Life Insurance: Coverage for you and your family

by zhl203 » Tue Dec 08, 2009 04:26 am
Posts: 10
Joined: 08 Dec 2009

When you have family members depending on your income, saving for the future of your loved ones is a good idea. Investing in life insurance will give you enough financial support to take care of the future of your loved ones when you are no longer around. A life insurance plan also makes provision for a cash value where a part of your premium is put into a savings account. Hence, while you invest for a secured future, you can make savings too.

What is life insurance?

Life Insurance means insuring your life to save for the future of your family. If you have family members depending on your income you may invest in life insurance. This is a contract between you and your insurance company where your insurer agrees to pay a certain amount of money to your beneficiary in the event of your death.

What are the types of life insurance?

  • Term Life Insurance:

    For those who are running on a budget, you can opt for a simple life insurance. Term life insurance allows the beneficiary death benefits for a specific period or 'term'. This term may be 1 or more years and the benefits are paid only in the event of death of the policy holder within the term of the policy.

    There are certain term life insurance that can be renewed for more than one additional term. However, if you do so, your premiums may go higher. You may even sometimes be allowed to trade your term life insurance for a whole life insurance policy.

    Term Insurances are of 5 types:

    1. Annual renewal term insurance: Allows you to renew your term insurance every year till you reach a specific age which often freezes at 65.
    2. Renewable term insurance: With expiry of the term of the policy (generally 5-20 years), you can automatically renew the policy even if your health condition has worsened. It is similar to the annual renewable policy but this one is for a longer period of time.
    3. Level premium term insurance: Ensures that your premiums will not go higher for the term (between 5 and 20 years) of your policy.
    4. Decreasing term insurance: Allows your premiums to stay level throughout while decreasing your cash benefits each year. Such policies are usually used to cover items whose costs decrease with time.
    5. Convertible term insurance: With this policy you may convert your term insurance into any other type of life insurance policy that the company offers.

  • Whole Life Insurance:

    A whole life insurance covers a policy holder for his entire life. There is no date of expiry like in a term life insurance and the death benefits will be received by the beneficiary mentioned in the policy only in the event of the death of the policy holder. If you buy a whole life insurance you will have to pay a higher premium as compared to a term life insurance. The reason for this is that a certain portion of the premium paid for whole life insurance is put away into a savings program.

    When you compare the total premiums paid for whole life insurance and the total premiums paid for term life insurance it is seen that whole life insurance is less expensive. Even if you pay higher premiums for whole life insurance, the fact is that the premiums remain the same throughout the tenure of the insurance. But in the case of term life insurance, you may be paying lesser premiums in the beginning, but as you renew your term policy, premiums will increase. Hence, the total value accrued in term policy is bigger than a whole life insurance.

    Certain clauses in a whole life insurance allow you to pay premiums for a lesser period of time. The greatest advantage in this policy is that the premiums develop cash values that may be claimed or used for purchasing rider policies for more protection. Few of the whole life insurance benefits are:

    • Guaranteed death benefits
    • Guaranteed cash values
    • Fixed annual premiums

    A whole life insurance also known as "straight life" or "ordinary life" insurance, is not just an investment for your future alone, but also for the future of your family.

    To understand the basic difference between term life insurance and whole life insurance click here.

  • Universal Life Insurance:

    Universal life insurance is a flexible policy that provides security for you and your family. To know more please click here.


How to save money on life insurance policy?

When you shop for life insurance coverage, there are certain ways by which you can save money on your policy. You must look for a policy that meets your needs and the right kind of benefits received. If you think that buying a policy with a low premium will save your money think again. If you buy inadequate insurance, it will be a sheer waste of money. However, you can maximize your life insurance dollars using some of the tips provided here.
  1. Seek financially sound companies: Look for companies that are financially strong so that when your beneficiary(s) make a claim, he may receive the benefits of life insurance without hassle.

  2. Shop around: Get life insurance quotes from more than one insurance provider. You may even ask an insurance agent or an insurance broker to get you few insurance quotes from different carriers. You may then compare the quotations and find a policy that suits your needs as well as pocket.

