Life Insurance Archives

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Financial Responsibilities of the Young and Single

July 21, 2015 Danielle Insurance No comments

The following is a contribution from Natasha Cornelius at Quotacy.

Are you young and single? You probably do not have too many responsibilities other than paying rent on time and working toward getting rid of those student loans. Fewer responsibilities mean you don?t have to think about life insurance, right? Well, you may be surprised. More single people than you think carry life insurance to protect their loved ones and leave behind a legacy.

So, why might you want to consider buying life insurance even if you do not have any kids and aren?t married?

Co-Signed Loans

If you had your parents, grandparents, or anyone else help you out by co-signing on a loan, then that person will be contacted by your creditors to pay any outstanding debts owed if you die pre-maturely.

Rather than burden those who were so willing to help you in a time of need with this debt, your life insurance policy proceeds can be the best way to say thank you in the end by relieving them of any obligation to pay the loans back on their own.

Credit Card Debt

One thing that surprises people is that credit card debt can be passed on after someone dies. Credit card companies try really hard to get you to add people to your card as an authorized user. By doing so and listing your significant other, children, or your parents as authorized users, the credit card companies can now go after them?for any outstanding debt or missed payments if you can?t pay, even if they have never used the card. That?s something to think about.

Taking Care of Dependent Loved Ones

Many single people are finding themselves caring for aging parents or other loved ones in need. Whether it?s to pay off your home that is being shared with your elderly parents, or to provide relocation assistance into an elderly care facility, having life insurance is a great way to ensure your aging loved ones continue to get the best care possible.

Planning Ahead

Just because you are young, doesn?t mean you aren?t planning for the future. Buying life insurance when you are young and healthy can save you hundreds. Term life insurance that will last until you are in your 50s or 60s can be purchased now for under $20 a month. If you know you want to get married and have children, locking in those low rates now will help exponentially in the future.

The moral of the story is that even single people need life insurance in many cases and term life insurance is extremely affordable. But don?t take my word for it, run quotes for yourself at Quotacy. You can look at pricing anonymously, which means you do not have to give up any personal contact information to see quotes. Freedom to window shop at Quotacy is a great new and convenient way to shop for life insurance.

Do you have term life insurance? Why did you decide you needed life insurance?

Photo courtesy of: jill111

The Type and Amount of Life Insurance You Need – Factors That Affect Your Rates

October 31, 2014 Danielle Insurance 2 comments

The following is a contribution from my blogging friend Gary at Gajizmo. If you?d like to contribute to Wise Dollar, please contact us.

Like any financial or estate planning decision, life insurance has many moving parts. It?s not just the type of policy you buy (term vs whole), but the amount of coverage, the length of time, the attached riders, the company you choose, etc. As you can see, it can get complicated and not all of us have the time to become life insurance agents to figure it all out.

This complexity may be the reason for some of these alarming statistics from research group LIMRA:

30% of U.S. households, or about 35 million, have no life insurance at all.
50% of U.S. households, or about 58 million, believe they have inadequate coverage.
Of the consumers who believe they need life insurance, 86% haven?t bought a policy because they think it is too expensive.

Now granted, not everyone needs life insurance. If you?re a young adult with no financial dependents and no co-signors on debt (think student loans and parents), you likely don?t need life insurance. Remember, the purpose of life insurance is to insure the financial security of those who depend on you as a provider.

Below, we will discuss how to analyze and think through two important factors affecting your life insurance policy ? the type of coverage and death benefit amount.

Term vs. Permanent Coverage ? It?s Not A Hard Decision

There are two main types of life insurance ? term versus permanent. But to make matters more confusing, within each type of category, there are dozens of different kinds of coverage. The most popular term policy is a traditional 20 year policy, whereas whole life insurance is the most common kind of permanent protection. Let?s make this simple ? chances are you need term life insurance. Let me explain why.

A traditional term life insurance policy features:

guaranteed fixed rates.
a fixed death benefit.
temporary coverage between 5 and 30 years.
no investment component.

One of the reasons term is better than whole life is that whole life costs 5 to 10 times more than term. The average cost of term life insurance for a 35 year old, non-smoker is approximately $30/month or $360/year, maybe even cheaper from the best life insurance companies.

