term life insurance policy benefits

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PostPosted: Thu Dec 18, 2008 7:15 am   Post subject: term life insurance policy benefits  

Hi friends,



A few things to know..

Is the term life insurance of any real help to people? Is it possible for a consumer to opt for multiple policies at the same time?

Otherwise what would happen when the term lapses!



Purpleheaded08


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PostPosted: Thu Dec 18, 2008 9:56 am   Post subject:   

Hi there! Your coverage would be quite secured through your term life coverage. It would also allow you to save your marginal cost over a permanent insurance. You could invest it to any bonds or stocks that you prefer. I'm sure you're well aware of the savings potential of stocks and bonds today.

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PostPosted: Thu Dec 18, 2008 10:59 am   Post subject:   

Quote:
Is the term life insurance of any real help to people?




Well, the term life plans have become quite outdated, initially it was the only form of life insurance available in the market. The term life plans may serve its purpose if you have debts which can put an extra burden on your family after your death. Therefore, if you have mortgage loans and/or secured or unsecured loans you can opt for term life plan. Also, if you are sure that you'll die within the term of the plan, term life is a good option.
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PostPosted: Thu Dec 18, 2008 11:34 am   Post subject:   

Quote:
Is the term life insurance of any real help to people?


It's of GREAT value to the beneficiary.

It's of no value to the deceased person.



Quote:
Is it possible for a consumer to opt for multiple policies at the same time?


Yes, but it would be foolish, each and every policy carries its own yearly policy fee build into the premium so you'd be paying multiple policy fees needlessly.



Plus many companies greatly reduced the cost per thousand for higher face amount policies.



It would cost way more money to have 10 - $100,000 policies rather than just one - $1 million dollar policy.



Quote:
Otherwise what would happen when the term lapses!


Term policies don't typically lapse at the end of the "term." The premium is simply adjusted, albeit to an unaffordable rate.



10 year level term premiums will typically double in the 11th year and the policy changes to Annual Renewable Term to age 95 or 100 with premium increases each and every year.



If you become uninsurable you're stuck with the last policy you bought. If you're still healthy and fit you'll simply submit new evidence of insurability either with the same company or buy a new policy with a different company to lower your premiums. Or you can convert your term policy to some form of cash value policy your current company offers without new evidence of insurablility but you'll find for that to be affordable you'll have to cut the face amount (probably about in half) and increase your premium, (probably about double).


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PostPosted: Thu Dec 18, 2008 3:25 pm   Post subject:   

Term life insurance is of help to people. It provides peace of mind to the insured person knowing they are providing for the future security of their beneficiaries.



it provides much needed money (financial security) for the beneficiaires who may receive the proceeds of the term life insurance policy if the insured dies during the policy term.



Yes, a consumer may purchase multiple policies at the same time. For instance a 10 year term, a 15 year term, and a 20 year term.



The term does not lapse. A life insurance policy lapses if the premiums are not paid on time.



A term life insurance expires if you outlive the term of the policy.



When the term ends, you may apply for another term life insurance policy. The rates will be higher based on your age, health, and other underwriting factors at that time.



It may be wise to consider renewable term life insurance that does not require you to take a physical exam to qualify for another term policy.



Also, the conversion privilege allows you to convert your current term life insurance policy into a permanent life insurance policy by a specific date in the future.



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PostPosted: Thu Dec 18, 2008 6:57 pm   Post subject:   

You've had some interesting responces to your question. If you need $1,000,000 of life insurance to protect your family and it would cost $15,000 a year you might not buy the insurance that your family needs. You might be able to afford $250,000 of the needed million dollars. On the other hand, the $1,000,000 policy, in the form of a contract that would be guaranteed for 20 years might only cost $3,000 a year for 20 years. As an investment, term life sucks! But, if it affords you the ability to insure your life for the amount to meet your family needs, IT'S OUTSTANDING!

This from the experiences of 35 years as an independent insurance agent.

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PostPosted: Fri Dec 19, 2008 4:36 am   Post subject:   

Well, Pro, what I can surmise from your post that term life is still a valid option for people with limited financial ability, but it may not necessarily offer additional advantages apart from the death benefits like the whole life plans, which accumulates cash value as well.



Now, my question to the agents on the board, that what life coverage would you suggest to an individual in his mid thirty and with three dependants, term life or whole life? Supposing that money isn't a concern Wink


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PostPosted: Fri Dec 19, 2008 12:47 pm   Post subject:   

Quote:
Now, my question to the agents on the board, that what life coverage would you suggest to an individual in his mid thirty and with three dependants, term life or whole life? Supposing that money isn't a concern.




coffeeandcaramel, that's an easy one.