  3. Seek group insurance: Employer provided group life insurance is often given at subsidized rates so you may find a less expensive policy here. Even if you have to pay premiums out of your own pocket this might be a good idea for the subsidized rate they provide. However, premiums paid by you will probably be through payroll deduction which is convenient. But a comparison of group and individual rates depending on your age, health must be done to assess which is the best policy for you.

  4. Change in lifestyle: Maintain a healthy lifestyle. Smoking may rate you as a risk option and you may have to pay higher premiums. Exercise regularly and consider making more lifestyle changes if necessary.

How to decide on the type of life insurance to choose from?

You may go for term life insurance if:
  • You need to make a short term investment and not a permanent one. With term life insurance benefits you can ensure the education of your children if you can invest in time. If there is a debt that you have to pay off, you may invest in term life insurance. Term life insurance covers you for a term of 5 to 20 years.

  • You need a big amount of life insurance with a premium that suits your pocket. A term insurance usually pays only in the event of death of the policyholder. However, if you are alive at the time the policy ends, term life insurance coverage will stop until you renew it. But here, you will not build a savings like in a whole life insurance.
You may opt for whole life insurance if:
  • You need life insurance stretching for the tenure of your life. A whole life insurance would pay the beneficiary the death benefit no matter when the policyholder dies.

  • You feel the need to accumulate a savings on a tax-deferred basis. A whole life insurance has its own savings program that puts aside a certain portion of the amount you pay as premiums into the savings program.
Click here to know more.

Can you pay your mortgage with life insurance?

Yes. With mortgage life insurance your mortgage loan can be paid for in the event of your death in a time when the loan is not paid off fully. This insurance is available for 15 and 30 years where for the first 5 years, the amount of insurance is level and then decreases on an annual basis. The premiums for mortgage life insurance can be paid annually, semi-annually, quarterly or monthly.

How should you choose a life insurance company?

When choosing a life insurance company, take the following into consideration:
  • Identity of companies - Make sure to know the full name, office location and affiliation of the insurance company that you plan to buy from.

  • Product sold - Check out what products the company is selling. Most often the companies provide a wide range of policies. Check for what you need and if they have it you may consider buying from them.

  • Financial Security - Select a company that is strong financially and has been in business for long. Your life insurance is an investment to secure your lifetime. Be sure that your insurance company will make life easy for you and not otherwise.

  • Ethics - Check if your company abides by the codes of conducts and principles of the Insurance Marketplace Standards Association. This non-profit organization promotes ethical conduct in life insurance marketing.

  • Agent - An agent is supposed to help you out with your insurance needs on behalf of the company. You must consider taking help from a reliable person only. If there is any discomfort in dealing with the agent, move to another one.

  • Cost of insurance - Based on your age, type of policy and features, and the amount of insurance to be purchased, compare one insurance company with the others. Find out one which offers a better coverage.

  • Claims - A national claims database will give you the complaints (if any) against an insurance company. You may want to check to find if the company you are considering buying from is listed for consumer complaint.

How does a life insurance company choose you?

Your application for a life insurance policy has to go through the insurance underwriting process before it's approved. The underwriters evaluate the risks associated with your application and forward it to the insurance processing department of the company.

Factors that influence underwriting procedure for Life Insurance
  1. Age of the individual to be insured.
  2. Gender of the person
  3. Pre-existing medical conditions
  4. Medical records of the family
  5. Smoker or non-smoker
  6. Mental health of the person
  7. Occupation
  8. Hobbies or lifestyle habits (activities like race car driving, mountain climbing or bungee jumping might be marked as risky)
  9. Driving records
  10. Credit history
  11. Selection of coverage limits, benefits etc.
  12. Medical reports after thorough health check-up including tests like :
    • > Blood pressure level
      > Blood sugar level
      > Cholesterol level
      > Weight of the individual
      > Urine tests
      > Blood tests
      > EKG/ECG
      > X-Rays
      > Stress tests etc.

