Mike’s Life Insurance Advice

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

Hi George,

If you are thinking of starting a business or if you already own one then life insurance should be a financial priority because you have a lot more at risk than other policy holders.  That’s because there isn’t any group policy that will cover your family when they need it the most.

The cost and the responsibility of protecting your loved ones and your business is in your hands.  Even if you try to keep your business and your personal life separate you have to realize that, on a personal level, they are connected. If you think that you can just let your business continue if you die, you will leave your family in a precarious financial position. 

Many experts feel that because circumstances vary from individual to individual and because you are dealing with very complex issues, it would be in your best interest to sit down with both a very experienced insurance agent and your financial advisor when formulating a plan of action.  The three of you should talk about your business as it is today and how you envision it will grow over the years.  You should also discuss how you want to provide for your family once you’re gone.

Why You Need Life Insurance When You’re Self Employed

The main reason you need life insurance when you own your own business is the accumulation of debt.  Your insurance will have to pay off whatever liabilities you have accumulated since you started it.  Otherwise that debt can become your family’s responsibility.

You also will need to take care of your family’s personal expenses once you pass away.  These expenses include your funeral arrangements, the balance of your mortgage, education, child care, weddings, and more.

When you own a viable life insurance policy you will know that your family won’t lose everything trying to settle your outstanding business debt.  If you and your advisors choose wisely you will be able to instead provide them with an income and future business capital.  And, of course, you will have taken care of all of your family’s immediate bills.

If you can do it you will want to invest in the best coverage you can get.  The cost might look large but the price your family will pay if you don’t get it can be even greater.

One additional thing to consider is that if you have a business partner you can take out life insurance policies on each other and both list the business as a beneficiary.  This will allow the business to continue running if either of you should die.  Often a business flounders when one of the principals passes on.  By taking out these policies you can insure that your business will have enough capital to keep it going until a well qualified person can come in to help take over the reigns.

Hi Mike,

I’m about to start my own business and I’d like your advice on what type of insurance I should buy.

Thanks.

George M.

Do you own a high risk business? Do you want to have the absolute best people available working for you? One way to assure it is by offering a nice salary along with an excellent benefits package.

Are you saying to yourself that since the economy is in the doldrums it’s not necessary to bulk up on the benefits? Maybe you’re looking out your door and you see people lining up, looking for a job.

Well, if nothing else is true, this one is: things change. At some point in time, maybe it will be next month or perhaps it will be next year, but at some point in the future the economy is going to turn around and things will start booming again. It’s the nature of the beast. And when the inevitable happens would you rather have the best employees working for you already, or do you want to have to compete for them?

Here’s what I mean. Let’s say that you’re in the construction industry and you need a bunch of carpenters to build homes. Here’s a benefits package you might want to consider:

You should definitely offer a basic term life insurance plan that also includes accidental death insurance, dismemberment insurance, and dependent life insurance. The specifics of the plan will depend on the number of employees that work for you as well as the different risks involved with the type of work they do.

By the way, most employers pay for term life insurance and require only a small contribution, if any, from their employees.

You’ll give them term life insurance because it’s relatively inexpensive and lasts for a finite amount of time. Most company term policies will be for between one and three years. You will then have to renew it at the end of the term if they’re still working for you and you want the policy to continue.

These policies can be as little as $25 per month because the policies are for a specific amount of time. This makes it is easier for the insurance carrier to calculate the risk involved in covering your employees.

And you won’t be short changing your employees because even a policy with a low premium can pay their beneficiaries death benefits that can amount to hundreds of thousands of dollars. And, should your employee die within the time frame that the policy is in effect, their beneficiary will receive the total value of the policy.

Beneficiaries have historically used the money to help pay off their family debt, take care of their mortgage, and send their children to college.

Hopefully all of your employees will live long and happy lives. So keep in mind that if the term policy expires before they do, unlike a whole life insurance policy, their term life insurance offers no cash value.

But that’s in the future. Right now, you can get the insurance you need to attract the talent you want, even if you’re in a high risk business.