I'll use a standard male 35 non-smoker rate class and $500,000 initial death benefit.



Remember, money isn't an issue.



The guideline single premium is $70,188.



So by paying the one-time maximum premium would produce the following results.



@ age 50 the cash value would be $180,599



@ age 60 the cash value would be $383,246



@ age 65 the cash value would be $564,888 and the death benefit would be $677,865



@ age 70 the cash value would be $1,235,081 and the death benefit would be $1,296,835



@ age 90 the cash value would be $3,991,911 and the death benefit would be $4,191,507



@ age 120 the cash value would be $44,876,739 and the death benefit would be $44,876,739



Even if these PROJECTED numbers are wrong by 50% the insured person would still have a substantial amount of additional cash available to supplement retirement if the death benefit was no longer needed.



Also bear in mind I used the worst rate class for the life insurance. The cash would grow better if our 35 year old qualifies for a preferred rate class.


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PostPosted: Thu Jan 01, 2009 3:30 am   Post subject: GarySpicuzza  

Gary,



What net rate of return are your using in your assumptions?

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PostPosted: Thu Jan 01, 2009 12:40 pm   Post subject:   

For the cash value to equal $180,000 @ age 50 (15 years) would require a "net" rate of return of 6.3% compounded monthly.



That's NOT reality. It's just math.



When looking at cash value life insurance projections 15, 20, 30 years in the future the numbers are WRONG.



But I'll restate my main point from above:

Quote:
Even if these PROJECTED numbers are wrong by 50% the insured person would still have a substantial amount of additional cash available to supplement retirement if the death benefit was no longer needed.


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PostPosted: Thu Jan 01, 2009 5:03 pm   Post subject:   

So what gross rate of return would you need to end up with a 6.3% net rate of return in the product you are using, which I'm assuming is an Aviva Index UL... 7.95%?



Also, if you are going to use this for supplemental retirement income, I wouldn't fund the policy with such a large lump sum, because it will become a modified endowment contract (MEC). Once it's a MEC, you can no longer take out tax free loans from the policy, which is the biggest reason to sock away extra money into a life insurance policy.



You could take that same lump sum and pay it over 5 yrs (5 x 14037). You will have roughly 150k at age 50 assuming a 7.95% gross rate of return and you will still be able to take out tax free policy loans.



Keep in mind, while your money is not in the stock market, these results would require positive stock market returns (S&P 500). In any year that the market is not up, your gross return will be zero. Your guaranteed cash value in Gary's example at age 50 is only 57k and at age 66 your guaranteed cash value is ZERO.



If you prefer to have higher guaranteed cash values, you should look at a whole life policy.



If you just want affordable permanent coverage with a lifetime guaranteed death benefit and you don't want to overfund a life policy for supplemental retirement income, here's another option:



You could buy a 500k guaranteed ul for about 3633/yr. Beginning in the 20th yr, if you surrender your policy for any reason, you are guaranteed at least your money back. These numbers are based on standard non-tobacco rates.



However, if money is truely not a concern, why are you buying insurance? Is it to pay for estate taxes at death? If so, you need a different strategy. If this is the case, let the board know.

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PostPosted: Thu Jan 01, 2009 10:01 pm   Post subject:   

victor27s wrote:

Quote:
Also, if you are going to use this for supplemental retirement income, I wouldn't fund the policy with such a large lump sum, because it will become a modified endowment contract (MEC).


The purpose of life insurance is the payment of the death benefit to the primary beneficiary. It doesn't matter if the policy is a MEC when the insured dies.



Quote:
You could take that same lump sum and pay it over 5 yrs (5 x 14037). You will have roughly 150k at age 50 assuming a 7.95% gross rate of return and you will still be able to take out tax free policy loans.


All things being equal that strategy would COST the client $30,000 dollars of gain to avoid paying income tax IF and when the insured took a withdrawal. You could pay a lot of income tax with the extra $30,000.



Quote:
Keep in mind, while your money is not in the stock market, these results would require positive stock market returns (S&P 500). In any year that the market is not up, your gross return will be zero.


That statement is INCORRECT.

The GUARANTEED interest is 2% through year 10 and 2.5% thereafter regardless of positive (S & P 500).

Please READ "Guaranteed Elements" on page 3 of the actual company proposal.



Quote:
Your guaranteed cash value in Gary's example at age 50 is only 57k and at age 66 your guaranteed cash value is ZERO.


victor27s the "guaranteed values" are based on 2% interest through year 10 and 2.5% interest thereafter COUPLED with the guaranteed maximum cost of insurance. So while your statement of GUARANNTEED VALUES is CORRECT it's nonetheless DISINGENUOUS.



