2010-01-25T16:03:51.942-08:00

Term Life Insurance ? Coverage & Limitations

A term life insurance is life insurance that is available for a specified term or period. Generally a normal life insurance cover is for the whole life of the insured and exists throughout the life of the insured person. A short term life insurance cover is for a short period of time since it expires when the validity of the term expires. These types of life insurance covers are more affordable than a whole life insurance cover.

A short term life insurance cover is normally taken by persons who are expecting their children to graduate soon and be employed with remuneration. Once this happens the insurance policy expires and the person is not required to pay any further premium on his policy. This policy coverage does not require a medical exam except for answering a few health related questions. The policy is never thrust upon a person but is moved towards the prospective customer in the form of a no-obligation quote. A short term life insurance quote covers a number of aspects and based on what the nearest competitor is actively offering. Most companies providing such short term coverage also give an option to the insured to move the policy to whole life insurance coverage at the same pricing structure and again with no medical exams. The premium payments remain the same throughout. Short term life insurance policies can be had online and there are a number of insurance companies and agents who can offer the best premium values. Like any other insurance product, companies offer spot quotes for anyone wanting to understand the benefits of life insurance.

A quote is based on a few questions requiring answers from the prospective customers. Once the answers are given, the online system generates a quote that can be printed and kept for further use. Â A number of insurance company sites can be visited and similar quotes obtained. These quotes can be studied and then an informed decision can be taken as to which insurance company is offering the best options. Short term life insurance keeps the mind of the insurer free from worries about the future since he has been covered for life insurance till the maturity of the insurance policy. On maturity the insured person can choose to go in for another term or may opt out of the policy. Short term coverage is here to stay and so are the insurance companies who want to have a bigger share of the revenue cake that is now available.

2010-01-15T13:34:52.388-08:00

Common Misconceptions And Mistakes When Buying Term Insurance

Mistake: Failing to buy enough insurance while you are still healthy

Medical evidence is required when you buy life insurance. This evidence usually consists of a list of questions to elicit your medical history, a brief exam by a nurse, a blood and urine specimen and possibly a report from your doctor. If at a later date you decide that you really need more coverage, the process begins again. If your health has changed you may have to pay higher premiums.

MISCONCEPTION: Cheapest is the best.

That term policy premium might be cheap in year one. But most term policies renew at regular intervals (every 10,20 years) and the renewal premium rises at each interval because it reflects your new age.

In general, a 10 year term policy is the cheapest but by year 13 it is actually more expensive than buying Term 20. In other words, if you think you need coverage beyond 10 years, it is better to chose a 20 year term now.

MISTAKE: Failure to understand your options

So on each renewal the premium rises at each interval as stated above. But you do have options. Most term policies include a free option to convert your policy to permanent coverage before age 65. Converting to permanent coverage make sense especially if you have had a change in health. Even better, you will not require a medical to convert.

The types of permanent coverage eligible for conversion usually include whole life and universal life but these also vary by company. If you buy term coverage do so with a company that offers several options for the converted policy.

MISCONCEPTION: Buying through the internet is cheaper (no commissions to be paid)

Insurance comparison services on the internet say "buy direct and save money". The fact is, you cannot receive a discount in the price of life insurance by avoiding a life insurance agent. Sales charges and costs (such as commissions) are built into the premium that you pay for any life insurance policy that you buy. You will be paying those built-in charges regardless of where you buy the insurance. Finding and using a local life insurance agent will not cost you more than dealing with someone in another city or province by telephone or mail.

MISCONCEPTION: Association insurance has cheaper rates.

Associations include organizations such as universities, credit card companies and consumer groups like CAA. Sometimes association rates are cheaper but in many cases the rates go up every five years. Associations are like groups where several insureds are lumped together and pay a premium relative to the group being covered. Even where limited medical questions are asked, the premiums reflect the inability for the insurance company to fully assess individuals and the group like rates is charged. Association groups also may offer very limited conversion opportunities. Therefore if you cancel your credit card or if you are no longer a CAA member you coverage is cancelled.

