Term or permanent life insurance?

Few people that have bought insurance -- or maybe window-shopped for quotes -- have escaped the controversy around expression versus permanent insurance. 

And the incorrect type of lifestyle insurance are capable of doing additional injury within your money plans than nearly the other money product these days. So, the very first and the vast majority necessary choice you need to build when shopping for lifestyle insurance is : expression, permanent or perhaps a combined each? Let's inspect every. 

Term lifestyle policies supply death edges solely, if you die, you earn (in like manner speak). If you reside past the actual length from the policy, you (or, additional specifically, your loved ones members) acquire no a reimbursement. 

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Permanent lifestyle policies supply death edges along with a " savings account " (too referred to as " money worth ") to ensure that should you reside, you go back to not less than a number of, and sometimes a lot a lot greater than, the number you spent on your own premium. You acquire this a reimbursement both by cashing inside the policy or by borrowing against it. 

Permanent lifestyle insurance is much more expensive 

As you could expect, permanent lifestyle insurance premiums are higher priced than expression premiums as a result of many of the cash is place into your savings plan. The longer the actual policy is in force, the actual increased the actual money worth, as a result of additional cash is paid in as well as the money worth has earned desire, dividends or each. 

The discussion is centered on in which money worth. If you purchase a policy these days, your first annual premium is possible being a lot increased to get a permanent lifestyle policy than for expression. 

However, the actual premiums for permanent lifestyle keep the very same within the decades, whilst the actual premiums for expression lifestyle maximize. That further premium paid in the first many years of the actual permanent policy gets invested and grows, minus the number your agent takes as being a gross sales commission. The gain is tax-deferred in the event the policy is cashed in within your lifestyle. (If you die, the actual proceeds are typically tax-free within your beneficiary.) 

The declaring you constantly listen to is, " Buy expression and invest the actual distinction. " The reality is, it depends on what very extended you preserve your policy. If you maintain the actual permanent lifestyle policy for long (as well as the market at any time totally rebounds), that is one of the best offer. But " for long " may differ, betting on your age, health, insurance company, the actual kinds of policies chosen, desire and dividend rates, and additional. The reality is there's in no way straightforward answer, as a result of lifestyle insurance is in no way straightforward product. 

Guidelines to reside by when buying 

Even for all of those variables, usually there are some guidelines you could adhere to. The key is how very extended you set up to stay the actual policy. If the actual answer is lower than 10 decades, expression is clearly the answer. 

If its a lot greater than 20 decades, permanent every daythe world is most likely the actual path to take. The huge grey space is in concerning. Here is wherever you may need a specialist to train the words vs. permanent analysis for you personally. Of training program, this assumes you maintain the actual policy in force. Most folks drop their policies among the very first 10 decades, other then should you research your options currently, in which shouldn't really do the case for you personally. 

How to choose 

Start by assessing your desires along with MSN Money's life-insurance estimator. 

Categorize your insurance desires by their use. If you may need $60, 000 for school and also your youngest kid can graduate in 3 decades, you may need $60, 000 of expression insurance as being a short-term hedge against your death, so insuring your kid may end their very own education. Meanwhile, when your estate can owe $200, 000 in taxes in your death, you most likely would like permanent insurance, as a result of you are not possible to die in consecutive 20 decades (you hope). You too could wish to re-evaluate your estate set up, other then that is a unique issue. 

Once you determine your desires, it really is time for them to select the sort of policy that produces most impression for you personally. 

Term insurance 

Term insurance is somewhat straightforward. You may purchase expression insurance in which stops once 10 or 20 decades, or that may be continued beyond age 70. You may select to your premium to extend annually (annual renewal expression) or to stay in the very same quantity to get a fixed amount of decades. 

Most expression policies supply each a current payment program along with a maximum rate for annually. With a few policies, the corporate reserves the very best to extend premiums in the event company prices maximize. With others, health status could become a think about identifying rates. At bound " re-entry " ages, you could have to verify your very fine health so that you can maintain the actual lower premium. 

Most expression policies are convertible to permanent ones while not proof of excellent health. 

Types of permanent life 

The actual wild card in terms of worth is permanent insurance, as a result of most policies have guaranteed and nonguaranteed portions. There are 3 primary kinds of permanent insurance. 

Traditional whole lifestyle : This kind provides one of the guarantees. The annual premium is guaranteed, and there will be minimum guaranteed money values and death edges. Most whole lifestyle policies lately are " taking part, " which means the dividends they earn can be employed to extend the actual money worth and/or death edges, decrease the actual premiums or be refunded in money. 

If you're a conservative investor and have problems saving, ancient whole lifestyle would be a good match for you. 

