Life Insurance: Coverage for you and your family

Submitted by zhl203 on Tue, 12/08/2009 - 04:26
When you have family members depending on your income, saving for the future of your loved ones is a good idea. Investing in life insurance will give you enough financial support to take care of the future of your loved ones when you are no longer around. A life insurance plan also makes provision for a cash value where a part of your premium is put into a savings account. Hence, while you invest for a secured future, you can make savings too.

What is life insurance?

Life Insurance means insuring your life to save for the future of your family. If you have family members depending on your income you may invest in life insurance. This is a contract between you and your insurance company where your insurer agrees to pay a certain amount of money to your beneficiary in the event of your death.
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What are the types of life insurance?

  • Term Life Insurance:

    For those who are running on a budget, you can opt for a simple life insurance. Term life insurance allows the beneficiary death benefits for a specific period or 'term'. This term may be 1 or more years and the benefits are paid only in the event of death of the policy holder within the term of the policy.

    There are certain term life insurance that can be renewed for more than one additional term. However, if you do so, your premiums may go higher. You may even sometimes be allowed to trade your term life insurance for a whole life insurance policy.

    Term Insurances are of 5 types:

    1. Annual renewal term insurance: Allows you to renew your term insurance every year till you reach a specific age which often freezes at 65.
    2. Renewable term insurance: With expiry of the term of the policy (generally 5-20 years), you can automatically renew the policy even if your health condition has worsened. It is similar to the annual renewable policy but this one is for a longer period of time.
    3. Level premium term insurance: Ensures that your premiums will not go higher for the term (between 5 and 20 years) of your policy.
    4. Decreasing term insurance: Allows your premiums to stay level throughout while decreasing your cash benefits each year. Such policies are usually used to cover items whose costs decrease with time.
    5. Convertible term insurance: With this policy you may convert your term insurance into any other type of life insurance policy that the company offers.

  • Whole Life Insurance:

    A whole life insurance covers a policy holder for his entire life. There is no date of expiry like in a term life insurance and the death benefits will be received by the beneficiary mentioned in the policy only in the event of the death of the policy holder. If you buy a whole life insurance you will have to pay a higher premium as compared to a term life insurance. The reason for this is that a certain portion of the premium paid for whole life insurance is put away into a savings program.

    When you compare the total premiums paid for whole life insurance and the total premiums paid for term life insurance it is seen that whole life insurance is less expensive. Even if you pay higher premiums for whole life insurance, the fact is that the premiums remain the same throughout the tenure of the insurance. But in the case of term life insurance, you may be paying lesser premiums in the beginning, but as you renew your term policy, premiums will increase. Hence, the total value accrued in term policy is bigger than a whole life insurance.

    Certain clauses in a whole life insurance allow you to pay premiums for a lesser period of time. The greatest advantage in this policy is that the premiums develop cash values that may be claimed or used for purchasing rider policies for more protection. Few of the whole life insurance benefits are:

    • Guaranteed death benefits
    • Guaranteed cash values
    • Fixed annual premiums

    A whole life insurance also known as "straight life" or "ordinary life" insurance, is not just an investment for your future alone, but also for the future of your family.

    To understand the basic difference between term life insurance and whole life insurance click here.

  • Universal Life Insurance:

    Universal life insurance is a flexible policy that provides security for you and your family. To know more please click here.

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How to save money on life insurance policy?

When you shop for life insurance coverage, there are certain ways by which you can save money on your policy. You must look for a policy that meets your needs and the right kind of benefits received. If you think that buying a policy with a low premium will save your money think again. If you buy inadequate insurance, it will be a sheer waste of money. However, you can maximize your life insurance dollars using some of the tips provided here.
  1. Seek financially sound companies: Look for companies that are financially strong so that when your beneficiary(s) make a claim, he may receive the benefits of life insurance without hassle.

  2. Shop around: Get life insurance quotes from more than one insurance provider. You may even ask an insurance agent or an insurance broker to get you few insurance quotes from different carriers. You may then compare the quotations and find a policy that suits your needs as well as pocket.

  3. Seek group insurance: Employer provided group life insurance is often given at subsidized rates so you may find a less expensive policy here. Even if you have to pay premiums out of your own pocket this might be a good idea for the subsidized rate they provide. However, premiums paid by you will probably be through payroll deduction which is convenient. But a comparison of group and individual rates depending on your age, health must be done to assess which is the best policy for you.

  4. Change in lifestyle: Maintain a healthy lifestyle. Smoking may rate you as a risk option and you may have to pay higher premiums. Exercise regularly and consider making more lifestyle changes if necessary.
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How to decide on the type of life insurance to choose from?

You may go for term life insurance if:
  • You need to make a short term investment and not a permanent one. With term life insurance benefits you can ensure the education of your children if you can invest in time. If there is a debt that you have to pay off, you may invest in term life insurance. Term life insurance covers you for a term of 5 to 20 years.

  • You need a big amount of life insurance with a premium that suits your pocket. A term insurance usually pays only in the event of death of the policyholder. However, if you are alive at the time the policy ends, term life insurance coverage will stop until you renew it. But here, you will not build a savings like in a whole life insurance.
You may opt for whole life insurance if:
  • You need life insurance stretching for the tenure of your life. A whole life insurance would pay the beneficiary the death benefit no matter when the policyholder dies.

  • You feel the need to accumulate a savings on a tax-deferred basis. A whole life insurance has its own savings program that puts aside a certain portion of the amount you pay as premiums into the savings program.
Click here to know more.
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Can you pay your mortgage with life insurance?

Yes. With mortgage life insurance your mortgage loan can be paid for in the event of your death in a time when the loan is not paid off fully. This insurance is available for 15 and 30 years where for the first 5 years, the amount of insurance is level and then decreases on an annual basis. The premiums for mortgage life insurance can be paid annually, semi-annually, quarterly or monthly.

How should you choose a life insurance company?

When choosing a life insurance company, take the following into consideration:
  • Identity of companies - Make sure to know the full name, office location and affiliation of the insurance company that you plan to buy from.

  • Product sold - Check out what products the company is selling. Most often the companies provide a wide range of policies. Check for what you need and if they have it you may consider buying from them.

  • Financial Security - Select a company that is strong financially and has been in business for long. Your life insurance is an investment to secure your lifetime. Be sure that your insurance company will make life easy for you and not otherwise.

  • Ethics - Check if your company abides by the codes of conducts and principles of the Insurance Marketplace Standards Association. This non-profit organization promotes ethical conduct in life insurance marketing.

  • Agent - An agent is supposed to help you out with your insurance needs on behalf of the company. You must consider taking help from a reliable person only. If there is any discomfort in dealing with the agent, move to another one.

  • Cost of insurance - Based on your age, type of policy and features, and the amount of insurance to be purchased, compare one insurance company with the others. Find out one which offers a better coverage.

  • Claims - A national claims database will give you the complaints (if any) against an insurance company. You may want to check to find if the company you are considering buying from is listed for consumer complaint.
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How does a life insurance company choose you?

Your application for a life insurance policy has to go through the insurance underwriting process before it's approved. The underwriters evaluate the risks associated with your application and forward it to the insurance processing department of the company.

Factors that influence underwriting procedure for Life Insurance
  1. Age of the individual to be insured.
  2. Gender of the person
  3. Pre-existing medical conditions
  4. Medical records of the family
  5. Smoker or non-smoker
  6. Mental health of the person
  7. Occupation
  8. Hobbies or lifestyle habits (activities like race car driving, mountain climbing or bungee jumping might be marked as risky)
  9. Driving records
  10. Credit history
  11. Selection of coverage limits, benefits etc.
  12. Medical reports after thorough health check-up including tests like :
    • > Blood pressure level
      > Blood sugar level
      > Cholesterol level
      > Weight of the individual
      > Urine tests
      > Blood tests
      > EKG/ECG
      > X-Rays
      > Stress tests etc.

Click here to know how the above mentioned factors affect the rates of a life insurance policy.

Your life insurance policy might not come to your assistance in your lifetime. However it'll help securing the future of your loved ones when you won't be there to take care of them. A small amount spent at regular intervals will thus be able to give you the sense of security, as you hand over the risks to your insurer. Top

Related Discussions

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My parent bought whole life insurance that pays dividends many years ago. The sales representative told my parent that she can stop paying premium in approximately 12 years because the it policy would be able to pay for itself at that time. And at the same time the policy will make annual distributions to my parent. What does that mean? Is there such thing?

The reason why I'm asking is because they're into the 13th year now and they are still paying the expensive premium. When I called the representative, they told me that the account has accumulated certain cash value and dividend, but the accumulated dividend can only cover approximately 3 years of premium.

I did some research, I understand that the cash value is like equity, but is it truly equity like we really own the money? if yes, when can we cash out the equity? if we cash out, the policy terminates? I understand that when the insured dies, the beneficiary would get paid the face amount, but what happen to the cash value? who gets it? Also, what happen if the insured dies of old age (not due to accident), is it still covered by the policy? what happen to the cash value?

