A Quick Look at Whole Life Insurance

Author: Dennis Jarvis
Source: isnare.com

The name of this site is etermlifeinsurancequote.com for a reason…term is the most affordable way to insure against the risks that accompany someone passing away early. This begs the question…what about the main alternative, whole life insurance? That’s a good question and it’s really the first question to answer in order to make an informed decision. Let’s look a little closer at how whole life insurance works (and doesn’t).

Whole life is exactly what it says. The protection of whole life will continue as long as the premium is paid (whether by you or by the policies cash value/dividend). You are protecting the insured for his/her entire lifetime. Suffice it to say, whole life policies always pay out. There will always be a benefit paid regardless of whether a person passes away tomorrow or at age 90. To many people, this a reassuring thought and addresses the most common misunderstanding of insurance…”What if don’t pass away during the period of term life I purchased and I paid all that money?”. This is akin to the “What if I never get sick” argument with health insurance and it shows a critical misunderstanding of how insurance works and our views of risk and probability. Read that last sentence over and the let’s look at how the life insurance companies came up with a way to satisfy this basic fear much to their financial benefit…whole life insurance.

So you’re now a life insurance executive in charge of new plans for the company. There’s plenty of jokes I can enter here but it’s too easy so we’ll move on. People in marketing are telling you about this strange fact that people like to get something for money they pay and a lot of the population doesn’t purchase life insurance because they very well may not get anything. Even though those people know the risk of going without, they can’t get past paying money now for some possible benefit in the future. There’s a disconnect. Voila…whole life insurance. You pitch it to the company and they think you’re crazy. “We can’t insure against a risk that has a 100% chance of happening…we’ll either have to charge the full amount (plus profit, overhead, inflation, etc) or go broke!” Well, let’s just say the carrier didn’t go broke by selling whole life insurance. In fact, it’s one of their most profitable types of insurance and life insurance brokers are pretty excited to show you whole life as well. Perhaps they just all feel it’s a better product or maybe they understand that some people will go without life insurance all together if there isn’t something more tangible for the money they pay. You may agree with this but understand that you are paying significantly to do so.

How does the company 1) offer whole life considering the fact they will have to pay out and 2) attract people to purchase whole life due to the cost resulting from item 1? To answer question #1, the carrier has to charge considerably more money to offer whole life. You can think of it this way. Let’s look at $100K benefit. One way to think of it is that they will charge you $100K plus a certain percentage to cover profit, overhead, inflation, cash value (we’ll discuss later) over your statistically expected remaining years. That’s a lot of money you have to pay and this is the reason whole life is so much more expensive than term. To some extent, you’re paying a dollar to get a dollar (actually less than).

As to question 2, how does the carrier attract people to buy this much more expensive life insurance policy? The first way goes to the disconnect that caused the company to create whole life in the beginning. The guarantee of a benefit. “Why would you pay money and get nothing in return with term” is likely the pitch. But they need more to “sweeten” the deal. What if your policy builds up a cash value that you own. We’ll take some of the extra premium and give it back to you over the course of the policy. At some point, the cash value and/or dividends can even pay the premium of the policy. Now, people are satisfied. Yes, they are paying a lot more but they will get some of back. The problem is that they will get a lot less of it back than they pay relative to the cost of term life.

If you’re absolutely adamant about the “whole life” length of protection for whole life, then by all means. We can help you in this regard. We just think it’s important to get an impartial understanding of what you are paying for. Insurance, at it’s core, is about insuring the probability of a risk. Anything that strays from this framework quickly approaches something else and usually at your expense.

Dennis Jarvis is a licensed insurance agent concentrating on term life insurance. Shop, compare, and instantly quote multiple carriers with professional guidance and resources.

