- What is Life Insurance?
- What are the types of life insurance?
- How to save money on life insurance policy?
- How to decide on the type of life insurance to choose from?
- Can you pay your mortgage with life insurance?
- How should you choose a life insurance company?
- How does a life insurance company choose you?
What is life insurance?
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:
- Annual renewal term insurance: Allows you to renew your term insurance every year till you reach a specific age which often freezes at 65.
- 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.
- Level premium term insurance: Ensures that your premiums will not go higher for the term (between 5 and 20 years) of your policy.
- 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.
- 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.
How to save money on life insurance policy?
- 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.
- 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.
- 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.
- 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.
How to decide on the type of life insurance to choose from?
- 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 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.
Can you pay your mortgage with life insurance?
How should you choose a life insurance company?
- 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.
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
- Age of the individual to be insured.
- Gender of the person
- Pre-existing medical conditions
- Medical records of the family
- Smoker or non-smoker
- Mental health of the person
- Hobbies or lifestyle habits (activities like race car driving, mountain climbing or bungee jumping might be marked as risky)
- Driving records
- Credit history
- Selection of coverage limits, benefits etc.
- 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
> 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
- Term life insurance benefits do not build any cash value
- What if you want to surrender your life insurance policy?
- The Tax Implications on Life Insurance Death Benefits
- Term life Vs Whole life insurance?
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.
Total Comments: 282
Posted: Sat Dec 12, 2009 03:28 am 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: Sat Dec 12, 2009 05:02 am 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: Sat Dec 12, 2009 05:37 am Post Subject:
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: Sat Dec 12, 2009 02:39 pm 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
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:
"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."
"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
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: Sat Dec 12, 2009 02:41 pm 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: Sat Dec 12, 2009 02:53 pm 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: Sun Dec 13, 2009 03:27 pm 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: Sun Dec 13, 2009 08:35 pm 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: Mon Dec 14, 2009 07:54 am 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."
Any way, as presented so far, this is pretty interesting, but too many details still in the dark.
Posted: Mon Dec 14, 2009 07:26 pm 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?