Universal lifestyle : If you may need premium flexibility, particularly in the first many years of the actual policy, universal every daythe world is for you personally. Universal lifestyle insurance was made inside the seventies, when insurance-industry regulations modified to permit insurers being additional competitive along with financial-services providers. 

Universal lifestyle insurance is much more flexible than ancient whole lifestyle, as a result of premiums may range from year to year and typically may even be skipped. Universal lifestyle has maximum guaranteed premiums and minimum guaranteed money values and death edges. Instead of dividends, universal lifestyle policies earn desire in the credited desire rate determined annually. 

Variable lifestyle : If you take into account you a knowledgeable and risk-accepting investor, examine out variable lifestyle. Variable lifestyle insurance has got the fewest guarantees and hence provides the actual greatest prospective for cash-value will increase. 

There are needed guaranteed annual premiums along with a guaranteed minimum death profit. However, there isn't any guaranteed money worth, and you need to choose the actual investments to your policy. 

Buyers generally are offered a form of mutual fund accounts, starting from cash market funds to aggressive growth funds. 

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Life insurance ought to never be purchased solely as a possible investment. After all, a few of your respective premiums are increasingly being applied to purchase death-benefit coverage and also to protect some other expenses (as well as gross sales commissions). Life insurance shouldn't be purchased on kids as being a approach to avoid wasting for school, and be certain you (and also your wife or husband) have all of the coverage you may need on yourselves before you can purchase any coverage on a toddler. 

When you continue to keep your purchase, prevent every one of the fancy riders, other then accomplish take into account the waiver of premium, that suspends your premium payments other then keeps the actual policy available in the event it causes you to become disabled.

Is Your Employer-Provided Life Insurance Coverage Enough?

Is the life insurance you’re getting through your employer enough to take care of your family? And are you paying too much for that coverage? A healthy 50-year-old male could save nearly 80% on premiums in the first year alone by switching from an employer-provided term life insurance policy to an individual one, according to the National Association of Personal Financial Advisors (NAPFA), a professional association of fee-only financial planners. Young, healthy employees might also be better off with individual coverage, since they can lock in low rates for decades. 

Problem 1 : Your employer may not offer enough life insurance. 

While basic employer-provided life insurance is low-cost or free, and you may be able to buy additional coverage at low rates, your policy’s face value still may not be high enough. If your premature death would be a financial burden to your spouse and/or children, you probably need coverage worth five to eight times your annual salary. Some experts even recommend getting coverage worth 10 to 12 times your annual salary. 

“Most people are able to buy an additional four to six times their salary in supplemental coverage over and above what’s provided by their employer, " says Brian Frederick, a Certified Financial Planner (CFP®) with Stillwater Financial Partners in Scottsdale, Arizona. “While this amount is sufficient for some people, it isn’t enough for employees that have non-working spouses, a sizable mortgage, large families or special needs dependents. ” 

Your employer’s group life insurance might be sufficient if you’re single or if you have a spouse who isn’t dependent on your income to cover household expenses and you don’t have children. But if you’re in this situation, you probably don’t need life insurance at all. 

Problem 2 : You’ll lose your coverage if your job situation changes. 

As with health insurance, you don’t want gaps in your life insurance coverage, because you never know when you might need it. Most workers who get coverage through work don’t know where their life insurance will come from if they change jobs, are laid off, their employer goes out of business, or they switch from full-time to part-time status. You usually won’t be able to keep your policy in these scenarios. Lack of portability can be a problem if you aren’t going directly to another job with similar coverage and aren’t healthy enough to qualify for an individual policy. Some policies do allow you to convert your group policy to an individual one, but it will likely become much more expensive, as you’ll be converting your term policy to a costlier permanent policy. And if you’re losing your coverage because you were laid off, the premiums might be unaffordable. 

“Since the products that are available for conversion from an employer-provided plan are typically limited to just one insurance carrier’s offerings, a client can generally find a more cost-efficient insurance policy outside of the employer’s plan, ” says Thaddeus J. Dziuba III, a life insurance specialist for PRW Wealth Management in Quincy, Mass. “This presupposes that the client can obtain favorable underwriting, however. As a rule of thumb, if a client can no longer get medically underwritten for new insurance coverage but still has a financial need for the death benefit provided by his or her company’s plan, then we often advise conversion regardless of price, since it will be unlikely that they can obtain coverage elsewhere, ” he adds. 

Problem 3 : Coverage gets tricky if your health declines. 

Another problem arises if you’re leaving your job because of a health problem. “If you relied solely or heavily upon group insurance, and then suffer a medical condition that forces you to leave your job, you may be losing your life insurance coverage just when your family is going to need it the most, ” says Jim Saulnier, a CFP® with Jim Saulnier & Associates in Fort Collins, Colo. “At that point it would be too late to purchase your own policy at an affordable rate, if at all, depending on the medical condition, ” he says. 