The GUARANTEED VALUES are just as WRONG as the "current projected" values into the future for 30 years.



Quote:
If you prefer to have higher guaranteed cash values, you should look at a whole life policy.


The above is a generic statement not relative to ANYTHING. If you want to compare Whole Life (a form of cash value life insurance) to Indexed Universal Life (a form of cash value life insurance) with all things being equal that's perfectly acceptable.



However, to start touting "GUARANTEED VALUES vs. GUARANTEED VALUES is absurdly preposterous.



Quote:
If you just want affordable permanent coverage with a lifetime guaranteed death benefit and you don't want to overfund a life policy for supplemental retirement income, here's another option:



You could buy a 500k guaranteed ul for about 3633/yr. Beginning in the 20th yr, if you surrender your policy for any reason, you are guaranteed at least your money back. These numbers are based on standard non-tobacco rates.


Or you could just pay the minimum premium and add the No Lapse Guarantee rider. Then REGARDLESS of market conditions or even if the policy runs out of cash or adverse mortality strikes your policy is GUARANTEED not to lapse as long as you pay your premium of $2,830 annually.



Quote:
However, if money is truely not a concern, why are you buying insurance? Is it to pay for estate taxes at death? If so, you need a different strategy. If this is the case, let the board know.


victor27s...it was a hypothetical question posed by coffeeandcaramel see below.

coffeeandcaramel wrote:

Quote:
Now, my question to the agents on the board, that what life coverage would you suggest to an individual in his mid thirty and with three dependants, term life or whole life? Supposing that money isn't a concern.


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PostPosted: Thu Jan 01, 2009 11:36 pm   Post subject:   

Gary wrote:





Quote:
The purpose of life insurance is the payment of the death benefit to the primary beneficiary. It doesn't matter if the policy is a MEC when the insured dies.




and







Quote:
All things being equal that strategy would COST the client $30,000 dollars of gain to avoid paying income tax IF and when the insured took a withdrawal. You could pay a lot of income tax with the extra $30,000.




It's important to mention that distributions above your cost basis will be taxed at your tax bracket. Depending on how high your tax bracket is, your net income after taxes may be higher on a non mec policy. I'm sure you know this, since you are in the business. If not, let me know and I'll be happy to illustrate this fact to you on your Aviva software.



Gary wrote:







Quote:
Quote:

Keep in mind, while your money is not in the stock market, these results would require positive stock market returns (S&P 500). In any year that the market is not up, your gross return will be zero.



That statement is INCORRECT.

The GUARANTEED interest is 2% through year 10 and 2.5% thereafter regardless of positive (S & P 500).

Please READ "Guaranteed Elements" on page 3 of the actual company proposal.




Actually, my statement is incorrect, but only because I wasn't detailed enough in my explanation. There is a 2% guarantee. However, many clients and agents don't understand this guarantee.



If you earn 7% yrs 1-9 and in yr 10 the S&P is negative, this doesn't mean you will be credited 2% that year. In other words think of having two buckets, one is the guaranteed bucket and the other is the non-guaranteed bucket. The guaranteed bucket will earn 2% every yr (1-10). The non guaranteed bucket will earn whatever it earns indexed to the S&P. At the end of the 10 yrs whichever is higher, is the one you will get and yes the guaranteed bucket is assuming the maximum cost of insurance, which is unlikely. Many things that are unlikely have been happening recently, so I wouldn't discount the value of guarantees.



One more thing, in yrs 11+ the guarantee is not 2.5%, it's an additional .50% of the average month end account values for that year.



Quote:
Quote:

If you prefer to have higher guaranteed cash values, you should look at a whole life policy.



The above is a generic statement not relative to ANYTHING. If you want to compare Whole Life (a form of cash value life insurance) to Indexed Universal Life (a form of cash value life insurance) with all things being equal that's perfectly acceptable.



However, to start touting "GUARANTEED VALUES vs. GUARANTEED VALUES is absurdly preposterous.





Here again, I think you are discounting the value of guarantees. Some clients are very conservative, and therefore an indexed ul might not be appropriate. Personally, I wouldn't buy a whole life policy for myself, but everyone is different and people on this board, I think just want to know what options are available and not have someone TELL them what is right for them.





Quote:
Quote:

If you just want affordable permanent coverage with a lifetime guaranteed death benefit and you don't want to overfund a life policy for supplemental retirement income, here's another option:



You could buy a 500k guaranteed ul for about 3633/yr. Beginning in the 20th yr, if you surrender your policy for any reason, you are guaranteed at least your money back. These numbers are based on standard non-tobacco rates.



