Mike’s Life Insurance Advice

Hi Tony,

First, I hope things turn around for you.  But to answer your question, the bottom line is in order to maintain our coverage we must, of course, pay for our policies.  In a moment we’ll take a look at possible ways to deal with the situation. But first, let’s take a look at the process.

If you miss paying any premiums your insurer will contact you and advise you that they haven’t received your payment because it could be a banking error or an oversight on your part.

They’ll inform you that unless you pay your premium within your grace period  that your policy will automatically be cancelled.

The “Easiest” Answer – Pay Your Premium within the Grace Period

Most companies offer a thirty to thirty-one day grace period within which you can make your payment and not suffer any negative consequences whatsoever.  Even if you die within this grace period your beneficiaries will collect the death benefits.  The company will just deduct any premium that’s due.

However, if the grace period ends and you still haven’t made your premium payment your life insurance policy will lapse.

Some life insurance companies allow you to reinstate your lapsed policy within a certain timeframe.  But you will need to prove that you’re insurable, you’ll have to repay any outstanding loans you might have against your policy, and also pay all your overdue premiums and the interest that has accrued.

Even if they reinstate you your premium will probably be higher because you will be older.  In addition, if your health has substantially deteriorated your premium can be a lot higher.  And if your health situation is extreme you might be uninsurable.

A Possible Solution - Have Your Payment Withdrawn From Your Cash Value

You may be able to protect yourself against your policy lapsing if you own a cash value policy.

Just authorize your insurance company to withdraw the premiums from your insurance policy’s cash value if you miss any payments.  Of course this only keeps your policy active until your cash value runs out.

An Additional Solution – Protect Yourself When You Buy Your Life Insurance Policy

If you want to prevent the possibility of losing your life insurance coverage you might be able to add a “Waiver of Premium” option to your policy.  When you have this waiver, if you become unemployed or cannot work temporarily because of an accident or illness your insurer will take over the payments until you return to work (after you’ve contacted them to tell them what has happened).

Again, I hope you never need to use this information.

Best of luck,
Mike

Hi Mike,

The company I work for is struggling and they’ve been laying people off.  I’m afraid I’m going to lose my job soon.  What will happen if I miss any life insurance premium payments?

Tony

Dear Rachel,

I guess you came across some insurance premiums that look too good to be true.  I’m glad you’re asking yourself , “Why are these rates so cheap?”

The bottom line is that any insurance policy is only as good as the company you buy it from. If the fails your beneficiaries will not collect any money.  So your insurer’s financial strength is crucial.

Economic events over the past several years has hammered home the reality that well known, previously well respected companies can and do fail  Use a little common sense now and you can save your loved ones a lot of grief.

So, before you buy your life insurance policy there should be no doubt in your mind that the company you buy it from will be there to service it and pay your claim when you die.

In order to help you find the strongest and best companies there are a number of agencies that rate life insurance companies.  These insurance ratings companies are paid to have their independent analysts review a company’s financial strength.  They base their ratings on how financially sound the insurance company is based primarily on the quality of its investments and its overall fiscal fitness.

These independent ratings assess the insurer’s ability to pay its claims in a timely manner while meeting its financial obligations.  The five major insurance rating agencies are:  A.M. Best, Fitch, Moody’s, Standard and Poor’s, and Weiss Ratings.

Although the agencies vary a bit in their criteria, if you compare the ratings from the various agencies you will get a pretty good feel about the insurance company’s financial strength.  Of course you will want to buy your policy only from one of the strongest companies.

Here are the highest ratings these companies offer:

A.M. Best: A++ (Secure / Superior)
Fitch: AAA (Secure / Highest)
Moody’s: Aaa (Exceptional)
Standard & Poor’s: AAA (Extremely Strong)
Weiss Ratings, Inc.: A+

Before you buy your life insurance policy you can easily check the financial strength of the insurance companies you are considering online.   A simple search will give you the information you need to make an informed decision.

To put things into perspective, according to A.M. Best, the top rated insurance companies of 2009 are:

Geico: A++ (stable outlook)
Mass Mutual: A++ (stable outlook)
New York Life: A++ (stable outlook)
State Farm: A++ (stable outlook)

In addition, Stable A+ companies include Jackson National, John Hancock, Metlife, and Mutual of Omaha.

Hope this answered your question.
Mike

Dear Mike,

I’ve found some really low priced insurance online and I’m wondering why it cost so little.  Can you tell me how to know if I’m getting a good deal?

Rachel

Hi Margie,

There are a number of reasons people want to cash in their life insurance policies.  Why don’t we take a look at them and some of the choices you have?

You mentioned that you are considering getting a pay out from your life insurance company.  As an alternative, I think you should consider a settlement with an outside company.

A life insurance settlement is an option you have to sell your life insurance policy and relinquish your coverage to a third party.  It may be a better choice than getting a pay out from your life insurance company because it will often put substantially more money into your pocket.

Life insurance settlement companies are third parties that will give you cash if you want to sell your life insurance policy to them.  However, they have a number of requirements that have to be met before they will buy your policy.

First, your policy has to cost at least $100,000.  Some companies will only buy policies that are at least a $250,000.

You also have to be at least sixty-five years old.  However in most cases you will be eligible to sell your policy only after you’ve reached 70.   And finally, your health has to be normal.

Although it might look a bit complicated at first glance, the life insurance settlement process isn’t as complex as it seems.  None-the-less, you should have a trusted financial advisor help you through the process.  You will also have to decide which life settlement company or provider you want to do business with.