Even if your health problems aren’t significant enough to stop you from working, they might limit your employment options if you only have life insurance through work. “You could end up handcuffed to your job to keep the life insurance if you experienced a serious enough health issue, ” says David Rae, a CFP® and vice president of client services for Trilogy Financial Services in Los Angeles. 

Also, you don’t control who provides this insurance, and your company could choose a lower-rated insurance company to save money. That could mean the insurance you paid for won’t be there to cover you when you need it. Be sure to check the A. M. Best rating of the life insurance company behind the benefit your employer offers. This rating will tell you whether the company is financially stable enough to pay your policy if the worst happens. Finally, another possibility is that your employer could stop offering life insurance as a benefit to save the company money, leaving you without coverage. 

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Problem 4 : Your plan doesn’t provide enough coverage for your spouse. 

While your employer’s benefits package probably provides health insurance for your spouse, it won’t always provide life insurance for your spouse. If it does, the coverage could be minimal — $100, 000 is a common amount — and that sum doesn’t go far when you lose your husband or wife unexpectedly. 

Couples often assume that the family will only suffer economic hardship if the primary breadwinner dies, says Jim Saulnier, and as a result, many workers fail to adequately insure their spouses. But non-working or lower-earning spouses can see their incomes impacted by their partner’s death. “I often say rhetorically to a client, if your wife dies on Saturday are you going back to work Monday morning? Do you have ample PTO paid time off on the books to cover an extended leave? ” he says. 

What’s more, says Barber, “When one parent is absent, the other must take up the slack with day care or chauffeuring. Hours are cut back. There is never time to properly grieve and, as survivors are often depressed, productivity often falls. ” 

Problem 5 : Employer-provided life insurance may not be your cheapest option. 

Even if you can get all the life insurance you need for both you and your spouse through your employer, it’s a good idea to price shop to see if your employer’s supplemental insurance really offers the best value for the money. You’re more likely to find a better rate elsewhere the younger and healthier you are. Also, unlike the guaranteed level-premium term life insurance you can purchase individually, which costs you the same amount every year for as long as you have the policy, the policy provided by your employer tends to get more expensive as you age. 

“Employer coverage starts out being very cheap prior to age 35 and then rapidly increases in price, ” says Frederick. “Most policies increase every five years and become incredibly expensive once the employee turns 50. If you are healthy and a non-smoker, buying a stand-alone policy might be cheaper than taking coverage through your employer, ” he says. 

“The reason for this is called moral hazard, ” Saulnier says. “Employees who are too unhealthy to qualify for life insurance on their own tend to overload the group insurance because there is no underwriting, and life insurance companies make up for it by charging higher premiums, ” he says. Overall, healthy people in group policies pay more than they would if they purchased private policies. 

The Solution 

While there’s no reason not to take advantage of any free or inexpensive insurance your employer offers, it probably shouldn’t be your only source of life insurance, nor should most people rely heavily on the supplemental life insurance they can get through work. The solution to each of the problems described above is to purchase some or all of your life insurance directly through an individual term policy. You might need to purchase as much as 80% of your life insurance on your own to have enough and to make sure you’re covered at all times and under all circumstances. 

If you don’t qualify medically for life insurance, you can purchase an individual term policy called “guaranteed issue, ” which doesn’t require medical underwriting. These policies are typically much smaller and much more expensive than what you’d get under a term policy that you qualified for medically, but as long as you can afford the premiums (and life insurance premiums should be a priority in your budget), having this coverage is better than nothing. And if your health improves (for example, you quit smoking or overcome hypertension), you might be able to qualify for a medically underwritten individual policy and drop the more expensive policy that doesn’t require medical underwriting. 

Barber believes that, on the whole, the most affordable solution is to buy the most insurance you can afford at the youngest age, since, as you age, the chance of acquiring an illness goes up, and with illness comes more expensive premiums, if you can qualify at all. 

Advised Reasons Not to Buy Life Insurance

The television commercials urging the public to buy life insurance may be self-serving and manipulative, featuring sad, middle-aged women who look pained that their dearly departed husband didn't take out life insurance. But that doesn't mean those ads aren't right. 

It's easy to see why life insurance caught on. It's been around practically forever, since ancient Rome, but it really began gaining popularity during the 1800s. Back then, your life might easily be cut short because of cholera or smallpox. Or your lantern might burn down your home. There were cattle stampedes. You might be blown to bits during the Civil War. 

While our life expectancy and safety issues have vastly improved, plenty of people still don't buy life insurance, according to some surveys. For instance, a recent New York Life survey of 1, 000 Americans ages 37 to 48 showed that 20 percent of Generation X households don't have a life insurance policy. 

