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Life Insurance 411

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At term quotes fast, we write many different types of life insurance, not just term. In our efforts to educate you, this page will lead you to a good understanding of the main components of these options in easy to understand language. What type of policy you should have is really a personal decision and we hope this page helps.

Types of Life Insurance – coverage for a set amount of time

Term Life Insurance
This type of insurance is characterized by low premiums and a specific time period (the term) in which you are covered. Premiums are generally, though not always, level throughout the guaranteed term period. The longer the term period, the larger the premium will be. Many agents use the analogy of “renting” coverage as it is temporary.
For instance, a 10 year term policy for $500,000 on a 40 year old female in excellent health runs about ~$17.00 per month. If the term period were to be 20 years, the premiums would increase to ~$28.00 per month. At 30 years, it becomes even higher at ~$47.00 per month.
Here are some sample Costs for variety of age/genders in excellent health:

$500,000   monthly premium    
     10 year term  
  best rate class  
    Male   Female  
35   15   14  
40   18   17  
45   30   27  
50   46   38  
55   76   56  
$500,000   monthly premium    
     15 year term  
  best rate class  
    Male   Female  
35   18   18  
40   27   22  
45   42   33  
50   63   47  
55   98   66  
$500,000   monthly premium    
   20 year term  
best rate class  
Age   Male   Female  
35   24   21  
40   34   28  
45   55   43  
50   82   61  
55   133   99  

Once the term expires, you can generally keep the policy, however, the rates will increase – sometimes greatly. This is why it is good to have a term period that meets your time horizons.
To see your own quotes, simply add your age, amount of coverage and desired term period to the form on the top of this page and press display. Because we work with > 50 different insurance companies, you will see many options – listed from least expensive to most.
To help you determine how much insurance you should have, the general rule is 7-10 times your salary. For more complex situations, you can reach us for a full report and specifics.

Term Life Conversion options
Most term policies allow you to turn your policy in and “convert” it to a permanent plan. Usually there is a time limit for this and they vary by policy. If you are wondering when your will expire, I urge you to look at the policy and reach out to us for options to consider.
Why would you convert? Well, maybe circumstances have changed and you have decided you will need coverage much longer than the current policy will afford. Maybe you desire cash values. Maybe you have had an unfortunate change in health and cannot obtain a new term policy (you can convert regardless of your health.
There are several reasons to exercise this right, however, the most important part is the type of policy you convert to. A good life insurance agent can help you determine what is on your overall best interest if you are considering this. I recommend you take a look at my brief, 5 Reasons to Convert your term insurance.(http://termquotesfast.com/2012/09/20/5-reasons-to-convert-term-life-insurance/)

Permanent Insurance – coverage for life
Typically we think of whole life insurance when we discuss permanent insurance, however, there are other varieties such as Universal Life, Variable Life and Blended Life. In reality, permanent insurance refers to any protection that remains with you for your entire life, by design. Let’s talk about whole life insurance first.

Whole life insurance is an insurance contract that is designed to remain in force for life, hence it is known as a permanent policy. Originally, they were set up to stay in force (providing premiums were paid on time) to age 100, however, newer versions go to age 120. Premiums, death benefit and cash values are all guaranteed upon inception of the policy.

This insurance, because it stays with us longer than term policies, comes with a larger premium for like death benefits. For instance, a $100/month term premium will purchase much more death benefit than a $100/month whole life policy. There is also a cash value that may be used for personal purposes (although certain limitations may apply). Cash values grow by the guaranteed interest rate and there may be an additional non-guaranteed dividend as well if the policy is participating.

Generally, this formula is used for whole life calculations: premiums + guaranteed interest rate = death benefit at age 100. If dividends are paid on your policy (determined by and at the discretion of companies on an annual basis) the cash values will be larger than anticipated. In this case, death benefits are automatically increased as the original actuarial expectations have been exceeded. If this death benefit adjustment is not made, your policy may become too “cash rich”, reach the modified endowment contract status (MEC) and be subject to different tax rules.

There are several options for the use of dividends, however, purchasing additional insurance is the most common. Cash values take many years to accumulate as many expenses come out in the early years. Many people enjoy the relative safety of these products – guaranteed premiums, cash values and death benefits.

Universal Life Insurance
Universal Life or UL as it is called is a type of permanent life insurance policy that has cash values like a whole life policy. It differs from whole life insurance in that the cash values are driven by short term interest rates. Based on this, the cash account values will vary and the owner takes on this risk of maintaining sufficient cash values to cover policy expenses.

Whole life insurance has many guarantees and is a very safe life insurance policy.

UL premiums go into cash accounts and they increase by short term interest accruals. Administrative and mortality costs ( annual renewal term) are deducted from the cash account to keep the death benefit in force.

The Universal Part
The premiums and death benefits are flexible and adjustable.
If interest rate performance is poor, premiums should be adjusted up to offset the lowered, anticipated cash values. If interest rates are good, premiums may be reduced. It is important to review these plans often to be sure they are properly funded.

The best way to do this review is with a competent, experienced life insurance agent who will run an in – force illustration for you. (Sadly, this exercise is rarely completed and this ignorance can create serious effects as we age.)

Variable Life Insurance
Overview
Variable universal life insurance is a complex, permanent life insurance policy where the policy owner takes on some of the inherent risk – ok, most of it. Unlike whole life insurance, there are no guarantees beyond year one – no premium, death benefit or cash value guarantees. Like whole life insurance, there is a cash account, however, the cash values are driven by many factors – the most significant being the performance of the funds w/i the separate account.

The variable part
The owner determines what funds they wish to invest in. These vary by carrier and most carriers have limited investment fund choices available with a variety of risk tolerances. Policy expenses are deducted from the separate investment account on a regular basis (usually monthly). There are many expenses: agent commissions, mortality costs, administrative costs and 12b-1 fees. Additionally, there are usually fund acquisition costs as well. The owner assumes the risk for the cash account.

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