Now imagine that you are instead paying $1,800 to $3,600/year for the rest of your life for a whole life policy. And for what ? lifetime coverage and a measly 4% guaranteed interest rate on a cash value, after fees and expenses? This may be why the Society of Actuaries (SOA.org) reported that 39% of whole life policies are canceled within 10 years of issuance.

You may be enticed by the ?guaranteed interest? part of this equation due to the volatility in the stock market lately, but don?t be fooled. After adjusting for inflation (which your 4% whole policy doesn?t account for), the stock market has returned an average 8.54% in the last 100 years.

This is the main reason any true and honest CFP? or financial advisor looking out for your best interests will easily recommend a term life insurance policy and passive mutual fund investments.

Calculating How Much Life Insurance To Buy

The other big factor affecting your life insurance policy and rates is the amount of coverage you purchase, also known as the death benefit or face value. The amount you purchase determines the payout your family will receive in the unfortunate event of your death.

Calculating your need for life insurance protection can be difficult and costly if you don?t know what factors to consider. Over-insuring yourself or your spouse can result in straining your existing budget and shortchanging your retirement planning, while under-insuring can leave your family in dire straits.

While LifeHappens.org has a great life insurance calculator, the primary contributors to the question ?how much life insurance should I have?? are the following:

Final Expenses ? burial and funeral expenses average between $10,000 and $15,000, depending on the state you live in.
Mortgage ? your outstanding mortgage is probably your largest financial burden, but is also arguably the most necessary. You?ll probably want to pay that off.
Other Debts ? this includes your car, student, business, and personal loans.
Future Education Costs ? you may want to provide assistance for your kids when they go to college.
Living Expenses ? consider the daily living expenses your family will incur, including basic necessities, food, utility, credit card bills, etc.

The above are essentially your family?s cost of living. Not cheap, huh? Sometimes, I think about every little thing we pay for in America, from the cell phone bill to car insurance to basic vacations, and it?s no wonder middle-class families are struggling to get ahead. But I digress?

You will compare this need for income replacement against your existing assets, such as your savings/checking accounts, IRA, 401K, pension, and other investments as well as your spouse?s annual income, if applicable. The difference will be your life insurance need.

In the end, the amount of life insurance you ?should? buy is contingent on your lifestyle and how much financial security you want to provide for your family after you pass.

Final Word

Treat life insurance like you would any other product or service ? compare term life insurance quotes to find the best company, coverage options, benefits, and premiums.

However, when buying life insurance, please keep in mind that the policy or company with the lowest premiums is not always the best choice for you and your family. As we mentioned, each life policy has its own pros and cons and whether a specific type caters to your needs depends on your life situation and circumstances.

What do you consider when you?re looking for life insurance? If you don?t have life insurance coverage, how do you plan for your heirs to take care of your final needs? Do you prefer term or whole life?

Buying Life Insurance: 8 Tips to Help Make Your Decision

July 21, 2014 Danielle Insurance 20 comments

Prior to working in the life insurance industry I had no clue what to look for when it came to buying life insurance. Truth be told, I was fairly newly married with no kids and had adequate coverage through my employer. As I progressed in my life insurance career, I moved into a back office support role and was amazed at how much goes into a decision to buy life insurance.

Over that time I got to see sales representatives who did things the ?right? way and those that were solely driven by commissions. Buying life insurance is difficult enough not to have to deal with greed on top of it, but it?s the nature of the beast and sadly, isn?t relegated solely to this industry. That said, while purchasing life insurance is going to be different for each individual, there are some basic tips you want to follow when you?re looking to buy life insurance.

Tips to Buying Life Insurance

This list is not meant to be exhaustive, but merely a good starting point that should help you as you?re in the middle of buying life insurance.

Know your situation – I covered this to a certain extent in my discussion on when is the right time to buy life insurance. Simply put, each of our situations are going to be different and that is what should guide you. I?m a husband with a young and growing family. Thus my coverage needs are going to be different from someone who is older and retired or someone who is young and single. There are also different calculations as to how much life insurance you could buy. Generally, they vary anywhere from 5 to 10 times your annual earnings. These can be relatively good guides, but when it comes to buying life insurance you need to do what?s best for you and your given situation and not some formula. This also means the possibility that you may not even need to buy life insurance. If that?s the decision you make, follow it if it meets your needs.