Thanks in advance for your help.

Posted: 09 Dec 2009 11:51 Post Subject:

zhl . . .

You are asking all the right questions -- and some that should have been asked 12-13 years ago.

IF the policy is Whole Life (it's a dividend-paying policy so it probably is), the agent lied when he said the policy will pay for itself after any number of years. That's a concept known as "vanishing premium" and the use of that phrase has been outlawed in almost every state for about 15 years or so. But let's leave that one aside.

Read the contract. It should say on the very first page, or very near the front, that "Premiums are payable to the insured's age 100" (or words to that effect). So yes, the premiums will need to be paid to keep the policy in force. Dividends are either paid in cash, used to purchase paid up additional insurance, or left with the insurer to accumulate at interest (which causes a taxable event). There may be a couple of other "dividend options" in your parent's contract.

Not sure exactly what "annual distributions" is supposed to mean, but it probably refers to receiving the "dividends" in cash. But understand that dividends are nothing more than a refund of excess premiums paid. The insurer didn't need them to make its profit, so it gives some of the "divisible surplus" back to its current policyholders in proportion to the premiums they have paid compared to every other policyholder's premiums.

The cash value in a Whole Life policy is not YOUR MONEY. It's their money (the insurer). They credit the "inside buildup" toward the eventual payment of the death claim. As the cash value accumulates, it means they have to come up with less of their money at the moment of death. Here's an example I use to help illustrate the point:

Inflate a balloon. What's inside? Air -- nothing. But the inflated balloon represents the death benefit. If the insured dies tomorrow, the balloon pops and money rains down on the beneficiary. But since there isn't any inside the balloon yet, it will all be the insurance company's money.

OK . . . you pay your premiums and the contract says that if the insured is still alive at age 100 (new policies today say age 120/121), the policy matures or endows, and a check equal to the face amount of insurance is paid to the owner of the policy (presumably the insured) because it's all inside the balloon by then.

Your question "But what happens to the cash value?" is directed to all the other years between the first day of the policy and age 100.

So let's go back to the balloon. Every year as premiums are paid, some of the air in the balloon is replaced with cash. You can pop the balloon at any time, without dying, and some of the cash will be returned to you. But the policy is dead. So we're not going to kill the balloon.

Year after year, premiums are paid and more cash is accumulating inside the balloon. Funny thing is, the balloon is still the same size as it was on Day 1. That's because the cash is only replacing the air, not adding to the volume of the balloon. At any point in time, if the insured dies, the balloon pops and money rains down on the beneficiary, as previously stated.

People think of the money inside the balloon/policy as theirs, but it's not. If you have a savings account at a bank, when you make a withdrawal how much interest do they charge? None. It's your money. But borrow the money from a life insurance policy and the insurer makes you pay interest, because, technically, it's their money, they just earmark it for you for the future.

Because the money in the balloon is in the insurer's "policy reserves" as it accumulates, it reduces the amount of "present" money needed to pay a death claim in addition to the reserves to equal the death benefit.

So here's the bottom line. When you have a Whole Life policy, the cash value belongs to the insurer. When a death occurs -- we hope for one due to old age, but dead is dead, and the company pays (except suicide in the first one or two years, or one of the few exclusions that may be in the policy, such as war or act of war, military service, flying an airplane, or certain hazardous occupations or hobbies -- many policies only have the suicide exclusion), you can think of the death benefit in one of two ways.

If you like to think of the cash value as "your money," the insurer gives you all of your money and just enough of theirs to equal the death benefit. No one gets the cash accumulation PLUS the full death benefit in Whole Life (if you want both, then you have to get a form of Universal Life with "Option 2").

The only other way to view it is they keep the savings and pay the whole death benefit. It's not stealing, because it's really their own money. And the contract tells you that this is what they will do. So they are honoring the contract.

The cash value in the policy, although not yours, is available to you in at least four ways: you can borrow any amount up to the available "loan limit" listed in the contract. The values are for the END of any policy year ($0 in years 1 and 2, probably a few thousand at this point in your parent's policy depending on the face amount and premium). So you could borrow most of it for as long as you want. Never have to repay the loan (but interest will accrue and be added to the loan if you don't at least pay the interest each year), and because the loan amount will be less than the total premiums that have been paid, even if the policy dies, it will not cause a taxable event. But borrowed money plus the interest on it will be deducted from the death benefit if the insured dies. The loan is considered an advance payment of the death benefit.

#2: You could simply "cash in" the policy and receive the surrender value, which will be less than the total premiums paid. The surrender value may be the same or higher than the loan limit. It is not normally less. But this terminates the policy. It can be reinstated usually up to three years into the future, but all past due premiums have to be paid, and the cash value received will now be treated as a loan and begin bearing interest if not repaid. And the insured must prove insurability.

#3: You could use the cash value to buy an extended term policy. Same face amount as the original Whole Life policy, but only for a certain number of years and days into the future. The insured's age and the amount of cash value will determine the length of the new term policy. You will see the values listed on the Table of Guaranteed Values in the policy.

#4: You could take the available cash value and use it to buy a new policy fully paid up to age 100 or 121. But the insurance amount will be reduced from the original face amount -- probably by at least 50% or more. That, too, is in the same Table of Guaranteed Values.

You don't say what the insurance amount is, or what your parent's current age is, so it's difficult to be more specific. But this is the nuts and bolts of how a cash value policy works.

Do you have any other questions?

If your parent is thinking about cancelling the insurance, but still needs life insurance, they need to apply for and be approved for a new policy BEFORE they cancel the existing policy. Not the other way around. Once the new policy is approved, then your parent would write a letter to the first company and request that the policy be terminated and the surrender value sent to them.

If you are in California, I can give you more information in person or by mail/email. If you're not in California, you'll need to find another agent who you can trust to give you good information.

Posted: 09 Dec 2009 12:18 Post Subject:

If on the other hand, the sales representative said, "based upon the current dividend scale, you can stop making out of pocket premium payments in approximately 12 years", no lie was told.

Premiums never vanish, but the need for out of pocket payments can.

Posted: 09 Dec 2009 07:01 Post Subject:

MaxHerr,

First off, thanks so much for your detailed explanation. My parents bought the life insurance when they were new immigrants into the U.S.A. Because they didn’t have any financial knowledge, they bought the insurance based on what the representative said to them: they only need to make premium payments for approximately 12 years. At that time, I was only a small kid. As I graduated from college and entered into the financial industry, I began to understand these things a little better, but not very clear. This is why I posted my question here. When I called the insurance company, they confirmed that it’s a whole-life insurance policy. They also told me the face amount also grew due to dividend reinvestment.

1. So you’re saying the cash value is not insured’s money, but the dividend is, correct?
2. Could it be that the representative implied by the year 12, my parents would have accumulated a lot of dividends in the account, which could be sufficient to cover the annual premium payments for the rest of the term?
3. Is the annual dividend to my parent fixed and predetermined?
4. The policy says “life-paid-up at age 98.” Does that mean my parent has to continue to premium until age 98? So if the insured is still alive at age 98, the insured will get the face amount and the policy terminates? If the insured dies (even if it’s due to old age), then the beneficiary gets the face amount upon insured’s death and the policy terminates?
5. My parent can apply for a new life insurance policy. Upon approval, they can surrender the current policy and get the cash value?
6. Borrowing against the cash value typically bears lower interest rates than other loans?
7. At certain point in time, the accumulated cash value may exceed the face amount, then what happens?

Posted: 09 Dec 2009 09:47 Post Subject:

As to your questions, we'll take them in order:

1. So you’re saying the cash value is not insured’s money, but the dividend is, correct?
2. Could it be that the representative implied by the year 12, my parents would have accumulated a lot of dividends in the account, which could be sufficient to cover the annual premium payments for the rest of the term?
3. Is the annual dividend to my parent fixed and predetermined?
4. The policy says “life-paid-up at age 98.” Does that mean my parent has to continue to premium until age 98? So if the insured is still alive at age 98, the insured will get the face amount and the policy terminates? If the insured dies (even if it’s due to old age), then the beneficiary gets the face amount upon insured’s death and the policy terminates?
5. My parent can apply for a new life insurance policy. Upon approval, they can surrender the current policy and get the cash value?
6. Borrowing against the cash value typically bears lower interest rates than other loans?
7. At certain point in time, the accumulated cash value may exceed the face amount, then what happens?



1. Correct. The cash value is considered part of the death benefit and makes up part of the face amount. The face amount consists of 2 elements: the cash value portion and the "amount at risk." The cash value provides living benefits and is part of the death benefit. The policy owner has access to the cash value while alive, through loans, partial/full surrenders, etc.
2. Your thought is correct, and thus the implication of a stupid agent. He was trying to convince your parents that the dividends would be sufficient enough to cover the premiums. These dividends, in turn, would be used to pay the premium on the policy. Bad mistake, now against the law to make such assertions.
3. The annual dividend is NOT fixed nor guaranteed. Policy dividends cannot be guaranteed by law as they are primarily a derivation of profit, and there's no way an insurer can guarantee profit.
4. Again, correct. This is a continuous premium whole life policy which, in your case, matures at age 98. The premium requirement will last until the policy matures in this instance.
5. Yes. Not necessarily a wise choice as you are much older and the premium will be based on your age at purchase.
6. Yes, perhaps. Policy loans in most states have a max. interest rate of 8.00%. There's more to this, and remember that any money you borrow will be subtracted from the face amount upon your death if the loan + interest have not been paid back to the carrier.
7. Big question- depends on a number of things. This could potentially cause a tax issue.