As a smart consumer, obtain an individual insurance quote and compare the products for price, renewal options and conversion options.

MISTAKE: failure to understand that buying term is like renting life insurance.

Permanent (whole life) plans are more expensive in the early years but the premium stays the same for the duration of the contract. Because you pay more in the early years, you have some equity (cash value) in the policy. If you decide to cancel the contract you get the cash value back. However, you have no equity in a term policy. You pay premiums applicable to your age and this rate rises at every scheduled renewal. Because you are paying the true cost of coverage, there is no equity in the policy. If you cancel the coverage 10 years down the road because the renewal rate is too expensive, then you walk away. Bottom line, you are renting coverage briefly and won't have it when you need it or more importantly when your family needs it!

MISTAKE: paying your insurance premium on a monthly basis

The insurance company charges extra to those who pay monthly as they incur extra expenses to administer monthly payments. If you are able to pay the yearly premium it can save you up to 10%.

MISTAKE: paying extra for benefits (the frills) that you may never use

Waiver of Premium Benefit: the insurance company will waive the premiums if you become disabled. Few people understand that you must be totally disabled in order to be eligible. Also if you have term insurance the insurance company will usually pay only to age 65 while for some types of permanent insurance they will pay the premiums beyond age 65.


Guaranteed Insurability Option: In a nut shell you pay more now just in case you want to buy more insurance in the future without having to provide proof of health. It essentially insures your insurability. However, your premium for the new policy will be at current age rates. One more reason to buy all of the insurance that you need now and at your current age.

Accidental Death Benefit: This benefit guarantees that if you die in an accident, your beneficiary will receive an additional predetermined amount of money on top of the base policy amount Again, I'd say if you need accident coverage buy it rather than depending on an ADB rider hopefully supplementing the amount of coverage your family really needs now.

MISTAKE: buying coverage because no medical evidence is required.

This might sound appealing but in actual fact you will pay more for this insurance and the amount of coverage available will be limited. If you are healthy, take the time to prove it and pay premiums that truly reflect the good risk that you are.

MISCONCEPTION: the premium I see on the internet is what I get.

Insurance companies offer several classes of standard rates. Those in the top physical condition and with no risk factors will get the best rate. Premiums on the internet usually default to the top preferred category (the cheapest). However, keep in mind, only a certain percentage of applicants will actually qualify for the best rates.

MISCONCEPTION: waiting until you lose weight or stop smoking in order to get the best rate.

This is just procrastination. Yes, you may pay higher rates now but did you know that if you quit smoking or if you keep the pounds off for one year, you can apply to have your rate reassessed.
source: istockanalyst

2010-01-11T13:08:50.697-08:00

Aging baby boomers will flock to life insurance that generates income

Sales of immediate annuities and whole-life insurance policies will increase this year as boomers nearing retirement seek reliable income streams that aren't subject to the whims of the market.

?The benefits afforded in the immediate annuity from the cash flow perspective will become that much more attractive,? said Merry Mosbacher, a principal in the insurance marketing unit at Edward D. Jones & Co. LP. ?It's an amount you can count on, and a way to look at necessary expenses and fund them with a predictable income stream.?

Financial advisers are also likely to take advantage of whole-life insurance as they seek a fixed-income alternative for clients that can fare well despite a low-interest-rate environment.

Eric D. Brotman, president of Brotman Financial Group Inc., especially likes ?10-pay? whole-life contracts for clients under 45, treating the insurance as a fixed-income alternative. The firm manages $70 million.

?It's likely to outperform fixed-income markets for the foreseeable future, and it reduces out-of-pocket costs for term life insurance if you do a conversion [to permanent coverage] or a replacement,? he said.

Last fall, the Guardian Life Insurance Company of America released such a product, which requires that all premiums be paid within 10 years.