Dear Thom,

Want to hear something pretty amazing? Your wife can apply for six figures of affordable term life insurance coverage online, get approved, and not even have to have a physical. And, listen to this, some companies that offer offer cheap life insurance without a physical will issue her a policy for as little as ten dollars per month. And, if you’re young, that could be for three hundred thousand dollars in coverage.

Although term life insurance has been the province of young people it recently has been made available to older people as well.

The good news is that online life insurance companies now offer term life insurance to people between eighteen and sixty years of age. The bad news is that the older you are the less coverage they’ll offer you.

This trend started a few years ago when an insurance company offered $150,000 of life insurance on the Internet. People jumped on it like white on rice. In no time at all, actuaries from competing companies started to crunch numbers, asking themselves, “How much coverage can we offer at a really low price and still make a nice profit?”

An avalanche of companies got involved because it turned out that if your health is good there’s very little risk involved in offering you a term life insurance policy. As a matter of fact, it’s an extremely profitable business plan.

They took it a step further. Because your health is good, the insurance companies felt they could make even bigger profits if they didn’t have to pay a medical practitioner and make you go to a doctor, nurse, or paramedic for an examination.

Uh-oh, I hear some wheels turning, Thom. Since your health is less than perfect, maybe you’re thinking if you don’t mention your past problems you can get the coverage you want. You rascal!

Forget about it. It just won’t work. You have to mention your situation because if you don’t your policy can end up being worthless. If something happens to you your wife could end up getting nothing.

If you read the fine print on these policies and you’ll see that there’s an incontestability clause in the contracts. It says that if you didn’t disclose pertinent information on your application that would normally cause them to reject your application the insurance carrier can withdraw your policy within a specific time frame. Although the amount of time varies from company to company, it’s usually around one or two years.

Since you’re looking for additional insurance for your family, why not have your wife look at what term life insurance without a physical can offer? For yourself, I’d suggest that you speak to your insurance agent and ask for their recommendation.

Mike

Dear Mike,

I’ve got a couple of questions. My wife and I are in our fifties. Her health is still great, but I’ve had some medical challenges along the way. On top of it all, I think we should buy some more insurance. Is there anything affordable out there for people like us?

Thom B.

The life insurance business has changed so much over the past twenty-five years that it bears little resemblance to its old self. There are plenty of new players and new products that weren’t around even a decade ago.

If you’re looking for insurance or want to compare what you own with what’s currently available, take a couple of hours and do some research. You can be rewarded with hundreds of dollars in savings a year.

You’ll probably either find you can get the same coverage for a considerably smaller premium. Or you might be able to get a lot more coverage for the same amount of money you’re paying now.

For example, what had been considered a cheap mortgage life assurance policy only five short years ago is probably well below par today. Make it a point of reviewing your insurance policies every five years because this trend seems to be continuing.

Yes, I know, it’s not the most exciting way to spend an afternoon, but you’ll often find special offers from firms that want to increase their market share

Getting cheap life assurance doesn’t mean that you should compromise about your coverage. When you shop around for a better deal, don’t just limit your search to online companies. Include brick and mortar brokers as well.

Buying directly from the carrier on the Internet doesn’t necessarily mean you’re going to get the best deal. Sometimes offline brokers discount the cost of a policy by sharing part of their commissions.

It might sound crazy, but it can often mean you will save money by going through a broker than by dealing directly with the company.

When you’re looking for a broker realize that only independent advisers may be able to offer you a more unbiased approach when they recommend products. That’s because life insurance agents are often tied to one specific company and cannot choose from as wide a range of products, whereas a broker has more than one company to choose from.

So, when you call, you can start your conversation off with something like, “Are you an agent who’s tied to the products of one financial group or are you an independent adviser that can offer a wide range of life insurance products?”

No matter what their answer is it still would be worth your time to get their information. This way you can compare offers side by side at your leisure. In other words, don’t just jump on an offer because it sounds good or because you just want to get the process over with. Remember, your family’s future is at stake.

- Mike