10 Tips to follow when buying or reviewing life insurance that will improve your coverage by getting you better value. These are the strategies that insurance professionals use for their own coverage.
The goal is to avoid land mines and surprises. At the risk of over-simplifying:
Regular review = Better coverage, lower premiums.
A regular review of your life insurance portfolio gets top billing. Why? Products change, your goals and objectives change, health may change and things such as beneficiary designations tend to change. At least every 2-3 years, review your goals, objectives and your inforce policies. The purpose of reviewing your policies is not only to check premiums against the current market but to learn about new policies and new riders that add value and increase the policy value. For example, new riders are available today that allow you to draw against the face value of the policy if you have a serious health event such as a heart attack or stroke. The review is not time consuming for you, involves 30 minutes per year.
Ownership and Beneficiary Issues.
Discuss the owner and beneficiary of each policy with an experienced agent and/or advisor who understands the objective for each policy. Do you have policies in a trust? Do you still need a trust? Circumstances change such as business partners, spouses, children, tax laws, etc. Mistakes here can undo all your planning.
How Long Should the Coverage Last?
Nearly everything revolves around how long you need or want the policy to be inforce. Because it is often tough to be certain today about the future, buying a policy with flexibility to shorten or lengthen duration is essential. Once you decide how long the coverage should last, decisions such as term vs. permanent become much easier to make. As you get older, feelings about duration often change. Many 35-40 year old buyers are convinced they only need coverage until retirement or when their kids finish school. As those events get closer, many people attempt to extend the coverage period only to find out they cannot. Most term policies don't offer good options and most people simply don't know to ask.
Installment payout option or Lump-sum proceeds?
Now you have a choice to have your beneficiaries paid a lump-sum or guaranteed payments by the insurance company. Are the policy proceeds of your current policies paid in a lump-sum (like a lottery payout)? GIVEN THE CHOICE, most people buying life insurance for income replacement prefer the installment payout option which is the equivalent of buying a guaranteed income plan for your beneficiaries. Premiums are significantly lower and the proceeds are paid for as long as you determine. Visit Life Insurance Concepts for more information.
Policy Type.
There are many types of policies and there is a perfect one for you but I urge my clients not to get hung up on the name or type of policy. The lowest priced policy is not the best policy. Among policy types, the most important decision you must make is either a term policy or a permanent policy. Good policies have many riders that add tremendous value to the policy. You can add “applications” to your life insurance policy that allow you to invest in the stock market or allow you to borrow on a tax favored basis.
Living Benefits. An Emergency Fund for Health Events.
The Living Benefits allow you to draw against the face value in the event of a critical, chronic or terminal health event. A heart attack, bypass surgery or a stroke can all create financial havoc. Longer term health problems such as MS, Parkinson’s and Alzheimer’s also create financial difficulty for your family.
However, if you purchase a $2,000,000 policy with these living benefit riders, you will be able to draw up to $2.0 Million, depending on which type of health event you experience. For no additional premium, why continue to own a policy that DOES NOT offer you access to draw against the face amount of your policy?
Term Conversions.
Talk about avoiding land mines: You must know the conversion deadline if you own a term policy or plan to buy term insurance. Because people underestimate, at the time of purchase, how long they need coverage, the conversion option allows you to convert the policy to permanent coverage, without new medical evidence. Once this deadline passes, you will need to provide brand new medical evidence if you wish to keep the coverage after the term period. Staying aware of the conversion deadline is one more reason to regularly review your coverage – See Tip #1.
Avoid or minimize surrender penalties.
Life insurance can get a bad rap as an investment vehicle if there are severe surrender charges, which so many policies have today. With surrender charges lasting up to 20 years in some cases, the policy cash value is zero in the early years.
Rule: When buying permanent life insurance, make sure to demand illustrations with little or no surrender charges. You will get a better policy as a result. No surrender charges usually means either less or no commissions have been built-in to the policy. Instead of receiving commissions, we charge a disclosed and transparent fee that is typically less and does not impact the performance of your policy.
Buy only from an experienced professional.
Life insurance companies DO NOT sell direct-to-consumer; you must buy from a licensed agent. That agent may be someone you know, a digital agent or web site, a kiosk or a stranger on the other end of a phone line. Whichever one you choose, they are all agents and they are compensated by the insurance company. With the exception of life insurance without built-in commissions, insurance companies compensate their agents with commissions that may increase your premiums and lower the surrender values in the early years. Therefore, it is in your best interest to buy from an experienced professional who will counsel you through the process. You gain nothing buying life insurance without the help. In fact, you will pay for something you do not use. Online web sites are life insurance agencies that are paid when you buy a policy. Many people incorrectly think they are getting a better price online. Not so with life insurance. We encourage you to ask for disclosure about built-in commissions.
ALWAYS consider Universal Life instead of term.
I cannot stress this enough. Traditional term insurance played an important role in the past 30 years. Unfortunately, it has some fatal flaws that can easily be avoided with better policies that provide the best of both worlds. One Policy For Life offers:
Rates comparable to term premiums.
No conversion deadline – coverage as long as needed.
Immediate surrender value = superior net cost.
Guaranteed cash value in early years.
Skip premiums if necessary.
Add premium to use policy like savings account, build up is tax deferred.
Finally, I have written extensively on the alarming trend concerning a few life insurance companies that have recently raised the cost of insurance rates on some of their inforce blocks of policies. If you own permanent life insurance or if you are a professional advisor to clients who may own permanent coverage, I invite you to visit my Blog and share one of the posts about these rising costs.
Visit Life Insurance Concepts for more information about life insurance or call us at 561-988-8984.
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