InsTeacher 8)

Posted: 09 Dec 2009 10:50 Post Subject:

InsTeacher has given you in essence the same answers I would. As to Q5, there may also be a conversion provision in the existing policy allowing for an exchange into a different contract, such as Universal Life, with the same company and no new underwriting if not asking for more coverage -- have to read the contract to know for sure.

It might be possible to give up the cash accumulation in exchange for a so-called "no lapse" guarantee. As long as all payments are made on time -- missing just one payment by one day could result in the loss of the guarantee, and make the policy much more expensive instantly (which is why I don't favor them for middle income families -- too much to risk) -- the policy will always provide a death benefit. This could mitigate some of the increased cost of insurance at your parent's age, the exchange of cash value into the contract will lower the "Net Amount at Risk" in turn lowering the premium requirement. Again, this is a risky strategy that could easily backfire, putting your parents in a much worse position than they are today.

The best solution might be to keep what they have, continue to pay the premiums, and supplement any additional life insurance need with 20- or 30-year term. The longer term will be more expensive, and may not be available at your parent's current age. But it's an option worth looking into. Same would be true of starting another whole life policy as a supplement to the existing WL policy. More expensive than term, but premiums guaranteed for the life of the contract. A non-participating policy (no dividends) will be a bit less expensive.

Neither of these policy options are required to be purchased from the existing insurance company, but the existing insurance amount will need to be disclosed in the application as "not being replaced or surrendered" if that will be the case. The existing $100,000 policy should not raise the eyebrows of the underwriter.

As to Q7, the primary cause of a taxable event in such a case is when the original policy is terminated before the death of the insured. The excess over cost basis (the premiums paid, less dividends received in cash) is the taxable portion. Highly unlikely to occur in a "straight whole life" policy until the last few years of the contract. The only other time such accumulation might be taxable is upon payment of the death benefit, and for the same reasons -- the distribution exceeds cost basis (or interest paid on the death benefit from the actual date of death to the time of the death claim payment). [In 2007, I processed a claim for the death of one of our corporate clients' insured executives in which the date of death was 6 years prior to discovering the death in the Social Security Death Index and filing the claim. The $250,000 policy paid several thousand dollars in accrued, taxable interest.][/quote]

Posted: 10 Dec 2009 03:08 Post Subject:

Sorry, may I have one more question? When I wrote to the insurance company, they said the following:"your policy has the Variable Additional Rider. This rider allows the owner to direct dividends into a separate account and purchase amounts of single premium variable life insurance.”

Can you translate the above into layman’s term? What is a single premium variable life insurance? Thanks.

Posted: 10 Dec 2009 11:28 Post Subject:

It must mean that the dividends are being directed into a tax-deferred account which uses the money to buy what are known as "paid up additions" instead of accumulating in the cash value of the policy which could result in a tax liability.

But these additions are apparently "variable" life insurance, and the additional value will rise or fall according to the value of the underlying investments. You should receive a prospectus annually that describes each of the subaccounts in the separate account along with information about how to reallocate values among the subaccounts. Do you have any statements indicating how many additional policies and what the face amounts are?

If possible, can you reply with the title of the policy your parent bought? It could be something like "Golden Years Wealth Builder Whole Life Insurance" or "Flexible Premium Life Insurance" or "Universal Life Insurance" or "Modified Premium Variable Life Insurance." It would be a big help, because the rider you describe is not commonly associated with a Whole Life policy.

Posted: 11 Dec 2009 12:40 Post Subject: life insurance

My 'Dear MAX'..LOL I'm just looking at the different threads, concerning Life Insurance. BOY!!...you sure explain things that I can understand!! I recently took out a Life (Whole) Insurance policy on my son...he's 16 now. This policy will build 'Cash Value'. Now...if I wanted to 'barrow' aqainst the policy, when it builds Cash Value' (and I was told I can), would that amount of money go to me or my son?

Posted: 11 Dec 2009 05:49 Post Subject:

Wendy . . .

The owner of the policy has exclusive access to the cash value. If and when the policy has sufficient CV form which to borrow, you would be the borrower, and you can do with the money as you please. You could give it to your son, or you could drive inland to Barona and place a wager on black or red or green on the roolette table (I know I spelled it wrong, the filters on this site won't let anyone use "gaming" terms including "CA SEEN OH"-- pathetic). (Personally, I would spend some of it at the buffet first! And Barona is a much nicer stop than Harrah's.)

The only thing that must be understood is that any use of the cash value, whether as a loan to you, or an "Automatic Premium Loan" to the insurer (if you forgot to or stopped making premium payments), disrupts the death benefit payable to the beneficiary. All unpaid loan principal and interest will be deducted from the proceeds before they are paid in the event, God forbid, your son were to die.

I presume that at some point in your son's adult phase, you are going to assign ownership of the policy (and probably the remaining premium payments) to him. When he becomes the owner, he'll have the right to take you off as beneficiary, and do whatever he wants with the CV or the policy. You won't be able to dictate what he does with "his property," even if you bought it for him. Just like a mom can't tell her son how to cut his hair or to pull his jeans up over his butt so that his boxers aren't visible to the whole world (hopefully yours doesn't do that!) LOL :oops:

Posted: 12 Dec 2009 03:28 Post Subject:

After a serious discussion within family, we have decided to surrender whole life insurance. So I understand that if we surrender now, we'll get the cash value plus the dividend, but is this a taxable event? Thanks.

Posted: 12 Dec 2009 05:02 Post Subject:

You haven't exactly been given 100% accurate information here.

For starters the cash value of your policies and you can have it if you want with or without taking loans, or surrendering the policy.

You can take money as a direct distribution from the WL policy, you will pay taxes if the money taken goes beyond your cost basis. Life insurance enjoys FIFO (first in first out) distributions for tax consequences.

Usually to avoid taxes loans are used. Dividends can repay loan interest (it's another dividend option that you have available to you), but you'll usually accumulate more cash value inside the WL policy if you leave the loan interest alone and keep purchasing paid up additions with the dividends. Paying the interest on the WL policy goes right back into your cash value, to suggest that the loan interest is a charge the life insurance company is charging that is 100% taken from you as a result of using your money is incorrect.

The dividends can be used to reduce the premium on the policy. The statement that you only have enough dividends to pay for 3 years worth of premium doesn't make a lot of sense. It might be the case that you have enough PUAs to surrender and pay for three years worth of premiums.

NO, it is not correct that your policy will endow at age 98, nothing you've diclosed about the policy would tell us this. It merely means that the policy will be guaranteed paid up (require no additional premiums) at age 98. The endowment age could be much later.

WL insurance has become a lot more flexible in recent years than a lot of people remember it to be. The problem is the rave of demutalization have left a lot of companies, and a lot of agents forsaking this form of life insurance and as a result few understand it very well. I don't care if the agent you talk to has the entire alphabet after his name, it's very possible he could mess this up.

Lapsing the policy is up to you, but I think there's a lot you still don't know, and might like to know about this product.

Posted: 12 Dec 2009 05:37 Post Subject:

BNTRS

I think you make good points all around. I don't think anyone has said that the interest on policy loans goes "to the insurer" and not to the policy's cash value, although it's possible that someone might misunderstand that to be the case.

Perhaps what needs to be said is that the accrued interest is also deducted from the cash value -- either in advance (at the time the loan is taken) or in arrears (at the end of 12 months if it has not been repaid) -- and added to the loan principal. What is factual is that unpaid loan principal and interest will be deducted from the death benefit proceeds.

You're correct about the "paid up at age 98" business -- that it doesn't necessarily mean the policy endows at 98 -- but I think you're mistaken when you say "The endowment age could be much later." The contract is from the 1990s (purchased 12+ years ago) so it would fall under the CSO 1980 mortality tables and their age 100 "ultimate mortality" (all dead on paper, statistically). That's the whole basis of policies endowing at 100. And why, under the CSO 2001 with its age 121 ultimate mortality, newer policies now endow at 120 or 121.

Although there is no reason to believe that this policy paid up at age 98 would require two more years to reach maturity, it would not be later than age 100 in any event. It's not like some of the UL policies that read "premiums payable throughout the lifetime of the insured."

It's also true that a lot has yet to be disclosed about the policy which makes it difficult for anyone to give fully accurate information or advice.