Or you could just pay the minimum premium and add the No Lapse Guarantee rider. Then REGARDLESS of market conditions or even if the policy runs out of cash or adverse mortality strikes your policy is GUARANTEED not to lapse as long as you pay your premium of $2,830 annually.





The only difference here is that you wouldn't have the guaranteed return of premium in yr 20 and all subsequent yrs, but you would be saving about $800/yr so that would be a viable option.


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PostPosted: Fri Jan 02, 2009 11:27 am   Post subject:   

Where's my red flag?





Quote:
It's important to mention that distributions above your cost basis will be taxed at your tax bracket. Depending on how high your tax bracket is, your net income after taxes may be higher on a non mec policy.


I'm not sure what your point is here. The issue here, or the difference in professional opinion, is whether it would be better to simply pay the one-time single premium of $70,188 and have a MEC or pay $14,037 for five years for a non-MEC.



Your non-MEC method costs the client $30,000 in gain in 15 years at age 50. By age 65 your non-MEC method costs the client $106,045. More money is ALWAYS better.



Quote:
Actually, my statement is incorrect, but only because I wasn't detailed enough in my explanation. There is a 2% guarantee. However, many clients and agents don't understand this guarantee.


Agreed.



Especially the part in BOLD print.



Quote:
If you earn 7% yrs 1-9 and in yr 10 the S&P is negative, this doesn't mean you will be credited 2% that year.


Wrong.

You get 2%.

The GUARANTEED MINIMUM INTEREST.



Quote:
In other words think of having two buckets, one is the guaranteed bucket and the other is the non-guaranteed bucket. The guaranteed bucket will earn 2% every yr (1-10). The non guaranteed bucket will earn whatever it earns indexed to the S&P. At the end of the 10 yrs whichever is higher, is the one you will get and yes the guaranteed bucket is assuming the maximum cost of insurance, which is unlikely.


The above is an incorrect and convoluted explanation. Because a life insurance CONTRACT is a CONTRACT the insurance company has to state within that CONTRACT the very least it will EVER credit for interest, the 2%, and the very most it can CONTRACTUALLY charge for the cost of insurance.



Those two elements combined produce the "GUARANTEED VALUES." For the GUARANTEED VALUES to come true interest credits would never be more than 2% EVER and something would have to happen with mortality whereby the company charges the maximum cost of insurance AND all this has to happen the day after you bought your policy and it NEVER gets any better....EVER.



Quote:
Here again, I think you are discounting the value of guarantees.


Didn't you just write in the paragraph above?

Quote:
...yes the guaranteed bucket is assuming the maximum cost of insurance, which is unlikely.


Now you don't get to have it both ways.



Quote:
The only difference here is that you wouldn't have the guaranteed return of premium in yr 20 and all subsequent yrs, but you would be saving about $800/yr so that would be a viable option.


Yes...and the reason why the insurance company will and can "guarantee the return of premium" in year 20 is BECAUSE the client paid $800 dollars per year more, $16,000 dollars more over 20 years.



As I wrote on THIS THREAD:



Many times with life insurance the DISTINCTIONS ARE WITHOUT A DIFFERENCE.

Leading to confusion.


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PostPosted: Sat Jan 03, 2009 12:08 pm   Post subject:   

victor27s,... please don't stop posting,... I enjoy the sport.



I also have a passion for exactly correct information.



Not opinion, not emotion, just the facts.



You may find THIS LINKY from an independent source helpful in understanding Indexed Universal Life.



Quote:
If the index is higher at the end of the policy year the interest credited to the cash value will reflect this. So, if the calculated index is higher at the end of the year the cash value will participate in a percentage of this increase.




Quote:
What if the index goes down? If the index stays flat or declines the cash value is still credited with a minimum guaranteed interest rate. This is the attraction of IUL. When the index goes up the policy owner shares in the increase, but if the index goes down the policy still earns at least a minimum interest rate.




Quote:
Let's say that we have an accumulated value of $10,000 and a minimum interest rate of 2%. We'll further assume that we receive 100% of the calculated index gain for the year up to a maximum of 7%. At the end of the year the calculated index gain is 10%. The accumulated value would earn 7% for the year $700. So, our accumulated value would now be worth $10,700 ($10,000 plus $700).




Quote:
But what if the market dropped 10% the following year? The locked-in value of $10,700 would be unaffected by the market decline and would earn 2% or $214 ($10,700 times 2%) leaving an accumulated value of $10,914. The policy receives the greater of minimum guaranteed interest rate or the excess interest earned from the calculated index gain.




Razz The above is a shameless demonstration as to why and how I have earned my *SAFE designation. RazzWink


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