Click here to know how the above mentioned factors affect the rates of a life insurance policy.

Your life insurance policy might not come to your assistance in your lifetime. However it'll help securing the future of your loved ones when you won't be there to take care of them. A small amount spent at regular intervals will thus be able to give you the sense of security, as you hand over the risks to your insurer. Top

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My parent bought whole life insurance that pays dividends many years ago. The sales representative told my parent that she can stop paying premium in approximately 12 years because the it policy would be able to pay for itself at that time. And at the same time the policy will make annual distributions to my parent. What does that mean? Is there such thing?

The reason why I'm asking is because they're into the 13th year now and they are still paying the expensive premium. When I called the representative, they told me that the account has accumulated certain cash value and dividend, but the accumulated dividend can only cover approximately 3 years of premium.

I did some research, I understand that the cash value is like equity, but is it truly equity like we really own the money? if yes, when can we cash out the equity? if we cash out, the policy terminates? I understand that when the insured dies, the beneficiary would get paid the face amount, but what happen to the cash value? who gets it? Also, what happen if the insured dies of old age (not due to accident), is it still covered by the policy? what happen to the cash value?

Thanks in advance for your help.

Total Comments: 282

Posted: Mon Dec 14, 2009 09:20 pm Post Subject:

ZHL . . .

Thanks for clarifying the age element. At 53, insurance is getting costlier, but not nearly as much as at age 65. So that's in your parent's favor.

However, it's not simply a matter of "economical sense" that is your starting point, but whether or not there is a need for life insurance. IF the answer to the question is, "Yes, we have a need for life insurance," then even if the current policy does not make "economical sense" until it is replaced with anything else, you should not counsel your parent to surrender the policy.

Having a replacement policy in force first is critical, because if they apply for newer coverage, surrender the exiting policy, are declined for the new coverage, it may not be possible to reinstate the surrendered contract. There is usually language in the contract that a "lapsed" policy may be reinstated within a stated period of time (3 years very common, longer possible), but that same paragraph probably states something like "We will not reinstate a contract which has been surrendered."

To get things out of sequence could leave your parent with $30,000 cash in hand, but no insurance. Agents can lose their licenses by counseling persons in just that manner. So you really don't want to do it that way.

A needs analysis will help determine the amount of life insurance that might be appropriate. A crude by reasonable method is sometimes known as the "DIME" method: D=consumer debt (unsecured, credit cards, student loans, vehicles, business loans, etc, to be paid off), I=income for survivors (how much per year/how many years), M=home mortgage and other mortgages to be paid off, E=education funding for children or emergency funds for surviving spouse (separate concept from survivor income = usually thought of as 4-12 months' income in a separate account for emergency use only). Add them all up, and come up with a rough insurance amount.

Not entirely accurate, but a fair representation of need. Other sources of income, other assets that could be liquidated, these are things that could also reduce the amount of insurance needed or increase it if there was a concern about taxation of one's estate following death. (Won't be a concern in 2010, but is likely to reemerge in a big way in 2011).

It's commendable that you would consider paying the insurance premium, and is a viable option. As to your question about cash value and dividends, they are the policyowner's to take at any time. Dividends have been used to purchase paid up additions, so they can surrender the additions for their cash value without affecting the base policy. There are no premiums to pay for those additions. But the additions also increase the total death benefit, and once surrendered,, cannot be reinstated. Similarly, it is not usually possible to keep only the paid up additions and surrender the base policy.

Posted: Mon Dec 14, 2009 10:19 pm Post Subject:

So is it accurate to say $20,754.20 represents the total dividend my parent received over the past 12 years, of which $14,325.69 were used to buy paid up additions (i.e., additional coverage)?

I wish they had never used the dividends to buy the paid up addition and had left the as dividends. For 3 reasons:

1) We don’t need that much coverage.

2) For time value of money reason. Because dividend is something you can get IMMEDIATELY whereas the additional coverage amount is something you’ll get at the end of the policy. For example, if they had left it as dividends, then if my parent surrenders the policy today, they’ll get $50.282.71 (=$20,754.20 + $29,528.51), but now they will only get $35,957.02 (=6,428.51 + 29,528.51) because some of the dividends have been converted into death benefits.