Posted: 12 Dec 2009 02:39 Post Subject:

Maxx and BNTRS,
Thanks both for your help. Okay, below are all the details. Please let me know what else you need in order for you to help me. What would you do in our situation? Would you surrender the policy? How much would we get back if we surrender? Do we have to pay tax? What's your best suggestion.

Product type: Life Paid-Up at Age 98
My parent age: 53
Issue Date: 11/13/1997
Amount of Insurance: $150,000.00
Premium: Annual - $2,542.49

As of 11/13/2009:
Death Benefit Amount: $164,325.69
Surrender Value Quote: $29,528.51
Loan Value Quote: $29,528.51
Last Dividend Credited Amount: $936.00
Dividend Option: Paid Up Addtl Ins

Dividend/Rider Withdrawal:
Estimated Amount Available for Withdrawal: $6,428.51

Riders & Benefits:
Equity Additions(Variable Additional Insurance) Benefit / Coverage Amount: $14,325.69

When I inquired into the company, the responded below:

On 12/9/2009
"According to our records, your life insurance policy is a L98. This means the premium payments have to be paid to the anniversary date following your 98th birthday.

Your policy does not have the option of paying for itself. You policy has the Variable Additional Rider. This rider allow the owner to direct dividends into a separate account and purchase amounts of single premium variable life insurance."

On 12/11/2009
"I understand the importance of your concerns. Based on what you are
stating it sounds like your representative is talking about the
Accelerated Payment Arrangement.

Accelerated Payment (AP) is a premium payment arrangement that allows
you to systematically apply accumulated dividends to pay the annual
premiums, after premiums have been paid out of pocket for a number of
years.

In other words, AP uses the current annual dividend in conjunction with
the available dividend balance to help "bridge" the policy to the point
where the annual dividend exceeds the annual premium payment.

It is important to understand that a policy on AP is not fully paid-up,
nor will AP reduce the number of years in which premiums are required to
be paid. Since the AP arrangement is completely dependent on
dividends, it is not guaranteed. Any fluctuations in the dividend scale
will directly impact this payment arrangement.

According to our records, the above arrangement is not available for
your policy. Therefore, you will have to pay the premium payments. I
can't explain why you were told this plan would be available on your
policy. I would encourage you to speak with your representative. If you
would like me to contact the sales office and request a callback for
you, please let me know when will be the most convenient time for the
representative to contact you.

I understand that this is probably not the information that you were
expecting to hear but I hope that it has been helpful."

Posted: 12 Dec 2009 02:41 Post Subject:

You are correct, it would be CSO 1980 and as such would have an endowment age of 100.


To answer the OP's question about what they get at surrender, you get cash value from the policy. It's only a taxable event to the extent that your outlay is less than the cash value. Outlay = premiums paid - any dividends or PUA surrenders you've used to reduce or pay for premiums.

Posted: 12 Dec 2009 02:53 Post Subject:

Looks like variable whole life insurance. Very popular back in the late 90s. Cash value at $29,528 means you can access $29,528 from the policy

There should be sub accounts associated with this if it's variable. Those would be on your statements. How often do you get statements?

Posted: 13 Dec 2009 03:27 Post Subject:

Accelerated Payment (AP) is a premium payment arrangement that allows you to systematically apply accumulated dividends to pay the annual premiums, after premiums have been paid out of pocket for a number of years.

In other words, AP uses the current annual dividend in conjunction with the available dividend balance to help "bridge" the policy to the point where the annual dividend exceeds the annual premium payment.

It is important to understand that a policy on AP is not fully paid-up, nor will AP reduce the number of years in which premiums are required to be paid. Since the AP arrangement is completely dependent on dividends, it is not guaranteed. Any fluctuations in the dividend scale
will directly impact this payment arrangement.

According to our records, the above arrangement is not available for your policy. Therefore, you will have to pay the premium payments. I can't explain why you were told this plan would be available on your policy. I would encourage you to speak with your representative. If you
would like me to contact the sales office and request a callback for you, please let me know when will be the most convenient time for the representative to contact you.

I understand that this is probably not the information that you were expecting to hear but I hope that it has been helpful.



OH, MAN! While the Company's explanation of things is excellent and what the OP's parent should have heard, you can bet that what the OP writes they remember being told is not something they would have made up. These are immigrants and were probably very much at a disadvantage from a language perspective, too, and the agent $aw an ea$y $2200+ (90%) in commi$$ion$ on the half $hell!

BNTRS ... I'm still not sure this is a VL policy, otherwise the OP probably would have copied the title as "VARIABLE WHOLE LIFE payable to age 98." And if a VL policy, the Company would have mentioned the "guaranteed minimum death benefit" (GMDB -- I would expect to see maybe $25,000) which is a fundamental component of VL policy design.

On the other hand, $2542.49 * 45 years is only $114,412.05 in base premium (76.3% of $150,000 face) and too low for a whole life policy which would demand closer to 90% in premiums over the life of the policy due to 4-5% IRR. So something else, like a sales illustration with a 7-8% IRR is driving the low premium. Without a copy of the policy in front of me, I'm still a bit confused.

12 years of premiums = $30,509.88, and despite the market conditions of late, if a variable policy, I would expect the cash value to still be higher than the total of premiums, unless there's something being siphoned off to the General Fund for the GMDB -- or the CV has been in a guaranteed fund all this time, which would have been a mistake for an "investor" looking to maximize the tax-deferred IRR. So there's something happening here that eludes me at present.

The fact that the OP has not mentioned anything yet about any annual statements is also indicative that it might not be a true variable policy. Still, a "variable rider", as the company admits, would require such a statement.

$936 in dividend for 2008/2009 is a 3.07% annual yield, $6,428.51 in PUA surrender value is 21% cumulative, but only 1.7% average annual yield, and is consistent with most participating whole life policies I've analyzed. I've never seen a participating VL policy, but this could be a first. So even if the PUAs are variable in nature, it seems like the funds are in a guaranteed interest account.

Paid up additions (PUA) total 9.5% of face after 12 years. Not bad, not great. Insured's age is the mitigating factor, now at 65-66.

What do you think, BNTRS?

zhl . . .

You've asked us

What would you do in our situation? Would you surrender the policy? How much would we get back if we surrender? Do we have to pay tax?



1) Because none of us are truly familiar with the details of your family's situation, it would be a crime to suggest anything at this point. Would I surrender the policy? Probably not, unless there was some immediate need that demanded giving up the insurance and using the available cash value. I would be willing to go out on a limb and say that I doubt your parent's situation is that desperate at the moment (you haven't said anything to indicate that).

2) The company has told you that the surrender value is $29,528.51. That's what your parent would receive if they terminate the policy. They have already paid at least $30,509.88, so there would not be any taxable event in surrendering the policy.

3) Another thing to consider is that if your parent still needs life insurance, at their current age of 65/66, any new policy, even term, is going to be MUCH more expensive than what the current premium is for $150,000, let alone for any larger face amount. If they have a need for more coverage, it would probably be a better decision to supplement the additional need with a second whole life or term life policy (for the same face amount, a 10-year level term policy premium would be about 35-50% less than the premium for a whole life policy). At age 65/66, 10-yr level term is about the longest LT policy available from most insurance companies. A longer level term policy would also have a higher premium. Most term policies at this age are going to be level for a short period (to age 70, or 75 at best) and then change to Annual Term rates, which increase every year. So at age 65/66 if the need for life insurance is still a long term need, the more expensive whole life policy will be less expensive in the long run, and perhaps a better choice.

But any advice you truly need requires a more thorough analysis of your parent's present situation and future needs. That requires a "face-to-face" meeting between agent and client, something which can be done but is not best accomplished via email or fax.

Finally, you ask

Please let me know what else you need in order for you to help me



A scan of the policy title page or data page would be nice to look at (block out any personal names, addresses, birthdates, and other personal identifiers). You can also send me a private message or email, and we can discuss this in greater detail, appropriately, off the thread. [/quote][/i]

Posted: 13 Dec 2009 08:35 Post Subject:

I agree that it would be helpful to see the policy. Even an inforce illustration would be helpful.

Is the insured 53 now, or was 53 at policy issue?

I think we might be a tad too quick to jump on the original agent and vilify him/her. We don't know what kind of conversation took place 12 years ago, products were a lot different, and though the original agent made a big mistake if he/she suggested the policy would pay for itself by now, I think there are larger issues at hand.

I think I know what company issued this policy, and if I'm right, it's definitely an A+ top notch insurer, and there may be a few options concerning what the insured can do with this policy.

Posted: 14 Dec 2009 07:54 Post Subject:

You might be right, age could be 53 today, and not my assumption of issue age.

I have no doubt about the integrity of the insurer. I've run across too many clients over the years who seem to distinctly recall the agent telling them that after 7 or 10 or 15 years they wouldn't have to pay any more premiums. I had a prospect's husband literally tell me, as he got up and left the table, "The agent told us after 7 years we don't gotta pay. Next month gonna be 7 years, and I ain't payin' another penny. If the dude lied to me, I'll get him."

Okie dokie!

Any way, as presented so far, this is pretty interesting, but too many details still in the dark.

