insuranceclub's Blog

Term life insurance has been described as a bet you do not want to win, but if you do, your family will be eternally grateful you gambled! Simply put, term insurance is a bet with the insurance company that you will die and make a claim within a set period of time, known as the term hence the name, term life assurance.

Term life insurance comes in many different forms and probably we come across it most often when buying a home. Here we have a mortgage for an amount that we know, that is going to last for a term that is set at the outset so it becomes very easy to see how much and for how long we need an insurance policy to cover the debt in the event of our death.

Mortgage protection policies tend to have a variety of features that can be used as and when our mortgage situation changes. We may move home, change the mortgage, borrow more money for a new kitchen or suffer changes in our financial situation that require economies to ensure the mortgage gets paid to keep the roof over our heads.

Term insurance policies also find a place when covering business situations. Frequently, the death of a partner in a business will cause an issue in that their share of that business will be left to be inherited by their beneficiaries. Now just consider whether you want your business partners spouse suddenly turning up to your business and telling you how they want you to run the business? Could you work with them? Can they actually work in the business anyway?

Under these circumstances it makes a great deal of sense to establish life insurance cover for the partners. The insurance proceeds will then allow the surviving partners to simply and conveniently buy the deceased partners share of the business. The business is not subjected to unneccessary disruption and the deceaseds beneficiaries receive the value of the business shares without the need for the business to be sold or subjected to potentially crippling debt taken out to pay them off.

Travel insurance is another form of term insurance though the term may be as short as a day! Travel insurance will very often include a death benefit but the primary purpose of coverage here is to ensure the insured receives proper medical treatment where they are, failing that, arrange for their repatriation and in the event of death, ensure the body can be transported home for burial.

It is not uncommon to see term insurance offered to exclusive groups of people. Insurance companies do this to minimise the risk to themselves posed by paying out claims, which in turn directly affects the premiums that are charged. If a group of people, say of a certain age, or particular health bracket e.g. non-smokers, wish to benefit from more advantageous premiums then it makes sense that they look for insurers offering special terms for these exclusive groupings for insurance purposes.

Finally, term insurance has a place for most of us in our lives at one point or another. First of all establish what you need the cover for, how much and under what terms which will then lead you to whether a term insurance contract is right for you. Following this simple principle will help make your negotiation of the insurance maze that much more easy.

By: Peter Finch

For some reason I always seem to receive a lot of mail this time of year on the subject of "Life Insurance". Most want to know the benefits or pitfalls of Term Life Insurance over Permanent Life Insurance.

Term Life Insurance is by far the most cost effective way of securing a life insurance policy available to the general public. Term Life Insurance covers a specific period of time - normally the policy will run for periods of 5, 10, and 20 years. As the age of the insured increases, the cost of the premium will increase. Premiums are calculated on the mortality rate, which is usually dependent on the persons age, sex and whether that person uses tobacco.

This type of policy allows the insured or the owner to pay a set premium for an agreed period. The Insurance company provides monetary benefits to the beneficiary in case of death of the insured during that period. Usually, the benefits received on the death of the insured is income tax free.

There are four parties in term life insurance: (1) the owner is the one who pays the premium; (2) the insured is the one on whose death, a death benefit (face value) will go to the beneficiary; (3) the beneficiary is one who will receive the proceeds of insurance on death of the insured; and (4) the insurer is the company providing the insurance. Depending on the Insurance company you choose, the premiums can be paid monthly, quarterly or annually. For example, Fred pays $50 dollars monthly to XYZ Company for insuring the life of Margaret (his wife) for a period of 10 years. Should Margaret die during the 10 years of the agreement, XYZ company will pay $25,000 to Joe (son of Fred and Margaret). Here the insured is Margaret, the owner of the policy is Fred, the beneficiary is Joe and the insurer is XYZ Company. If Margaret does not die during the 10 years, XYZ Company will not be liable to pay any money to any of the parties involved. Often the owner and the insured are same. That is, a person buys a policy to cover his own death and nominates a beneficiary. Husbands and wives often insure each other in case of death.

What is Term Life Insurance? It is a legal contract with terms and conditions and assumed risks. Sometimes there can be special provisions in the agreement like suicide terms, wherein on suicide of the insured, there is no benefit accrued to the beneficiary. Term Life Insurance is based on two concepts: (1) theory of diminishing responsibility and (2) Buy Term and Invest the Difference (BTID). With Term Life Insurance, the responsibility or liability of the insuring company reduces as the policy reaches its maturity. What makes Term Life Insurance the most cost effective type of insurance available to the public is that there is no cash value at the end of the period. Studies have shown that the mortality rate in Term Life Insurance can be as low as 1%. Hence the concept of BTID.

Rather than going for permanent life insurance (where on the expiry of the agreed period, the owner will accrue some cash benefit and there is a savings component in it) it is considered cheaper to buy term life insurance and take care of the savings components by investing in other areas.

With the present market giving good returns on investments, buying a term life insurance is a more attractive option than permanent life insurance.

Have an opinion or a question you would like me to answer, then write me! http://www.CarlHampton.com

By: Carl Hampton

Stop 100 people over 65 on the street and ask them if they will ever need to go to a nursing home and 99 will say, No! Folks tend to equate long term care insurance with nursing homes, but there are other aspects of long term care. Home care, assisted living, adult day care and hospice care are all forms of long term care which cost money where the person never sees the inside of a nursing home.

Planning for the many types of long term care just makes good financial planning sense.

However, long term care can be expensive, especially if a person waits too long to buy it. Age and health problems could make premiums prohibitive or even render the coverage unattainable.