3) My parent would have $20,754.20 in dividend today, which can be used to satisfy approximately 8 years of annual dividends without out of pocket expense.

Do you think I can tell the company to stop using dividends to purchase additions? So we still don’t know what kind of insurance my parent has (variable whole life or what)? Maybe I should ask the company directly.

Posted: Mon Dec 14, 2009 10:57 pm Post Subject:

As of 11/13/2009:
Death Benefit Amount: $164,325.69
Surrender Value Quote: $29,528.51
Loan Value Quote: $29,528.51
Last Dividend Credited Amount: $936.00
Dividend Option: Paid Up Addtl Ins

Dividend/Rider Withdrawal:
Estimated Amount Available for Withdrawal: $6,428.51

Riders & Benefits:
Equity Additions(Variable Additional Insurance) Benefit / Coverage Amount: $14,325.69

No, your calculations are not accurate. Your $20,754.20 ($14,325.69 + $6,428.51) is wrong. As is the value of $50,282.71. Let me show you how to read the numbers you provided.

The surrender value ($29,528.51) is the maximum cash available other than as the result of death (because it appears that there are no more "surrender charges", the loan value and the surrender value are the same). It includes the accumulated cash value of the dividends ($6,428.51). (Not $29,528.51 + $6,428.51 = $39,957.02)

Some or all of the cash value of the dividends ($6,428.51) may be "withdrawn", reducing the death benefit by up to $14,325.69, but not below the $150,000 original face amount. Any amount of the $29,528.51 may be "borrowed" as a policy loan, reducing only the amount of death benefit payable as long as the loan and interest remain outstanding.

The total dividends returned to date are not more than $6,428.51 (only $936 in the last 12 months, will probably be more next year). They have been used to purchase an additional $14,325.69 in death benefit over time.

But just like cash value and death benefit, the two are intertwined, not separate. If your parent died today, heaven forbid, the insurance company's death claim obligation would be a minimum of $164,325.69 ($150,000 + $14,325.69). Not $164,325.69 + $29,528.51.

Your parent, as the owner of the policy, can direct that dividends be used in any of several ways other than purchasing more paid-up insurance. They can be credited to the next year's premium to reduce out of pocket cost. $2542.49 - $936 = $1,606.49 (the amount that would have been needed out of pocket to pay this year's premiums as a single payment). They can be received in cash (non-taxable event). They can be left in the insurer's general fund to earn interest (a taxable event). If there was an outstanding policy loan, the dividends could be used to repay the loan (principal, interest, or both).

Yes, we don't know exactly what type of policy it is, but it must be stated on the cover of the policy or on the first page inside the cover or on the Policy Specifications (Data) page -- it's required by law. It will say something like: Variable Whole Life Insurance, Modified Variable Life Insurance, Universal Life Insurance, Flexible Premium Adjustable Life Insurance -- any number of possibilities here. Look for that on the policy cover or on the first few pages of the policy inside the cover. I'm sure you'll find it. Should also be indicated on any policy statement. And you could ask the company directly, too. They'll tell you.

Posted: Tue Dec 15, 2009 11:47 pm Post Subject:

WL doesn't use a surrender charge against cash value for any policy year. Whatever the stated cash value is, it is also the surrender value.

The use of dividends to purchase Paid Up Additions allowed your parents to accumulate more cash inside the policy than any other dividend option, making that move was a wise one.

When one places money into a WL contract to "purchase" paid up additions they are essentially placing more money into it. As has been stated, you can access that money either by surrendering the PUA or taking a loan (there are different situations that would warrant one option over another).

This is not the company I was assuming, which better explains why the dividend is currently where it is.

If price is causing problems, you should contact the company and ask them what can be done for a premium offset. This doesn't mean premiums aren't due, it means that dividends continue to purchase paid up additions, and paid up additions are surrendered to pay for premiums. This could bridge period of time between now and when you'll have enough dividends to pay premiums.