Posted: 14 Dec 2009 07:26 Post Subject:

My parent's CURRENT age is 53. Insurance was bought in 1997. Insurance company is MetLife.

As my parent is entering retirement age, their income is decreasing and may not have the ability to continue to pay the annual premium. I want to evaluate if their current life insurance policy makes economical sense. If not, I suggest they surrender the policy, take the cash value (and the dividend? do they get the dividend too?) and enjoy their retirement. If yes, I may take on the burden and pay the annual premium.

Maxx, thanks for your help. I will try to send cover page of the statement and the policy, if possible.

In the meantimes, do you suggest I ask some additional questions to the company? And what would be the good questions to ask?

Thanks.

Posted: 14 Dec 2009 09:20 Post Subject:

ZHL . . .

Thanks for clarifying the age element. At 53, insurance is getting costlier, but not nearly as much as at age 65. So that's in your parent's favor.

However, it's not simply a matter of "economical sense" that is your starting point, but whether or not there is a need for life insurance. IF the answer to the question is, "Yes, we have a need for life insurance," then even if the current policy does not make "economical sense" until it is replaced with anything else, you should not counsel your parent to surrender the policy.

Having a replacement policy in force first is critical, because if they apply for newer coverage, surrender the exiting policy, are declined for the new coverage, it may not be possible to reinstate the surrendered contract. There is usually language in the contract that a "lapsed" policy may be reinstated within a stated period of time (3 years very common, longer possible), but that same paragraph probably states something like "We will not reinstate a contract which has been surrendered."

To get things out of sequence could leave your parent with $30,000 cash in hand, but no insurance. Agents can lose their licenses by counseling persons in just that manner. So you really don't want to do it that way.

A needs analysis will help determine the amount of life insurance that might be appropriate. A crude by reasonable method is sometimes known as the "DIME" method: D=consumer debt (unsecured, credit cards, student loans, vehicles, business loans, etc, to be paid off), I=income for survivors (how much per year/how many years), M=home mortgage and other mortgages to be paid off, E=education funding for children or emergency funds for surviving spouse (separate concept from survivor income = usually thought of as 4-12 months' income in a separate account for emergency use only). Add them all up, and come up with a rough insurance amount.

Not entirely accurate, but a fair representation of need. Other sources of income, other assets that could be liquidated, these are things that could also reduce the amount of insurance needed or increase it if there was a concern about taxation of one's estate following death. (Won't be a concern in 2010, but is likely to reemerge in a big way in 2011).

It's commendable that you would consider paying the insurance premium, and is a viable option. As to your question about cash value and dividends, they are the policyowner's to take at any time. Dividends have been used to purchase paid up additions, so they can surrender the additions for their cash value without affecting the base policy. There are no premiums to pay for those additions. But the additions also increase the total death benefit, and once surrendered,, cannot be reinstated. Similarly, it is not usually possible to keep only the paid up additions and surrender the base policy.

Posted: 14 Dec 2009 10:19 Post Subject:

Maxx...thanks.
So is it accurate to say $20,754.20 represents the total dividend my parent received over the past 12 years, of which $14,325.69 were used to buy paid up additions (i.e., additional coverage)?

I wish they had never used the dividends to buy the paid up addition and had left the as dividends. For 3 reasons:

1) We don’t need that much coverage.

2) For time value of money reason. Because dividend is something you can get IMMEDIATELY whereas the additional coverage amount is something you’ll get at the end of the policy. For example, if they had left it as dividends, then if my parent surrenders the policy today, they’ll get $50.282.71 (=$20,754.20 + $29,528.51), but now they will only get $35,957.02 (=6,428.51 + 29,528.51) because some of the dividends have been converted into death benefits.

3) My parent would have $20,754.20 in dividend today, which can be used to satisfy approximately 8 years of annual dividends without out of pocket expense.

Do you think I can tell the company to stop using dividends to purchase additions? So we still don’t know what kind of insurance my parent has (variable whole life or what)? Maybe I should ask the company directly.

Posted: 14 Dec 2009 10:57 Post Subject:

As of 11/13/2009:
Death Benefit Amount: $164,325.69
Surrender Value Quote: $29,528.51
Loan Value Quote: $29,528.51
Last Dividend Credited Amount: $936.00
Dividend Option: Paid Up Addtl Ins

Dividend/Rider Withdrawal:
Estimated Amount Available for Withdrawal: $6,428.51

Riders & Benefits:
Equity Additions(Variable Additional Insurance) Benefit / Coverage Amount: $14,325.69



No, your calculations are not accurate. Your $20,754.20 ($14,325.69 + $6,428.51) is wrong. As is the value of $50,282.71. Let me show you how to read the numbers you provided.

The surrender value ($29,528.51) is the maximum cash available other than as the result of death (because it appears that there are no more "surrender charges", the loan value and the surrender value are the same). It includes the accumulated cash value of the dividends ($6,428.51). (Not $29,528.51 + $6,428.51 = $39,957.02)

Some or all of the cash value of the dividends ($6,428.51) may be "withdrawn", reducing the death benefit by up to $14,325.69, but not below the $150,000 original face amount. Any amount of the $29,528.51 may be "borrowed" as a policy loan, reducing only the amount of death benefit payable as long as the loan and interest remain outstanding.

The total dividends returned to date are not more than $6,428.51 (only $936 in the last 12 months, will probably be more next year). They have been used to purchase an additional $14,325.69 in death benefit over time.

But just like cash value and death benefit, the two are intertwined, not separate. If your parent died today, heaven forbid, the insurance company's death claim obligation would be a minimum of $164,325.69 ($150,000 + $14,325.69). Not $164,325.69 + $29,528.51.

Your parent, as the owner of the policy, can direct that dividends be used in any of several ways other than purchasing more paid-up insurance. They can be credited to the next year's premium to reduce out of pocket cost. $2542.49 - $936 = $1,606.49 (the amount that would have been needed out of pocket to pay this year's premiums as a single payment). They can be received in cash (non-taxable event). They can be left in the insurer's general fund to earn interest (a taxable event). If there was an outstanding policy loan, the dividends could be used to repay the loan (principal, interest, or both).

Yes, we don't know exactly what type of policy it is, but it must be stated on the cover of the policy or on the first page inside the cover or on the Policy Specifications (Data) page -- it's required by law. It will say something like: Variable Whole Life Insurance, Modified Variable Life Insurance, Universal Life Insurance, Flexible Premium Adjustable Life Insurance -- any number of possibilities here. Look for that on the policy cover or on the first few pages of the policy inside the cover. I'm sure you'll find it. Should also be indicated on any policy statement. And you could ask the company directly, too. They'll tell you.

Posted: 15 Dec 2009 11:47 Post Subject:

WL doesn't use a surrender charge against cash value for any policy year. Whatever the stated cash value is, it is also the surrender value.

The use of dividends to purchase Paid Up Additions allowed your parents to accumulate more cash inside the policy than any other dividend option, making that move was a wise one.

When one places money into a WL contract to "purchase" paid up additions they are essentially placing more money into it. As has been stated, you can access that money either by surrendering the PUA or taking a loan (there are different situations that would warrant one option over another).

This is not the company I was assuming, which better explains why the dividend is currently where it is.

If price is causing problems, you should contact the company and ask them what can be done for a premium offset. This doesn't mean premiums aren't due, it means that dividends continue to purchase paid up additions, and paid up additions are surrendered to pay for premiums. This could bridge period of time between now and when you'll have enough dividends to pay premiums.

Be well aware, MetLife isn't much in the WL market anymore, they don't have a terrible product, but dividends paid to your policy aren't there top priority--used to be.

There may also be the option to reduce pay up the policy. It'll reduce the death benefit by a good amount, but it'll keep the policy inforce without future premiums, and the cash will remain and continue to grow. Also, dividends will continue to purchase PUAs increasing both cash value, future dividends, and death benefit.

I would advise you not to feel duped, the policy design seems mostly correct. Unfortunately, the sales concept hinging on the idea that the policy wouldn't require premium payments by now turned out to be false.

I'm intrigued by the retirement comment. Your parents are retired at 53?

Posted: 16 Dec 2009 03:05 Post Subject:

BNTR...

Quote
"When one places money into a WL contract to "purchase" paid up additions they are essentially placing more money into it. As has been stated, you can access that money either by surrendering the PUA or taking a loan (there are different situations that would warrant one option over another)."

Are you suggesting using dividends to purchase the addition was the best option? I think I just told the representative to change our dividend options to "Dividends with Interest." Should I change it back? There are 4 options available: 1) Additional paid-up insurance, 2) Dividends with Interest, 3) Premium Reduction, 4) Cash payments, and 5) One-Year Term Coverage. Are you saying #1 increases cash value faster than any other choices? Does WL separate out the cash value for the PUA and the base policy? (I only see one cash value). If it does, then I can choose to surrender only the PUA coverage. I think this is what you meant by premium offset? But if dividends are used to purchase PUA, wouldn't it slow down dividend accumulation?

