Life Insurance Insights

When I started selling life insurance 50+ years ago I knew little about the product.  I had never planned to sell life insurance, but I was out of a job, having a tough time finding another position in my chosen field and was offered a guarantee of $500 a month—so—I figured I’d give it a try.  I needed the money!

I was given a three ring binder that contained all the information I needed to become a success… so I was told.  I consumed the information in that binder.  Life insurance was much more than I had ever thought it was.  One of the sales tracks I had to learn was called “You’ll Earn a Fortune.”  It discussed how, during a lifetime of work, most people would earn a fortune—as much as $1,000,000!  But, people who didn’t plan still end up with nothing.  A graphic I was to use showed the image of a dejected old man sitting on a dilapidated suitcase at the end of a pier watching a cruise ship sail away without him.  The caption was “He didn’t plan to fail.  He just failed to plan.  Don’t let the ship sail without you.” More…

From the feedback I got on my last entry, it’s clear that many of you were not aware of the significant death benefits available to the children and spouse of a deceased covered worker.  My comments on this benefit should not be taken as an official statement from Social Security, but as an indicator of what might be available for you and the protection of your family.  I encourage you to go directly to www.socialsecurity.gov/mystatement and create your own statement.  If you are a worker age 18 or over you can get a statement on line.

You’ll notice from my prior entry that there is a “blackout” period for benefits paid to a spouse.  A surviving spouse of a deceased worker will receive a monthly benefit based on the deceased worker’s earnings under either of these circumstances:   More…

Most of us only think about Social Security as a retirement plan, but some of the taxes you pay go toward providing survivors insurance for the children and widows/widowers of covered workers.  In fact this may represent the largest life insurance benefit you have.  Take the case of the worker born on June 15, 1975 who died on May 21, 2013 and was earning $100,000 annually.  The spouse is age 32 and their two kids are ages 2 and 4.  Here’s the amount of benefit that could be paid at the worker’s death:

• Lump sum death benefit:  $255
• Monthly income for the next 12 years: $4,028
• Monthly income for the following 2 years: $3,452
• Monthly income for another 2 years: $1,726 More…

Having spent my last 5 entries on the rather complex subject of Indexed Universal Life (IUL), it’s time to get back to some basics—Term Insurance.

If you are a family with young children, term insurance is probably what you should buy.  I say “probably” only because most people who fall into this category work on a pretty tight budget.  So if that’s you, term gives you the maximum protection for the lowest current premium.  That’s what you need.

Term insurance should be easy.  Read the first few entries of my blog that started in February, 2012 and you should have enough information to make an intelligent decision.  But, wait; how do you go about buying a term policy?  Who do you call?  Will they get you the best deal?  Will they try to sell you a different type of policy. More…

After spending my last 4 blogs on Indexed Universal Life (IUL) here are my conclusions:

• IUL is likely to be a better form of permanent life insurance than Whole Life, due to equity investments providing a better long term return than debt investments.
• Variable Universal Life (VUL) might be considered as an alternative to IUL for those who want to be actively involved in the selection and management of investment accounts and are willing to give up the no-loss guarantee provided by IUL.
• At the present time the premium for lifetime death benefit guarantees is less expensive with a traditional Universal Life policy than with IUL, but that could change as insurance companies adjust guaranteed premiums upward as a result of reserving requirements and low interest earnings. More…

This is my fourth consecutive entry on IUL.  That’s a lot of information on one policy type, but since IUL is receiving so much push from insurance companies and agents—and—since it has so much potential as well as so much room for misunderstanding, a potential buyer should be aware of what to look for.

The best way to learn about IUL is to obtain an illustration of how the policy might work for you.  With an illustration you select a premium and face amount and using your age and underwriting class you will likely be able to see how the policy performs based on three scenarios: More…

My last entry outlined what Indexed Universal Life (IUL) will not do:  provide low cost death benefits as well as traditional UL.  So, what is IUL good for?

IUL can produce meaningful cash values to be used during the lifetime of the insured as supplemental retirement income, or to support the policy’s death benefit after premiums have been discontinued.  In my May 11, 2012 blog I illustrated how IUL might be used in lieu of a Roth IRA.  In the example used, a 35 year old pays a $5,000 annual premium for 20 years for an IUL policy that initially provides a $444,451 death benefit.  By the time the insured is age 65, based on current assumptions, that death benefit grows to $547,000.  But, death benefit would not be the main feature of this policy.  A much larger death benefit could have been provided by the $5,000 annual premium.  This policy was also to provide tax-free retirement income.  Based on current assumptions, premiums could be discontinued at age 65 and the insured could start receiving $25,000 per year tax-free, through age 100.  Plus, there would also be a tax-free death benefit whenever he died. More…

Indexed Universal Life (IUL) seems to be the permanent life insurance policy of choice today.  That’s because the return from investing in debt instruments (bonds and mortgages), which is the primary investment vehicle for life insurance companies, has tanked.  So, tacking returns to outside indexes primarily tied to equity investments produces higher, projected policy cash values.  Will this IUL advantage hold up?  It’s hard to say.  Though equity investing can be more volatile than debt investing, over the long haul the equities usually outperform debt instruments.  What affect does this have on the permanent life insurance policy being purchased today?

To determine whether or not IUL should be considered, one must determine the purpose of the life insurance policy.  If the need is strictly to produce a death benefit guaranteed for life, then today’s traditional UL policies will outperform the IUL contract.  Take the case of a 50 year old male who wants a $500,000 policy to be in force when he dies—whenever that might be.  More…

Indexed Universal Life (IUL) is the hottest product being sold today.  The policy has been around for a few years, but it is just now beginning to take off.  Why the sudden surge?  It’s because of the incredibly low interest rate environment we have been in for a prolonged period of time.  As a point of reference, U.S. Treasury 20 Year rates on April 30, 2013 were 2.49%.  In 2000 those same rates were 6.31%.  That’s a 60% drop in the past 13 years!  This has impacted the earning ability of insurance companies and especially the pricing of their permanent life insurance portfolios.  No one has a crystal ball to determine where future rates will go, but there is little likelihood of a significant, immediate upturn.

Participating Whole Life dividends are impacted big time!  Long term death benefit guarantees on Universal Life policies are also being affected.  So, IUL suddenly becomes the product of choice for the long term returns required in life insurance pricing.  More…

You may have noticed that I have often referenced policies whose premium and death benefit are guaranteed to age 121.  Why bother with such a long term guarantee?  Who lives that long?

There are two reasons why age 121 is a good target to use when determining for how long the death benefit should be guaranteed.  First, the difference in premium between, say an age 105 guarantee and an age 121 guarantee is much less than you would think.  So, if your agent has shown you a premium that guarantees to take you to age 100 or 105, ask to see what the premium is for the age 121 guarantee.

Second, people are living longer.  The May, 2013 issue of National Geographic magazine has an interesting article on this subject.  More…