Another plus is that while clients are paying more annually for 10-pay whole life versus a traditional whole-life policy, they are paying for a shorter period of time.

The 10-pay policy allows young clients to maintain an investment portfolio that is a little heavier on equities, while stashing money in a tax-free vehicle and providing necessary insurance coverage, Mr. Brotman said.

Analysts point to a change in the mix of insurance products that advisers are recommending and the more widespread use of immediate annuities as an income-producing supplement in a client's portfolio.

?The transition for the insurance industry is having the annuity play that supporting yet critical role of guaranteeing income,? said Lisa Plotnick, associate director of Cerulli Associates Inc.

At the darkest point of the financial crisis in 2008, sales of variable annuities faltered as investors fled to the safety of fixed annuities. After robust sales through the first half of 2009, however, sales of fixed annuities began to slide again. In the third quarter, they were down 21% from the year-earlier period to $21.9 billion, according to data from Beacon Research Publications Inc.

The trend against fixed annuities is likely to continue.

?It's hard to believe they'll sell a lot of fixed annuities unless the market tanks again,? said Scott Stolz, president of Planning Corporation of America, the insurance general agency of Raymond James Financial Inc. ?Interest rates are really low, and industrywide, I believe there will be a significant decline in 2010 versus 2009.?

In the world of variable annuities, experts predict a wave of new developments, including hybrid products, new ways to pay for living benefits and an emphasis on reaching out to registered investment advisers.

Also likely to emerge are designs that add aspects of fixed annuities to variable annuities, something similar to The Hartford Financial Services Group Inc.'s Personal Retirement Manager product, which was released in October. That product paired a variable annuity with an income component that can be funded separately.

?You're combining aspects of a deferred immediate annuity and putting it into a variable annuity wrapper,? Ms. Mosbacher said. ?The market will drive similar innovations if advisers start to recommend this product for clients.?

In terms of hybrids, experts expect more insurers to look into pairing qualified long-term-care insurance riders with fixed annuities, due to a provision in the Pension Protection Act of 2006 that will allow tax-free LTC payouts from these combination products.

Frank O'Connor, director of insurance solutions at Morningstar Inc., thinks that more carriers will follow the lead of John Hancock Financial Services Inc. and release simplified, lower-cost variable annuities in an attempt to grab the attention of RIAs and others who don't often sell the product. The AnnuityNote, released last summer, was John Hancock's attempt at attracting advisers.

?The pieces are there for that to make sense: The demographics are right; the product serves a need in terms of income and lifestyle protection,? Mr. O'Connor said. ?Gaining acceptance with advisers who historically had a knee-jerk negative reaction to variable annuities is tough, but we'll keep seeing the effort being made by companies to crack that code.?

On the asset management side for variable annuities, experts expect an increase in fund choices that combine passive and active investment styles to cut costs to investors and hedge for market risk.

?Insurance companies got into trouble last year because their hedging was index-based and active managers didn't hew close to it,? Mr. O'Connor said.

Combinations will also ratchet up active managers' control of investments to allow them to capture more gains amid the rising market, Ms. Plotnick said. But insurers will maintain the passive side for protection.

?I believe insurers will want to keep the passive component to offer that additional degree of risk management for them and lower cost for the contract holder,? she said.
source: investmentnews

2010-01-08T07:21:36.120-08:00

In a World With Few Guarantees, NY Life Wants to Offer Some

Investors have become more risk averse after getting slammed by the stock market and New York Life Insurance Company is trying to capitalize on this flight to safety.

On Wednesday, the company announced the launch of a print advertising campaign that highlights the financial benefits and long-term guarantees of its whole life insurance product. The first ad appeared in the December issues of Newsweek, Kiplinger?s, BusinessWeek and Forbes and the January issues of National Geographic and Smithsonian. Two additional ads will run in Woman?s Day, Parenting, Southern Living, and U.S. News & World Report as well as other publications in the coming months.