Quote
"Be well aware, MetLife isn't much in the WL market anymore, they don't have a terrible product, but dividends paid to your policy aren't there top priority--used to be."

What's the implication here for us? I'm not sure what you're suggesting here. Are you saying I should focus on increasing cash value rather than dividend?

I told my colleague about our situation about life insurance. She got nervous because she remembered her representative telling her that she only needs to pay premium for about 20 years and then she will no longer need to pay any out of pocket premium. She called her representative to confirm this and her representative assured her. Could this be true? I still can't believe it. When I ask her what kind of insurance she has, she read the product type to me: Guaranteed Advantage (UL). I think it is Universal Life? But even with Universal Life, could that be true?

Posted: 16 Dec 2009 04:15 Post Subject:

Yes, you're cash values and dividends grow faster with paid up additions. If asset accumulation is the goal, using that dividend option is in your best interest.

My comment about MetLife and dividends was to reinforce the likelihood of lower than originally suggested dividend performance.

As for your colleague...

You are correct, she has Universal Life Insurance

And her premiums...

This is tricky, UL is very interest sensitive it's possible to endow a UL contract and require no additional premiums, but there are so many moving parts.

To ensure a guaranteed premium period, she should look for something called a secondary guarantee on the policy. This promises that as long as she pays the planned premium for the specified period the policy will remain in force. The cash values most likely cannot be touched in this case. This sort of policy is more like having a permenant piece of term insurance.

In her case, there are no dividends, nor is there a paid up provision. It's simply the insurance company promising that after so many payments at a certain amount, they will guarantee a death benefit.

Posted: 16 Dec 2009 04:00 Post Subject:

BNTR...
Are you saying for an UL, the Death Benefit Amount and the Annual Premium are subject to change? There’s no guaranteed Death Benefit Amount?

Posted: 16 Dec 2009 07:01 Post Subject:

Depends entirely on the contract. Some are; some aren't. Most are guaranteed for a certain period of time providing a minimum premium is paid.

Posted: 06 Feb 2010 06:27 Post Subject: WHOLE LIFE INSURANCE

What will the premiums be on a $1,000,000. Policy to go to my estate at the time of my death?

Posted: 07 Feb 2010 12:02 Post Subject:

WHAT WILL THE PREMIUMS BE ON A $I,000,000. POLICY TO GO TO MY ESTATE AT THE TIME OF MY DEATH?



Why do you want the $1 million to go to your estate? Someone with an insurable interest must be the beneficiary....we need some more details. How is your health? How old are you? You can run some rates on our website if you want, but more detailed info would certainly help. Here's the link: http://www.terminsurancebrokers.com/instant-quote

Posted: 18 Feb 2010 01:08 Post Subject:

Max and BNTRS: Let me commend you both for doing a great job for this person.

I honestly was getting "really" interested in this case until the name, MetLife, popped up. My lawsuits have cost mother Met around $750M and, as you might imagine, they don't like me very much.

I'm almost positive that a policy purchased in 1997, was included in at least one of the big class suits and, therefore, the policy owner has no legal recourse.

At first glance, this appears to be a case of Vanishing Premium Fraud but, I seriously doubt the old agent acted maliciously in the sale of this policy. The policy was merely a victim of drastic changes in both the company and the economy. With that in mind, I doubt I would ever take on a case like this.

I would only make one small alteration in the information given to this person. Actually, you may have previously clarified that dividends and cash value are two completely separate entities and that dividends are not generated by an overpayment of premiums - that's where cash value comes from.

Other than that, you both have done a great job!
I'm proud to have you both on my team.

Mark

Posted: 18 Feb 2010 02:02 Post Subject:

Life Insurance Dividends

Life Insurance dividends are generated by permanent participating life insurance policies. The term Participating means the policy owner receives a benefit if the company’s performance is better than anticipated (there really is an actuarial formula for this).

On the other hand, some whole life policies are non participating which means they do not participate if the company’s performance is better than anticipated. In some cases, the premiums for non participating policies are lower than those of participating policies.

Dividends are based on a mutually owned company’s [investment vs. mortality] experience and are not guaranteed

Because so many companies have demutualized in the last few years, dividends on new policies are few and far between.

When Are Dividends Paid?

Payment of a life insurance dividend indicates that the life insurance company's operating expenses, risk selection, and management experience has exceeded expectations and, therefore, the policy owner participates in this good performance.
• Dividends are almost always paid on a policy’s anniversary date, the year after which it is earned. It is equal to the difference between the policy value and the cash value in that year. The value of paid up additions, the size and age of the policy, and the amount of premiums are things considered when calculating dividends.
• The policy value is equal to the guaranteed cash value, plus the gross annual premium, less mortality and expense charges, plus any interest (typically between 2 and 4%) which may have been credited to the policy, minus the guaranteed cash value.

How Can You Use Dividends?
• Unless another option is selected prior to issue, life insurance companies typically use dividends to purchase paid up additions. Paid up additions are like little fully paid up single premium policies that never require a premium. Each of these little paid up policies have cash values and also earn additional dividends if the company does well.
• You can use your dividends to reduce the premiums of your participating whole life policy. Over a period of years, the reduction can be considerable, thereby making the premium payments on an older policy a little easier to budget.
• You can have your dividends paid in cash. If you should choose this option, the life insurance company will send you a check each year.
• Dividends can also be left to accumulate interest. Many people like this dividend option as the amount you receive over 10, 15, or 20 years can be considerable.
• When added to the policy’s cash value, life insurance dividends, if left to accumulate, could grow fairly large. This amount, of course, depends on the size of the policy and other factors.

Posted: 22 Feb 2010 07:39 Post Subject: mother dying, can the health center take money out of life i

My mother is leaving a will. My sister is power of attorney. she said the life insurance will be taken by them for any bills that blue cross and medicaid did not pay. How does this work.

Posted: 23 Feb 2010 01:55 Post Subject:

Who is "them?" The Will will have no legal authority over the life insurance proceeds. The life insurance proceeds aren't necessarily needed to pay bills (I'm guessing medical) not covered by the insurance company and medicaid. That's something the hospital or long term care facility can go after her estate for. If there's no estate, or a small one that no one really cares about, or is very liquid, the claimant/creditor will take a bath on the charges or will take them from the estate respectively. The life insurance proceeds can bypass the estate with respect to creditor claims.

Posted: 17 Mar 2010 06:35 Post Subject: Life Insurance Twists

My sister-in-law took out life insurance on my mother-in-law about 3 years ago and changed it so that she is a lein holder on the policy along with her. If my mother-in-law no longer wants this policy out on her, can she cancel it without my sister-in-law or do they both have to agree to it. Can you have more than one life insurance policy out on a person because the other siblings want to take out a policy where all the siblings are included as beneficiaries on the life insurance? My mother-in-law has no clue what kind of insurance coverage was taken out because my sister-in-law says she can't do anything since she's now also a lein holder for the policy. Did I mention that my sister-in-law sells insurance? Something seems fishy.

Posted: 17 Mar 2010 06:40 Post Subject: Last Will and Life Insurance

If I set up an estate or Last will that indicates where I want things to go or who I want to inherit specific benefits, can that be done for my life insurance policy even if someone else is a lein holder on my policy and I don't want them to control it? Can I remove someone as a lein holder on my life insurance policy or do they need to agree to be removed?

Posted: 24 Mar 2010 02:21 Post Subject: Cash Value usage

Can an insurance company use the accumulated cash value of a policy if the policyholder is no longer able to pay the premium--without the policyholder's permission?

Posted: 24 Mar 2010 08:29 Post Subject: Purchase of 10,000 Whole life insurance

Mr.David P. Hut.
I received my supplement policy for medicare today and thought I would ask you about getting me a whole life insurance policy from Mutual Of Omaha. I had one UR19304886.
but Mutual had me confused about the payment. I was paying 55.00 a month thru my bank bill payment and they were trying to collect 55.00 through EFT. I believed my payments were already made however after having gone over my bank records the payments were offered but never accepted by Mutual of Omaha. I would like reinstatement of my current policy and if they will reinstate it I will pay I Feb, Mar, and Apr premeiums. Can you help me with this mess. I have tried to contact Mutual but can never get an answer and besides if you were to sell me this policy perhaps therewould be a commission in it for your agency? Any help getting this policy reinstated would be greatly appreciated by me.
Thank you
Jesse W. Mitchell
556 Caseyville Road
Collinsville, IL 62234

Posted: 25 Mar 2010 10:18 Post Subject:

Can an insurance company use the accumulated cash value of a policy if the policyholder is no longer able to pay the premium--without the policyholder's permission?



No. However, there may be contractual language and/or something in the application that has given them this permission.

For instance, if it is a whole life policy, take a look at the application. Something called an "automatic premium loan" is probably checked. This is permission for the insurance company to take a loan from the cash to pay the premium.

