Other Insurance Products

Life insurance

Life insurance is the most complex animal in the insurance business.  There are so many reasons for life insurance and it comes in so many varieties.  The most common use is to cover the costs of final expenses.  But families and businesses have many other needs for life insurance such as: protecting a young family against the loss of mother or father; creating a financial legacy; protecting against the loss of a key employee; financing business partnerships.

It comes in 3 types (I don’t like Variable Life, so it is not listed):

Term insurance

This is appropriate for limited functions.  It is the cheapest form of life insurance (in the early years) but it builds no cash value and it will expire at a specific age. Therefore it is not appropriate for final expenses.  Why get a policy that could easily die before you do?  The premiums can go up each year.

Whole Life

This is the most commonly used policy.  It is permanent and comes with built-in cash value. Very appropriate for final expenses.  The premiums are determined at the age you start the policy and usually remain constant for the rest of your life.

Universal Life

This is a variation of the whole life concept and gives you lots of flexibility as to payment of premiums and accumulation of cash value. There is a danger with these policies. They must be properly managed.  It is possible to have an older policy that allows you to underpay premiums to the point that it will crash (no cash value) and be terminated.   But managed properly, this is a great tool. Use an agent that fully understands how to set these up and you will have a winner.  Make sure you read and understand the annual statement with these policies.

Another very important concept is medical qualification.  Let me put it simply: the better the policy the more you have to medically qualify.  Underwriters will not give you a great deal if they see medical risk.

One more very important subject on life insurance:

The cost of life insurance has been coming down for several years.  If you have an older policy, you are still paying for the price of insurance at the time that policy was started.  Bad news!  Don’t simply say, “I am good, had my insurance for years.”  If you can still medically qualify (this is the big if), you can roll an older policy with cash value into a new one that will knock your socks off.  How about 50% greater death benefit?  How about no more premiums?  How about BOTH?  I have seen it happen time and time again. This can be a tremendous windfall, so contact me soon if you have an older policy to be checked out.

Long Term Care (LTC)

It has been said that only 5% of the people buying auto insurance will ever use their policy.  Almost 80% of the people with LTC policies will end up using at least some of their policy.  It covers two different areas: paying for care providers in your home; and paying for you to stay in a nursing facility.

Medicaid will pay for your stay in a nursing facility so why would you need this policy?  Yes, they will pay everything, with one big exception—you must first use ALL your income and ALL your assets to pay for your stay.  When these run out, then Medicaid steps in.  Of course, you are allowed to keep a small amount of assets, but not much.  Did you have a different use in mind for that $500,000 home you worked for all your life?  Maybe leave it to the children?  Without some form of legal protection, that home will be sold and used to pay the nursing home.  THEN Medicaid will pay the bill.  This is the primary reason people buy LTC policies – to keep their assets in the family.

Annuities

These are really investment tools from the insurance industry that come with some outstanding features, such as special tax treatment.  I have talked to people that give annuities a black eye.  For whatever reason they have a bad taste for annuities.  This should not be the case.  I believe this comes from agents selling things that were not appropriate for the customer.  Should never be done!

Once again, let’s keep it simple.  There are 2 stages in an annuity contract.  Stage one you are investing a specific sum each month to build the value of the annuity.  Just like regular deposits in your savings account.  Sometimes people skip this stage by starting with a large sum of money.  Stage two you are taking money out of the annuity through a regular payment to yourself each month. Like a retirement plan.  You can also have an extended period of time in between the stages where nothing is happening except growth of your investment.

There are two ways to grow your annuity investment.  If you are the type of person that likes CD’s and other fixed, low return investments, you can select that type of annuity.  And you will outperform the CD by a large margin!  If you want an opportunity for larger growth (like me) you can get an annuity that is tied to the stock market, such as the S&P 500 index.  Try this on for size --- if the S&P 500 goes up for the year- you get 60% of that gain.  If the index goes down- you lose nothing!  That’s right—60% on the plus side and 0 on the down side.  Too good to be true?  It is true.  If this excites you (it does me) call me!

Another bonus of the annuity investment is that IRS allows these annuities to grow on a tax deferred basis.  That means no taxes until the money is taken out.  Ask your accountant how important that is!  And the final bonus is that you get to name a beneficiary to receive whatever is left in your annuity at the time of death without going through probate.