for as long as you need it and can be cashed in after you retire and have already handed over the reigns to your heirs. Universals are good for the people who don't know a lot about investing and can't afford to take risks. I say this with the understanding that Life insurance is not an investment product. Universal Life offers the security of having life insurance while providing a vehicle for financial growth however it is important that you set your premiums high enough while you are young so that as you get older the interest will grow to a point to keep the policy in force. Finally it is important to remember that all life insurance products primary purpose is for insurable interests and are not designed to be an investment, other products are available for that. So when trying to decide which kind of insurance to buy, look 1st at why you want to protect those who would benefit from your decision. Most of us will need some of each at different times in our lives.  |
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