Posted: 25 Mar 2010 03:40 Post Subject:

Wow! A lot of different questions here all at once. I'll start with "Life Insurance Woes"

If I set up an estate or Last will that indicates where I want things to go or who I want to inherit specific benefits, can that be done for my life insurance policy even if someone else is a lein holder on my policy and I don't want them to control it? Can I remove someone as a lein holder on my life insurance policy or do they need to agree to be removed?



Need to clear some confusion here. Wills and life insurance do not have much association with one another unless the life insurance money is being directed into the decedent's estate, where it is simply added to all other assets of the estate and becomes subject to claims against the estate by "creditors" of the decedent first.

In order of preference, those "creditors" fall into a few distinct categories: (1) employees of the decedent (if an unincorporated sole proprietor), (2) "Uncle Sam" (federal govt), (3) (a) state, (b) county, (c) local govt, (4) unsecured creditors (credit cards, personal loans, civil judgments), (5) anyone else with a valid monetary claim against the decedent.

[[ Secured creditors have their claims satisfied by receiving title to the security interest -- mortgages/homes, cars, boats, etc -- regardless of the value. If the property is worth less than the secured interest, the creditor generally has no additional claim unless the decedent did something intentionally to reduce the item's value or "hypothecated" the security without the creditor's consent (sold/exchanged to a third party). However, if the property value exceeds the creditor's actual security interest, the creditor owes the difference to the decendent's estate, where it will be available to satisfy the claims of the unsecured creditors. (Example: Creditor holds a mortgage with a remaining balance of $100,000. The home is worth $300,000. The creditor owes $200,000 to the estate -- or it allows the probate court to dispose of the property and receives its $100,000 (the usual course of events) and the balance goes to the estate.]]


Creditors 1-2-3, in order, are entitled to 100% of their claims until the money runs out. Creditors 4-5, if any money remains, are subject to the probate court's discretion, meaning if there is not enough money to pay all in full, the probate judge has the discretion to parcel the money in any manner he/she sees fit (within the confines of probate law) so that all receive something as their "liquidated damages" and the unpaid portion of their claims are dismissed (similar to the action of a bankruptcy court).

What this really means is that anyone the insured probably wanted the money to go to might never see a penny of the money. This is the primary reason to NEVER name the estate as the beneficiary or leave the beneficiary designation blank on the application.

A will is not a substitute for a beneficiary designation.

Having said this, let me address the second part of your question, specifically.

if someone else is a lein holder on my policy and I don't want them to control it? Can I remove someone as a lein holder on my life insurance policy or do they need to agree to be removed?



Any changes that can be made may only be made by the policyowner. I will assume that you are the policyowner.

As the policyowner, you have the right to name and change beneficiaries, unless they are designated as irrevocable. A "lienholder" is not a beneficiary, but they have a financial interest in the death benefit. In other words, they are a "creditor" of the death benefit (not necessarily of the insured). This is entirely outside the realm of the will.

A "lienholder" will have their claim paid from the death benefit proceeds before any other beneficiary, or the estate, receives the balance of proceeds, if any. So in that sense, it looks very similar to my previous explanation of what happens to money in an estate. Other creditors of the decedent still have no claim against the money until and unless it reaches the decendent's estate. This is an absolute protection afforded both life insurance, structured settlement, and retirement plan assets (all of which are intended to have a beneficiary other than the estate).

As a creditor, a policy "lienholder" has a secured interest in the policy proceeds to the full extent of their claim. This is known as a "collateral assignment". The policy proceeds are the creditors collateral/security for some obligation that exists between the insured and the lienholder.

A lienholder is unlikely to release their collateral assignment without some exchange of value. Could be money, property, or anything else the lienholder accepts as payment in full and then signs a "Release of Collateral Assignment."

Often, a collateral assignment is given in exchange for permission to repay a debt periodically. It could be a hospital that is receiving monthly payments following surgery or treatment not covered by medical insurance. When this is true, the lienholder's claim must be supported by documentation of its "interest as it may appear." Meaning: the lienholder must present a record of payments and outstanding balance to support its claim. The other policy beneficiaries have the right to contest the lienholder's "interest" if they can provide a record of payments that differs from the one being presented by the lienholder. Obviously, this can become a very contentious situation, and could become very time-consuming, even expensive.

But, no, there is nothing anyone can do to cause the lienholder to be removed without that person's written consent. If the person is a "natural person", their claim endures to their estate if they predecease the insured.

On the other hand, a person with a collateral assignment is not the owner, and may not be able to prevent the owner from lapsing/terminating the policy. Their "interest" may otherwise be enforceable, and terminating the policy could be a "cause of action" in civil court. If the owner lapses/terminates the policy, he could still be sued for the money he/she was obligated to under the collateral assignment. And the judgment that results could become a liability of the estate -- one of the #4 unsecured creditors.

Now on to "Localmaiden" and her questions.

First,

My sister-in-law took out life insurance on my mother-in-law about 3 years ago and changed it so that she is a lein holder on the policy along with her. If my mother-in-law no longer wants this policy out on her, can she cancel it without my sister-in-law or do they both have to agree to it.



This, too, is one of policyownership first. If "sister-in-law" is the owner, "mother-in-law" is powerless to terminate the policy. It is unlikely that the policy is under "joint" ownership, which would require the consent of both owners. If "mother-in-law" is the owner, she has the right to terminate the policy.

But the matter of "lienholder" is confusing. Your statement that "[she] changed it so that she is a lienholder on the policy along with her" makes no sense.

I assume your statement refers to "sister-in-law" naming herself as a "lienholder" in addition to "mother-in-law" as a lienholder. But if "mother-in-law" is the insured, she cannot have a collateral interest in the policy. One cannot live and die and collect.

If "mother-in-law" is the owner, she has the right to create a collateral assignment between herself and any other person. But it must be done in writing and accepted by the insurer. It cannot be a private agreement, and the insurer cannot lawfully act based upon a private agreement to which it has not consented.

So there is something missing or unsaid (or incorrectly stated) in your question and information.

As to the other part of your question,

Can you have more than one life insurance policy out on a person because the other siblings want to take out a policy where all the siblings are included as beneficiaries on the life insurance?



Short answer: YES. A person can be the insured on as many policies as insurers are willing to offer.

Long answer: A person, however, is not entitled to an unlimited amount of life insurance. It must be demonstrated to an insurer that there is a valid legal purpose for the amount of insurance being applied for (one of the three necessary components of insurable interest).

It is a requirement in an application for insurance to inform each insurer of any other existing insurance (or insurance that has been applied for but not yet issued) on the insured. This allows the insurer to evaluate whether or not there is already sufficient life insurance on a person's life, before it offers additional coverage.

A person whose material net worth is $100,000, for example, will not be issued three or four or five (or more) $1,000,000 policies just because someone is willing to pay for them. It would appear that those persons are expecting to profit on the death of the insured, which violates the fundamental premise of insurable interest that a profit is not created by the insurance itself.

Failure to inform the insurer of existing insurance ("concealment"), is a material misrepresentation, possibly even fraud if done with intent to conceal. It would allow the subsequent insurers to rescind their policies if they have not passed into incontestability. If based on fraud, some states' insurance codes allow fraudulent applications to escape the incontestability period, and the insurers would be entitled to rescind even 20 years later (or more).

Now to your final statement,

My mother-in-law has no clue what kind of insurance coverage was taken out because my sister-in-law says she can't do anything since she's now also a lein holder for the policy. Did I mention that my sister-in-law sells insurance? Something seems fishy.



There are a couple of problems with this. First, a lienholder does not exercise any outright control over the ownership or rights of ownership in a life insurance policy. They cannot, in most cases, prevent an owner from terminating a policy.

Their collateral interest may, however, be enforceable in civil court. If the policy is subject to a prior court order, then the lienholder may have the right to prevent a policy lapse/termination. But this is highly unusual. The lienholder might have a different "cause of action" against the insured for its claim that could be taken to civil court if the policy lapses/terminates.

If you suspect that "sister-in-law" is violating her duties as a licensed agent, this is a matter for the insurance regulator in the state her license was issued (usually the Commissioner or Superintendent of Insurance). In most states the agency is the Department of Insurance, and they will have a complaint mechanism that is fairly easy to navigate. Many states have online complaint forms that you can fill out and file in a matter of minutes. They all have toll-free complaint lines to receive initial complaints by phone or to provide information on how to file a complaint or report an agent or insurer.

Misdeeds by agents are a VERY SERIOUS MATTER, and are immediately investigated, and vigorously so in most states. Understand that it can take a year or two to complete such an investigation, if it becomes a complex matter. But if there is the least bit of wrongdoing involved, it will be discovered and prosecuted -- administratively and/or criminally. If there is no wrongdoing, you will receive an explanation of the Department's investigation and outcome.

If you have additional questions, please post them here or send me a private message.

Posted: 31 Mar 2010 10:33 Post Subject: Life insurance maturity

Hi,

I wanted to know if I pay certain amt for life insurance policy per month do I get it back when it matures. I mean what will happen to all the premiums I pay? Also if someone is asking me to pay say $50 per month for Life insurance what should I keep in mind before going ahead with them.