Go independent ? as in buy from an independent broker. When you?re buying life insurance, you want to deal with someone who is not going to be incented to push you towards one product or another. You want to be able to have access to multiple products and companies in order to get the best value as well as best fit. While not perfect, this also helps you make sure you?re more inclined to get a sales representative who?s not solely driven by commissions.

There is more than one policy type – As I covered in What is the difference between term?life and whole life insurance, there is some variety when you?re purchasing life insurance. That variety includes term life insurance which covers a specific term, usually somewhere between 10 to 30 years and is generally cheaper. There is also permanent coverage which comes in the form of whole life or universal life insurance. For the overwhelming majority, term life insurance is generally going to meet your needs adequately. That said, it?s going to be based largely off your given situation and needs. You may also find that you have no need to buy life insurance, and are adequately covered through group life you can secure through your employer?or nothing at all.

Don?t confuse investing with insuring ? This is really meant to go with the prior point, but when you?re buying life insurance you want to make sure not to think of it as investing. This is not to say that having adequate life insurance coverage is not important, just different. Far too often, some sales representatives will use numbers to argue that you need whole life or even universal life insurance coverage because of the investment component they carry. Don?t fall for it. Instead, buy life insurance for its intended purpose ? protection. Leave investing to the stock market, real estate, etc. and leave protection to life insurance. Unless you?re a high net worth individual who needs the coverage for estate planning, then cheaper term life insurance should adequately meet your needs.

Know your rights ? Buying life insurance comes with a lot of ins and outs and it can get confusing to know what rights you have. Many don?t know that life insurance comes with a ?free? 30 day look period as it?s called. What that means is that you get 30 days after buying the policy to cancel it if you don?t like it and get your premiums back. If you find yourself in a situation where the policy doesn’t provide what you want, then by all means use your rights. You will also want to ask such things as ?if and when the policy renews, how long are premiums guaranteed for?? and ?what exclusions are there??

How does the sales representative get paid? ? When you?re in the middle of buying life insurance that means one thing for the representative?they?re going to get paid. Shocking, I know. 😉 You want to ask how they get paid. Are they paid by commission, fee plus commission or fee only? This is not fool proof, but if they?re paid by commission then there is the potential for a conflict of interest.

Buy quality ? There are many life insurance companies out there to choose from. This can make it difficult to know whom to choose when buying life insurance coverage. As you?re making your decision, make sure you?re buying from a stable company that will be around in the event of your passing. There are several ratings agencies, though I tend to like?A.M. Best?the most. Generally speaking, you want to look for a rating of at least B+ when purchasing life insurance coverage.

Compare, compare, compare ? When you?re buying life insurance, you generally don?t want to go with the first policy you find. There are a number of reasons for this, but thanks to the internet you can compare life insurance quotes online as well as policies. Do yourself a favor and do a little homework to see what kind of rates you can reasonably get to help you see what you can expect when it comes time to purchase.

There can be a lot of work that goes into buying life insurance, but hopefully by following some of these tips you can find a better policy that meets your needs.

What do you look for when you?re buying life insurance? Do you prefer to buy a policy online or go through a specific broker?

Photo courtesy of: Insurance in Bradenton

*This post was featured on Disease Called Debt.

What is the Difference Between Term Life and Whole Life Insurance?

June 23, 2014 Danielle Insurance 12 comments

Having worked in the life insurance industry, I often get asked what is the difference between term life and whole life insurance. It is an understandable question as there is quite a bit of misinformation in the term life vs. whole life debate. That misinformation or confusion can make it difficult for many when they?re faced with the decision of what kind of life insurance coverage they should purchase.

If you read my previous post on When is the Best Time to Buy Life Insurance?you know that the younger you are, the better it is for you to buy life insurance. Now we want to take a look at the two main options you?re going to be faced with when looking at buying life insurance coverage.

The Difference Between Term Life and Whole Life Insurance

The main difference between term life and whole life insurance coverage really comes down to a renting vs. buying mindset. With term life insurance you are essentially renting coverage that spans a defined time period. Whether that be something short like five years or as far out as 30 years, your coverage will have an end point. If you outlive the coverage, then the insurance expires and you receive no value.

With whole life insurance, it is as it sounds. It lasts your entire life. This sounds good on one hand, and I?ll cover the pros/cons of that later. As it would make sense, you are going to pay more for whole life coverage because it lasts the entirety of your life. As that presents more risks, generally speaking you?re going to pay significantly more for permanent coverage.