Be well aware, MetLife isn't much in the WL market anymore, they don't have a terrible product, but dividends paid to your policy aren't there top priority--used to be.

There may also be the option to reduce pay up the policy. It'll reduce the death benefit by a good amount, but it'll keep the policy inforce without future premiums, and the cash will remain and continue to grow. Also, dividends will continue to purchase PUAs increasing both cash value, future dividends, and death benefit.

I would advise you not to feel duped, the policy design seems mostly correct. Unfortunately, the sales concept hinging on the idea that the policy wouldn't require premium payments by now turned out to be false.

I'm intrigued by the retirement comment. Your parents are retired at 53?

Posted: Wed Dec 16, 2009 03:05 am Post Subject:


"When one places money into a WL contract to "purchase" paid up additions they are essentially placing more money into it. As has been stated, you can access that money either by surrendering the PUA or taking a loan (there are different situations that would warrant one option over another)."

Are you suggesting using dividends to purchase the addition was the best option? I think I just told the representative to change our dividend options to "Dividends with Interest." Should I change it back? There are 4 options available: 1) Additional paid-up insurance, 2) Dividends with Interest, 3) Premium Reduction, 4) Cash payments, and 5) One-Year Term Coverage. Are you saying #1 increases cash value faster than any other choices? Does WL separate out the cash value for the PUA and the base policy? (I only see one cash value). If it does, then I can choose to surrender only the PUA coverage. I think this is what you meant by premium offset? But if dividends are used to purchase PUA, wouldn't it slow down dividend accumulation?

"Be well aware, MetLife isn't much in the WL market anymore, they don't have a terrible product, but dividends paid to your policy aren't there top priority--used to be."

What's the implication here for us? I'm not sure what you're suggesting here. Are you saying I should focus on increasing cash value rather than dividend?

I told my colleague about our situation about life insurance. She got nervous because she remembered her representative telling her that she only needs to pay premium for about 20 years and then she will no longer need to pay any out of pocket premium. She called her representative to confirm this and her representative assured her. Could this be true? I still can't believe it. When I ask her what kind of insurance she has, she read the product type to me: Guaranteed Advantage (UL). I think it is Universal Life? But even with Universal Life, could that be true?

Posted: Wed Dec 16, 2009 04:15 am Post Subject:

Yes, you're cash values and dividends grow faster with paid up additions. If asset accumulation is the goal, using that dividend option is in your best interest.

My comment about MetLife and dividends was to reinforce the likelihood of lower than originally suggested dividend performance.

As for your colleague...

You are correct, she has Universal Life Insurance

And her premiums...

This is tricky, UL is very interest sensitive it's possible to endow a UL contract and require no additional premiums, but there are so many moving parts.

To ensure a guaranteed premium period, she should look for something called a secondary guarantee on the policy. This promises that as long as she pays the planned premium for the specified period the policy will remain in force. The cash values most likely cannot be touched in this case. This sort of policy is more like having a permenant piece of term insurance.

In her case, there are no dividends, nor is there a paid up provision. It's simply the insurance company promising that after so many payments at a certain amount, they will guarantee a death benefit.

Posted: Wed Dec 16, 2009 04:00 pm Post Subject:

Are you saying for an UL, the Death Benefit Amount and the Annual Premium are subject to change? There’s no guaranteed Death Benefit Amount?

Posted: Wed Dec 16, 2009 07:01 pm Post Subject:

Depends entirely on the contract. Some are; some aren't. Most are guaranteed for a certain period of time providing a minimum premium is paid.

Posted: Sat Feb 06, 2010 06:27 pm Post Subject: WHOLE LIFE INSURANCE

What will the premiums be on a $1,000,000. Policy to go to my estate at the time of my death?

Posted: Sun Feb 07, 2010 12:02 am Post Subject:


Why do you want the $1 million to go to your estate? Someone with an insurable interest must be the beneficiary....we need some more details. How is your health? How old are you? You can run some rates on our website if you want, but more detailed info would certainly help. Here's the link:

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