The ads will be in addition to New York Life?s existing national ad campaign. The company reported that it increased its 2009 advertising budget by 24% to reach more Americans.

?I find it interesting that previously the industry's ads were for variable annuities and now all of a sudden the advertising is being aimed at whole life insurance,? said Harold Evensky of Evensky & Katz Wealth Management. ?It?s a sign of the times. The bloom is off the market, so insurance companies seem to be going back to their risk management core instead of the get-rich products. For many years the focus was on getting rich rather than keeping what you have so this is probably a healthy change.?

The first ad in the new series shows the cash value of a whole life policy from New York Life by displaying its average annual return next to that of the S&P 500 Index over the past decade, the company explained in a press release.

?Americans don?t want to gamble with their savings,? said Mark Pfaff, executive vice president in charge of U.S. Life and Agency, New York Life. ?What we?re seeing is a thirst for guarantees in a world where few exist and we felt it was time to remind consumers that a long-standing product has just the guarantees they seek.?

Slow and steady gains are the name of the game for New York Life, one of the last triple-A, credit-rated life insurance companies left. (Read more at "New York Life: The Slow Road Beats the Competition") According to Kehrer-Limra, a financial services and research company, New York Life is the top seller of fixed annuities in the bank channel year-to-date. ?That is one of the advantages of being a 164-year-old mutual fund company,? said Chris Blunt, executive vice president in charge of Retirement Income Security at New York Life, in a phone interview last month. ?We don?t have to change. We just do our thing.?
source: financial-planning

2010-01-08T07:19:09.822-08:00

Term Life Insurance Review

Term life insurance provides protection for a specified period. Once that period ends, the policy is no longer in effect, unless the policyholder elects to pay additional premium to continue the policy. This is typically viewed as one of the best values in life insurance due to the high ratio of cost vs. benefits. If a policyholder dies during the policy term, the full death benefit is paid to a designated beneficiary. This type of policy retains no cash value throughout the term, and every dime of premium goes to the insurance company. This differs substantially from a whole life or universal life policy, which has no set term but is available to the insured for as long as they life and pay the premium. In a whole life policy, a portion of the premium is invested and this builds cash value that is available to the insured for withdrawal throughout the life of the policy.

There are various types of term life insurance, including level term insurance, Increasing and Decreasing Term Life Insurance/Term Life Assurance, Renewable Term Assurance, and Group Term Life Insurance.

Level term insurance is the most basic product that simply offers a fixed death benefit if the policyholder dies during the policy term. This product is usually sold in terms of 10, 20 or 30-year increments. Premiums throughout the term usually remain constant.

With increasing or decreasing term life insurance the death benefit may increase or decrease with the passage of time. Under an Increasing Term Insurance Policy the benefit amount increases each year, as does the premium. As the cost increases, the value of the coverage may become lower with the passage of time. Careful consideration must be given to the choice of an Increasing Term Insurance Policy. A Decreasing Term Insurance Policy is designed to reduce the benefits paid as the policy term moves forward. This coverage is primarily designed for mortgage protection, and is often referred to as a Mortgage Protection Insurance Policy. The underlying principle to this policy is that the coverage will pay off a loan, which will steadily decrease in value as time passes and payments are made.

Under a Renewable Term Insurance agreement, the policyholder maintains the right to renew the policy once the original term has ended, and can do so without having to submit to a physical examination by a doctor.

Group Term Life Insurance is offered by employers, professional associations, or clubs. With this type of insurance program, all candidates are underwritten using the same guidelines and this option may be good for those who have difficulty finding term life insurance on an individual basis.

When selecting a term life insurance product, a close examination must be made of a person?s cost of living, income, assets and liabilities. A qualified broker will be able to compile this information and make recommendations about which type of term policy is best suited for a particular customer. Term life insurance policies remain much less expensive than other forms of life insurance, and are a good value.
Source: webwire