Beyond time span and cost, the other difference between term life and whole life insurance is how the premiums are handled. With term life, the premiums pay towards the policy and that?s it. With whole life, part of the premiums go to build a small cash value that gets added to the overall value of the policy. If this thoroughly confuses you, hopefully the next section will clarify things a bit and help you with your purchasing decisions.

The Case for Term Life Insurance

The biggest positive term life insurance has going for it is that it is generally considerably cheaper to purchase. Those who know me know I like to get value in what I buy and life insurance is no different.

As term life insurance is cheaper this also allows you the opportunity to buy more coverage which is great for someone like me. If you?re relatively healthy and younger you should have no issue finding coverage of at least several hundred thousand dollars for somewhere around $20 per month. With most term life policies having level terms for the entirety of the term it can provide great value that can?t be found in a whole life policy.

Outside of those main reasons of why to buy term life insurance, the simple fact is term life coverage is straight forward. You pay a premium and get coverage. Nothing more and nothing less. As a result, this can be great for families wanting to cover potential short term needs in the event of your passing or to cover major expenses like a mortgage or college for your family.

The Case for Whole Life Insurance

As a disclaimer, I write this as someone who does not own whole life insurance. That being said, however, I do not believe it?s a bad product, just something that gets pitched the wrong way.

Whole life insurance has the same benefit of term life coverage in that your premiums are stable over the life of the policy. You don?t see premiums go up, you just pay the same premiums for your entire life, or you lapse the policy. The other main benefit of having whole life coverage is that it builds a small cash value aside from the face value of the policy. While having that additional cash value is nice, it is important to note that this cash value is not invested in the stock market or in anything you can control but is generally managed at the discretion of the life insurance company.

While whole life insurance may not be a good fit for younger individuals, it can be a good fit for those who have high incomes or have a considerable net worth. Think in the neighborhood of at least $1 Million.

Term Life vs. Whole Life Insurance? – The Decision

At the end of the day, the term life vs. whole life insurance decision is one that needs to be done in light of what?s best for you. That said, in the overwhelming majority of the time term life insurance is going to serve your needs. Of course, that should be viewed in light of your specific circumstance as what is best for most may not be what?s best for you and your situation.

As I pointed out in my previous post on life insurance, there are many sales reps that will use numbers to try and convince you that whole life is the way to go when it comes to purchasing life insurance. Of course not all are this way, as the ?bad? ones make it easy to view all in the light. That is not the case, but it is something to be mindful of.

I will say that if you are considering purchasing whole life insurance to make sure that you have your other investment needs covered first. That means things like maxing out your 401k plan at work, potentially fully funding an IRA, and even possibly educational needs of children prior to getting serious in buying a whole life policy. Beyond that, you generally would not want to buy whole life coverage before having a fully funded emergency fund?and all consumer debt paid off. Essentially, you want to cover things that are going to bring you greater return and provide for you in the short term if something were to happen to your job.

There are a number of differences between term life and whole life insurance, so make sure you educate yourself on them before making a purchasing decision. The difference is real money, so make sure it?s not one you take lightly.

What are your thoughts on term life versus whole life insurance? What kind of life insurance coverage do you have?

Photo courtesy of: David Amsler

This post was featured on Money Smart Guides, Save and Conquer, Financial Nerd and Single Moms Income.

When is the Best Time to Buy Life Insurance?

May 28, 2014 Danielle Insurance 16 comments

I don?t talk about it much on Frugal Rules, but I spent five years in the life insurance industry prior to becoming a stockbroker. My wife also spent nearly ten years in the industry. Due to that, we commonly get asked when is the best time to buy life insurance and our answer is always the same ? it?s going to be different for each individual.

We?re all going to die at some point, and need to do what we can to make sure family members are prepared in the event of our passing and life insurance is a major piece to that.

The best time to buy life insurance is a common debate and it?s clouded by the fact there is so much misinformation about it. You have sales representatives who sell policies to be things they?re not as well as the belief that you absolutely don?t need it if you don?t have a family.

With that in mind, I?m going to be running a series here on Wise Dollar that will not only go over when is the right time to buy life insurance but also things to look out for so you can keep more money in your pocket while also being wise in what you purchase.