Life Insurance Basics

Author: Brian M. Gardner
Source: articleage.com

One of the most important things you can do as parents is to ensure the financial welfare of your children in the event of your death. Life insurance is the best way to be rest assured that your children will be taken care of if you die. Although we never like to think of that kind of thing happening, but it does.
What is Life Insurance
Life insurance is a policy that you can enter with your insurance company, which promises a certain amount to your beneficiary(ies) in the event of your death. Usually, a spouse will name the other spouse as well as their children as beneficiaries of the policy. As part of the agreement with life insurance, your insurance policy will be a monetary value, that you will in return, pay a monthly premium for. Premiums usually depend on your age, gender, occupation, medical history and other factors.
There are other types of life insurance that may provide benefits for you and for your family while you are still living. These policies can accrue a cash value on a tax-deferred basis and can be used for future needs such as retirement or your child’s education.
Do I Need Life Insurance
Earning an income allows you and your family to do many things. It pays for your mortgage, buys cars, food, clothing, vacations and many other luxuries that you and your family enjoy. However, certain situations can cause you to lose your income, and those who depend on you also depend on your income. If any of the following statements about you and your family are true, then it is probably a good idea for you to consider life insurance.
1) You are married and have a spouse.
2) You have children who are dependent on you.
3) You have a parent or relative who is aging, or disable and depends on you.
4) You have a loved one in your life that you wish to provide for.
5) Your 401K retirement plan, pension and savings aren’t enough to insure your loved one’s future.
What Are My Life Insurance Options
There are four basic types of life insurance that can meet you and your family’s needs:
Term Life Insurance
This is the least expensive type of life insurance coverage, and at least at the beginning, the simplest. Term life insurance policies do not accrue cash value, and are fixed over an extended period of time – usually one to 0 years, and they can be renewed. This life insurance policy pays the beneficiary of your policy a fixed amount in the even that you die in the period of time that your policy includes. The premiums of term life insurance are lowest when you are young and increase as you get older
Whole Life Insurance
This type of life insurance is similar to term life insurance, as well as provides cash value. Over time, whole life insurance generally builds up a cash value on a tax-deferred basis, and some even pay it’s policy holders a dividend. This type of life insurance is popular, doe to the cash value that is accessible to you or your beneficiaries before you die. Used to supplement retirement funds, or to pay for your child’s education, whole life insurance should be used for protection, rather than for accumulation.
Universal Life Insurance
This type of life insurance is a flexible kind of plan. These policies accrue interest and allow the owner to adjust the death benefits and premiums to their current life situation. You decide the amount of premium for universal life insurance, and of you skip a payment, this will be deducted from your death benefit. Universal life insurance stays in effect as long as your cash value can cover the costs of the policy. These rates are subject to change, but they can never fall below the minimum rate that is guaranteed when you sign up for universal life insurance.
Variable Life Insurance
This type of life insurance is designed for people who want to tie the performance of their life insurance policy to that of the financial market. The policy holder gets to decide how the money should be invested, and your cash value has the opportunity to grow more rapidly. However, if the market is poor, your life insurance policy’s death benefit will be poor. As with whole life insurance and universal life insurance, you may withdraw against the cash value. Be reminded that withdrawals of this life insurance policy will be deducted from the cash value.
How Can I Save Money With Life Insurance
Below you will find some suggestions on ways to save money while purchasing the life insurance policy that is right for you.
1) If you don’t need life insurance, don’t buy it. Don’t buy more insurance that you actually need in order to provide financial security for your family.
2) Shop around for competitively-priced life insurance policies while you are healthy. Don’t smoke, or do anything that might increase your rates. Take care of yourself by exercising regularly and maintaining a moderate and healthy weight.
3) If you purchase a term life insurance policy, look for guaranteed and renewable policies. That way you won’t have to periodically continue to shop around for those life insurance policies.
4) You should only buy optional forms of coverage such as riders only if necessary.
5) Shop around and compare life insurance policy rates and coverage. There are thousands of life insurance companies to choose from. It is advised that you get at least three separate quotations of life insurance, and then decide which is the best for you.
Brian M. Gardner is the Founder of Financial-Articles.com – An Online Money Making Resource. Learn how to make money and acquire wealth by investing in stocks and mutual funds, as well as how to be successful in sales, marketing and advertising.
Visit Brian’s website at http://www.financial-articles.com.