What if there was a way to make sure you had long term care coverage if you ever needed it, but never had to take premiums to pay for it out of your income? Actually, there are quite a few. Lets look at three of them

1. Sell a life insurance policy.

Unbeknownst to many people, there is an after market for life insurance policies that have served their purpose and are no longer needed. There are companies that will buy policies on behalf of pension and institutional funds which hold them as part of their investment portfolio. The best part is that they will buy them for more than the cash value.

Other insurance policies that may be a candidate are those where the premium takes a huge hike because of the drop in interest rates, policies with maximum loans about ready to collapse and create a taxable gain but with no money to pay the tax or even term insurance policies that are nearing the end of their term.

When a policy is sold, one option would be to transfer all, or a portion, of the proceeds into an asset based long term care plan. Done deal. Ask your financial planner about asset based LTC plans.

2. Withdraw money from an annuity.

Over 90% of the people who own a non-qualified deferred annuity die owning it. It is never converted to a life income. Essentially it serves as a longer term rainy day fund than a CD. The fact that the interest earned is not currently taxable is an attractive feature and makes the money grow faster than a taxable CD.

However, at some point the piper must be paid. When someone dies holding an annuity and leave it to their children, the children are required to pay the tax on the gain. You may have heard this referred to as the annuity ticking time bomb.

There is a way to avert this time bomb tax, provide long term care for yourself and not take any money out of your budget. There are several ways to skin this cat

a. If your annuity is large enough, simply take the 10% penalty-free withdrawals each year and move them into a 10-pay long term care plan.
b. The only mental deterrent that comes up on this suggestion is that there may be remaining surrender charges on the annuity. No problem. Most companies allow you to annuitize. If the annuity pay-out period is at least 10 years, most of them waive any surrender charges.

3. Exchange all or a portion of a CD, non-qualified deferred annuity, variable annuity or IRA for an annuity/long term care combination plan.

This entails simply moving money from one of your pockets to another. The difference is that the pocket to which the money is moved has long term care benefits in it as well. This technique also uses the asset based long term care plan approach.

So there you have it. Three ways to get long term care without a premium coming out of your pocket.

By: Robert D. Cavanaugh, CLU

From my experience in working with seniors, here are the five most offered reasons why people have not purchased long term care. In most cases, the reasons are not valid. Its not that they dont make any sense; it is due to lack of information. So here are the big five along with some insights that may cause you to re-think your position.

1. Denial. I wont ever need long term careIll never go to a nursing home.

There are a couple of ways to look at this. First, it is true that about 50% of the population will go to a nursing home at some pointgenerally at the very end of life. But that also means 50% wont. Its a flip of a coin.

Still, 50% is a pretty high chance. If no provisions are made for long term care, a person with little or no assets is up a creek and the person with modest assets could rapidly dissipate their entire estate. So its insuring against an unknown, just like other insurance. Do you have fire insurance on your home? How many times has your home burned down?

Consider this: There are a lot more long term care situations than going into a nursing home. You could need home care, adult day care, assisted living or hospice care. These are all long term care variations requiring money.

2. Its too expensive.

It very well might be. You could have health challenges. You could be too old to get a good rate. But you need to think outside the box.

There are a number of things you can do that entail just moving assets around that would provide long term care benefits. None of these require an out of pocket premium.

For example, there are insurance companies that will allow you to exchange all, or a portion of, a CD, annuity, life insurance policy or IRA for a product that has most of the attributes of the fund transferred and has long term care benefits to boot.

3. My kids will take care of me.

Maybe. But pretty much for sure if you live in rural American and its the late 1880s. Today, families are scattered all over the country. As much as this sounds like a good idea on paper, in reality it is hard to pull off without friction somewhere.

4. Im a veteranthe VA will take care of me.

Again, maybe. First, they have to have a bed for you. Remember, there are 70 million Baby Boomers right behind you and its all about supply and demand. Economists are already predicting that nursing homes wont be able to be built fast enough for the general population, much less expanding VA hospitals.

Before you put all your hopes on the VA, I would suggest reading the qualification rules. This is a topic unto itself, but let me give you a couple of examples.

a. In some places, you must have a 70% service-related disability to qualify.
b. For others, the best option may be State Veterans Nursing Homes. These are generally out in the sticks. The VA provides a per diem ($59 a day in 2005) so the vet may have to pay the difference unless a state subsidy for low income veterans is available. There are waiting lists, some as long as two years.

So making the assumption that the VA will take care of you does not put a lock on long term care.

5. Medicare will cover my long term care costs.

Again, this is a complicated topic requiring a detailed explanation. Let me just say here that there are a lot of hoops you have to jump through to even qualify. Second, the benefits are only offered for a limited number of days. On top of that, most people dont qualify for the maximum number of days.

Several years ago, there was a popular planning technique used for Medicares cousin, Medicaid: Give or spend your way into poverty so you could qualify for longer benefits. But now the rules have changed. For example, the powers that be were able to look back only three years to see what was given away to reduce your estate to Medicaids definition of poverty. Now its five yearsand not from the time the asset(s) were given awayfive years from the application time. The equity in your home was previously not taken into the calculation; now it is. If you have more than $500,000 of home equity, you dont qualify.

So, the bottom line is that Medicare really is not a long term solution for most people.

The point of all this is to encourage you to do more homework if you have offered any of these reasons for not addressing the long term care risk. One of two things is likely to happen. You will discover that what you think would be your solution really isnt or you will solve the problem by being exposed to a planning technique or product that was previously unknown to you.

By: Robert D. Cavanaugh, CLU