Buy Life Insurance Sooner Rather than Later

The best time to buy life insurance, generally speaking, is sooner rather than later. Earth shattering I know, but very true. ?:-) The simple fact is that the earlier you buy your life insurance, the cheaper it?s going to be. We?d love to think that we?re better as we age, though the actuarial tables insurance companies use will tell you differently.

I know that those without families or who are younger will question why they need to purchase life insurance when they have no ?need? at the moment. I get that, I really do, and held it at one point, but it?s a shortsighted view in my opinion. It?s a simple fact that the younger you are when you buy life insurance, the cheaper it?s going to be for you.

Ultimately, it means that you will be saving money?over the long run. That?s also not to mention the fact that you?re likely going to be able to afford more life insurance coverage than you would if you wait years to get it. Take that with the fact that you never know what?s going to happen in life and it generally makes sense to buy life insurance sooner rather than later.

There is also a misconception that it?s not the right time to buy life insurance if you have 10-20 pounds to lose or are working on quitting smoking, or other things like that. That is an understandable belief, but you shouldn?t allow that to hold you back from purchasing coverage. Many don’t know that you can buy life insurance without the exam or you can simply get your rates re-evaluated once you lose that weight or stop smoking. Instead, buy insurance coverage now and use the hope of lowered premiums to motivate you to reach your goal.

Know Your Options

If determining when a good time to buy life insurance isn?t difficult enough, there are a myriad of options available, such as:

Term Life insurance
Whole Life insurance
Universal Life insurance
Group Life insurance

While variety is usually a good thing to have, the misinformation is big when it comes to the different types of insurance coverage available. With that in mind, below is a basic explanation of how each of the aforementioned life insurance products work:

Term Life: Term Life provides coverage for a specific period of time. The most common are 10, 20 and 30 year terms. These are generally the cheapest life insurance policies to buy and once the term is over your coverage expires.

Whole Life: Whole Life varies from Term in that it provides coverage for the entirety of your life, or until you surrender the coverage. As a result, Whole Life premiums are generally more expensive but they do allow you to build a small cash value in addition to the coverage. Whole Life insurance is commonly referred to as ?burial insurance? for older individuals who are looking for ways to cover the final expenses.

Universal Life: Universal Life is a step up from Whole Life and is generally viewed as permanent insurance as well. Universal Life allows you the possibility to build a larger cash value and is often sold as an investment product, although life insurance should truly not be considered an investment.

Group Life: Group Life is usually the cheapest and easiest to get as many employers offer Group Life coverage. Having Group Life is a great option, but only as a compliment or supplement to other coverage that more fully replaces your income. This is due to the fact that you?re generally not able to take it with you when you leave an employer. That said, at the very least, you should purchase this if it is available.

Now that we?ve covered the major types of life insurance, the great thing to know is that there are many avenues by which you can buy life insurance coverage today. You have the traditional insurance representatives you can buy from as well as online purchasing opportunities.

You can easily find life insurance rates and purchase policies through companies online. Personally speaking, I like to have a mix of different policies and amounts as it is cost advantageous for us. For example, we have $50,000 in coverage for my wife through USAA for $5 per month, which isn?t too bad in my opinion.

Life Insurance is not an Investment, But it?s Vital

By now, you should know when it?s a good time to buy life insurance and what to buy. You want to buy young and buy cheap. As I said earlier, there is a lot of misinformation when it comes to life insurance. One of the main areas that comes from is the belief that life insurance should be treated as an investment vehicle.

Listen, I understand why many insurance representatives sell it as such. It?s because they get nice fat commissions out of selling those types of products to you as a client! I saw it every day for five years and it?s a shame that it happens it much as it does. The situation is made worse when fear is used to sell such products to uninformed clients. It might be an effective sales strategy, but it?s not the best one in my opinion.

That being said, that is not at all to say that buying life insurance is not important. In fact, it?s an incredibly vital to proper retirement and estate planning. Think of life insurance coverage as a compliment to what you?re already doing in regards to saving for retirement. It may not be as important as saving and investing, but it still plays a vital role in planning for the future of your family. With that in mind, the answer to when is the best time to buy life insurance is?now! ?:-)

When do you believe is the best time to buy life insurance? When was the first time you bought life insurance coverage?