I am in california and would like to know what are the options for life insurance that you have?

Would you be kind enough to answer my questions.

Thanks,

Ravi

Posted: 01 Apr 2010 12:10 Post Subject:

Ravi . . .

Cash Value life insurance policies issued in California since at least 1-1-2009 will generally have their "maturity" set at age 120 or 121, as the result of the 2001 Commissioner's Standard Ordinary Mortality Tabled (CSO 2001). The language of most such contracts will indicate that if the insured has not died by that age, the policyowner (presumably the insured) will receive the proceeds of the policy -- the actual cash value in universal or variable policies, or the face amount of the policy less any outstanding loans or interest in traditional whole life policies.

Generally speaking, the premiums you pay to an insurance company become their money. You will not get it back after the 10-30 day free look period that begins when your policy is delivered to you. Think of it like you would buying groceries at the market. You pay the cashier for your purchase and they keep your money. You have what you wanted, they have what they asked you for. If you later return an item, you get a refund, but it's really other people's money being paid to you.

Cash value policies, however, have special "nonforfeiture" provisions that prevent an insurance company from collecting your premiums for many years and you having nothing to show for it. You could get back some of what you have paid (after at least 2-3 years), but you will not get back 100% of what you have paid in unless you keep the policy going nearly to age 121. (Complex policies like Variable Life or Variable Universal Life, which tie cash accumulation directly to the stock market, can achieve greater cash accumulation in a shorter period of time -- but for $50 per month, it's highly unlikely that you are being offered a Variable policy. If you are, I can tell you with all confidence that amount of money is insufficient to support almost any Variable policy.)

Some term life policies are available with a "Return of Premium" (ROP) rider that states if you keep the policy in force to the last day of the 20 year policy term, the insurance company will send you a check for the value of the premiums you paid in all those years. It's still being paid to you, technically, with other people's money. But again, $50 per month will probably not buy you a substantial death benefit with a Return of Premium option.

Buying life insurance should not really be connected to what YOU will get out of the policy. Fundamentally, life insurance policies are designed to protect others against the lost income your death would represent. Some insurance agents will try to sell you on the concept that YOU can have your policy's cash value "tax free" in later years, but they fail to explain how this disrupts the death benefit for your beneficiary. And the words "tax free" should not really be associated with life insurance, except for the death benefit payable to your beneficiary.

Insurance is an "aleatory" contract -- there is an unequal giving and receiving within the contract. You might pay two premium payments and die, and the insurance company pays your beneficiary $1,000,000. On the other hand, you might pay premiums for 20 years and never die, and the insurance company keeps all of the payments. All insurance is essentially like this, not just life insurance.

if someone is asking me to pay say $50 per month for Life insurance what should I keep in mind before going ahead with them.



There is no simple answer to this question. Your $50 might be purchasing a $10,000 whole life policy or a $1,000,000 5-year term policy. What you should keep in mind, regardless of the cost, is whether or not the policy will serve the purpose you intend.

What is your reason for wanting life insurance? To leave money to pay for a funeral? To fund your child's education? To provide your spouse with a comfortable lifestyle that would have been supported with your income if you had not died? To pay off your mortgage? To pay estate taxes (none this year, but they're coming back next year)? These are just a few of the questions that are important to consider. But they are not the only ones.

what are the options for life insurance that you have?



Life insurance comes in two basic categories. TERM -- a policy that provides protection for a specific period of time (between 1 and 20 years or longer) -- and CASH VALUE -- a policy that has a duration to age 121, requires premium payments in all those years (although there are payment options that would allow you to fully pre-pay the policy in 10 or 20 years or in the number of years to your age 65 or 70).

TERM policies may be renewable (although the cost will increase with age) or convertible (without proof of insurability) to another policy which may be more favorable or suitable for your needs in later years.

CASH VALUE policies come in a variety of "flavors" from plain vanilla Whole Life, to policies called Universal Life, which are basically term policies with cash value accumulation, to Variable Life policies which include cash accumulation directly tied to stock market performance. And in between are all manner of variations.

For a stated amount of money (such as $50 per month), TERM insurance will provide substantially more protection than any other type of CASH VALUE policy. The amount of protection is also dependent on your age and insurability.

Whether term or cash value, all life policies have PROs and CONs that you must be aware of before you make a decision as to which one best fits your purpose for obtaining the insurance. An agent must be willing to share this information with you. If they are reluctant to answer your questions, you should not do business with them.

Aside from all of this, the other thing to keep in mind is the insurance company itself. Have you ever heard of it? If you haven't, what can you find out about it other than what the agent tells you?

You would want to look at independent rating agencies such as A.M. Best, or Moody's, or Standard & Poor's to see what they have to say about the company's ability to pay claims, understanding that these are not guarantees that the company will be able to pay claims. But they are a good measure of what the company is like today. An A++ or A+ company is probably not going to leave you hanging out to dry, while a B- company might give you a reason to look somewhere else for your coverage.

You would also want to check the California Dept of Insurance website for its information about the company, such as disciplinary actions and consumer complaints. The CDI does not endorse or promote one insurance company over another. They provide unbiased information based on actual data.

If you would like to know more, feel free to send me a private message with your contact information (email address or telephone number) and I will be happy to give you more advice or a second opinion. My email address is max.herr@verizon.net.

Posted: 26 Apr 2010 11:34 Post Subject: My mother

Do you or can you insure for term life an 86 year old female?

Posted: 26 Apr 2010 11:38 Post Subject:

There is no term insurance for an 86 year old. Transamerica offers permanent coverage guaranteed for life, but it won't be cheap. Most 86 year olds would have a very hard time qualifying medically to get the coverage.

Posted: 29 Apr 2010 02:54 Post Subject:

About the only life insurance a person 86 years old might qualify for is a funeral "pre-need" policy. But, then again, at age 86, that person is so close to "need" compared to being "pre-need" the cost will be relatively astronomical. And the policy would most likely be limited to $10,000-$25,000.

Posted: 29 Apr 2010 03:02 Post Subject:

About the only life insurance a person 86 years old might qualify for is a funeral "pre-need" policy. But, then again, at age 86, that person is so close to "need" compared to being "pre-need" the cost will be relatively astronomical. And the policy would most likely be limited to $10,000-$25,000.



Transamerica writes up to age 89. So does John Hancock, American General, and Reliastar. At preferred rates it would still take 11-13 years to pay up the death benefit. Standard rates aren't that much more at that age. Example:

$25k - $2,349/year
$100k - $8,238/year
$250k - $19,343/year
$1 million - $77,370/year

Posted: 10 Jun 2010 12:02 Post Subject:

HI, I think this website will be helpful. it gives total information about life Insurance and details .. check it..

(link deleted by Moderator InsTeacher per Terms of Use)

Posted: 28 Jun 2010 11:17 Post Subject: I need advice please...

My father in law passed away years ago hence my mother in law (though divorced from him) collected SS benefits. She passed away 2 months ago very quickly. There are 3 sons all over the age of 40. She owned 2 homes, one was paid off and the second payments were being made that included a $9.50 life ins. payment. Two of the sons were given 1/2 of each of the houses due to the third afflicted with HIV, has been on medication for 22 years causing him to often act irrationally; legally, physically, mentally, off the wall inhumain things. She didn't want him to make a bad judgement and there goes one of the houses so that's why she chose to do it that way. But now he has taken all of their mothers paperwork, every single form, policy and contract and states he's lost them all and doesn't know where they are. The two sons have a house payment stub to pay the mortgage to and that's it. Is there anyway they can find out any information on any of the lost records. It's very frustrating for the two sons. I've been separated from my husband for 7 years with intentions to divorce this year so there's nothing in it nor do I deserve from it for me. My husband lived with his mom in her home during the last 6 weeks while she died from adenocarcinoma. He was her favorite and unfortunately never denied showing that fact to anyone, even her other sons. During the last week before she died she had fallen from being so weak and as my husband picked her up off the floor she begged him to hold a pillow over her face and sufficate her to death to put her out of her misery. I think my husband deserves to be able to complete his grieving process by taking care of all the loose ends, find Peter to pay Paul and know that he did all the right things and was the responsible, respectable son his mother need him to be. Any suggestions?...

Posted: 05 Jul 2010 05:11 Post Subject: My Mother

I need to get Life Insurance for my mother she is 53 years old and has quite a few health issues the main one being COPD. I'm not real sure on how to do this I am her youngest daughter so I don't have life insurance myself, but i'm not sure that I will be able to really let her know she has the reading and writing ability of an 8 year old so she doesn't comprehend things real well. How would i go about getting insurance for her without her really knowing, and what kind of information would i need to have for it. Thank you very much for the help, I realize that this is unusual but I'm only in my early 20's didn't think I would have to make these decisions. So Thank You.

Posted: 05 Jul 2010 05:32 Post Subject:

You won't be able to get insurance without her knowing about it. You're going to have to explain it to her and if she has COPD on top of other health issues, you really need an independent agent to shop the health history with multiple companies to get the best offer.

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