Initially you will have to submit all of your medical information.  Then you may be asked to take and pass a medical examination.  If your policy meets the necessary requirements and your medical information meets with their approval, you will receive a number of offers from the life insurance settlement company.

Go over these offers with your financial advisor in order to ascertain wh
ich would be the most beneficial for your circumstances.  Once you accept an offer and your life insurance policy is transferred you can receive the cash value.

Life insurance settlements are available to you whether you have term life insurance or whole life insurance.  There are two subcategories to consider.

Viatical Life Insurance Settlement

A Viatical life insurance settlement is often chosen by policy owner if they suffer from an incurable illness and need money for their medical care.

Senior Life Insurance Settlement

Senior life insurance settlements are designed for senior citizens who would like to have money for other investments.

Before going ahead with any settlement there are three things you should do to protect yourself.

1. Make sure that the broker or settlement company you are working with is licensed from an appropriate state government body.

2. Have your financial advisor go over all the possible risks and contracts available to you.

3. Have a clear understanding of the life insurance settlement process so that there is no doubt in your mind that you want to sell your life insurance policy.

I hope this helped and that you enjoy a wonderful retirement.

Mike

Hi Mike,

I’m about to retire.  The kids are out of the house and I’m thinking of cashing in my life insurance policy.  How can I get the most money for it?

Margie D.

No one can predict the future.  But you can at least plan for it.  Proper financial planning can protect you from the ravages that a financial crisis could bring to your doorstep at any time in your life.

Take the initiative to plan in advance.  You can save your family from having to go through the traumatic events that are causing your restless nights.  Here are several things you can do right off the bat.

Spend Less Money Than You Earn

On the top of this short list is spending less than you earn.  Then you should save the difference out of every paycheck.  Do this one thing and you will be well on your way to financial well being.

Make a Budget

When you make a budget you force yourself to make financial planning a part of your life.  After you make your budget it’s important to keep notes on everything you spend money on.  You will be surprised at how much money can leak out of your pockets for things you don’t really need or want.  When you plug those leaks you will have more to save and/or invest.  And you will also probably realize that saving is not that so difficult.

Invest Part of Your Savings

Financial planning means putting your money to work for you.  Although you may initially want to invest in things like stocks, bonds or mutual funds, one of the bedrocks of any good financial plan is a life insurance policy.

When you own a life insurance policy not only will you be investing for your future, you will also have the peace of mind of knowing that you are taking care of the ones you love in case something should happen to you.

Wouldn’t it be wonderful knowing that you have taken care of your children’s education, kept a roof over their heads, and provided some of the luxuries in life for them?  That’s what a life insurance policy can do for you.  Speak to your financial advisor.  Ask him or her to help you to formulate an investment plan that is right for you and your loved ones.

Stay Out of Debt

One of your biggest challenges to financial planning would be to increase up debt.  Extensive credit card debt is one of the biggest problems that people face.  If you are in debt you have to stop going further into debt.  And you have to begin to aggressively pay off what you owe.

If you are not in debt you are smart and/or lucky.  Now is certainly not the time to increase your bills. Look around you.  Many of the problems people are having now is because they ran up their debt in the boom times.

Follow these tips, maybe drink a glass of warm milk before going to bed, and you will probably sleep a lot better.   

Mike

Dear Mike,

Thanks for all the great advice.  The economy has been keeping me up at night.  So far I still have my job but I was wondering what I can do to protect my family if things get worse.

Bob P.

Hi Audrey,

You’re right.  There are so many different kinds of policies available that it can be hard to make sense of it all.  There’s term, universal, variable and whole life policies and each has its benefits and drawbacks.

As you probably know, one of the most affordable types of life insurance is term life insurance.  When you buy term insurance you’re purchasing it for a specific term, or length of time.  And you pay your premiums for the entire term of the contract.  Once the term is up you no longer have a death benefit.

The premiums simply pay to keep the policy going.  There isn’t any cash value.

The Advantages of Term Life Insurance

The biggest advantage of term policies are that they are a lot more affordable than variable, universal, or whole life policies.  You can also zero in on the amount of time you want to be covered.  For example, if you only want to have life insurance while there’s a mortgage to pay or while your dependents are living at home, you can get a policy for 10, 15,20, 25, or 30 years.

The Disadvantages of Term Life

Because all of your premiums are used to keep the policy going there is no cash value component, no interest is earned, and no money accumulates.  Also you may decide that you want to increase the length of your coverage when it expires.  If that happens you might have to undergo proof of insurability.  If you’re not denied the additional coverage you want you will probably need to renew it at substantially higher premiums.

If you feel term insurance is an option you’d like to look at, you’ve got to know that even term life is broken down into a number of different categories.  So let’s take a look at the different types of term life insurance policies so that you can decide if one of these is right for you.

Level Term Insurance

These policies are usually for ten, twenty, or thirty years.  Both your death benefit and your premium stay the same for the entire term of your policy.

Annual Renewable Term

You must renew an annual renewable term policy yearly.  And most years the premiums will increase. But the death benefit will stay the same for the entire term of the policy.  Although the initial premium is usually less than for a level term policy, for the most part it will cost more over the term of the policy.

Decreasing Term

With this policy your premiums stay the same buy the death benefit goes down every year.  The policy ends once your death benefit are fully liquidated.

Hi Mike,

I’m just overwhelmed with all the life insurance choices that are available.  I’m leaning towards term insurance.  Do you think you can point out what I should look for in a term insurance policy?

Audrey L