Granted, you might not need life insurance. The main rule of thumb is if nobody will be financially devastated by your death, it isn't a must-have. But not everyone goes by the rule of thumb. Here are some common reasons people don't buy life insurance. If this sounds like you, you may want to reconsider. 

Read : 5 Insurance-Buying Mistakes to Avoid. 

If I check out early, I have plenty of assets that will take care of my family. There is logic to that – if you have a million dollars squirreled away and a will, who needs life insurance? But it can still be a risk to go without. Marc Renson, a 43-year-old who owns Ambition Coffee & Eatery in Schenectady, N. Y., wishes his father had bought some. 

His dad had said, " I don't need life insurance, " to which his son quips : " He was right. He didn't need life insurance, but his family did. " 

Renson describes his father as a serial entrepreneur, often opening businesses like arcades and an auction house, then starting something else. In 1984, his dad bought a sawmill operation and a few years later, purchased a new, bigger sawmill for $600, 000 as well as timbering equipment and five acres of land. It was a $1. 1 million investment. 

" Then he fell asleep behind the wheel of his car and was killed, " says Renson, who was a few months away from graduating high school. His dad, who died in 1989, was 47. 

There were a lot of assets, but Renson's father left them a startup sawmill business the family hated operating and didn't fully know how to manage. " Running chainsaws, cutting down trees, pulling them out of the woods, operating tractors, driving dump trucks – all to get these trees to the little sawmill and produce lumber that we would go and custom-make sheds for customers, " Renson says. 

His family had been rich, Renson says, but within a year, his mother declared bankruptcy and moved into a low-income, two-bedroom apartment. Renson's mother is 70 and doing well now, he says, but a life insurance policy would have saved her a lot of financial agony. 

" I remember once instance in '91 when my mother was let go from her third job at a hotel, " Renson says. " They downsized and didn't need her position. She sat crying on the sofa wondering how she was going to finish paying my $1, 500 tuition. " 

I'm healthy. I've been wasting my money on life insurance. Aaron Endré, 27, owns a public relations and marketing firm in San Francisco. His mother, a homemaker who lived in Naples, Fla., died two years ago of colon cancer at age 52. 

" She had life insurance her whole life but let it lapse, thinking that she was healthy, just before she was diagnosed with stage 3 cancer, " Endré says. 

Endré and his mother never discussed the fact that she let her policy lapse. Endré imagines, however, that she felt terrible about it. " I distinctly remember my mom telling me throughout my life that I would be covered in case anything should happen to her or my stepdad, " he says. 

Read : How to Get Your Insurance Claim Paid. 

I realize life insurance is important. I'll get it pretty soon. That was what Grant Smith was thinking. But he didn't get it soon enough. 

Smith is 36 and lives in Atlanta. He and his wife, Alison, have a 2-month-old son. And Smith is fighting extensive small cell lung cancer. 

Smith first started thinking about buying life insurance when he began receiving advertisements in the mail from the Gerber Life Insurance Company. But he was busy with his business, applianceart. com, which he started about three years ago. He also got married in July 2013, and in August, he bought a house. 

A few weeks later, Smith began coughing up blood at the grocery store. 

On Sept. 1, a doctor told him he had cancer. " I thought he was kidding, " he says. 

Smith's prognosis is dire. Chemotherapy is no longer working, so Smith is now participating in clinical trials in New York City. He has been talking to an estate planner and doing what he can to fund his son's college education, including starting a campaign on a crowd sourcing site for fundraising, rockethub. com. 

If things don't go well with the clinical trials and a few drug therapy options doctors have discussed, Smith says, he might only be around another three or four months. 

" Like any other small business owner, the American dream was to build this company into something that I could sell someday. That was kind of the plan, " Smith says. As for his wife and son's prospects, he says she has a full-time job, " and I have this company, which I don't know what to do with. " 

Smith adds, " It's not easy at my age that I don't have much to leave behind, and it hurts my ego. I find it emasculating to be a provider and not leave anything behind. " 

Read : How to Raise Money for Medical Bills. 

Which is why he is now a fan of life insurance. 

While a lot of people undoubtedly put off buying life insurance because of the cost – which can be a few hundred to a thousand dollars a year, depending on the policy and the person's age – Smith says he realizes it is a bargain compared to other family-related expenses. 

" I think life insurance should be purchased for a family before birth, " Smith says. " There's so much leading up to the birth, though, that you can get wrapped up in, with what kind of stroller to buy and swaddling and the nursery graphics for the wall. " 

But his son, Smith says, isn't going to remember what the colors of his bedroom wall were.

Yes, Life Insurance Can Be a Smart Investment

I don't sell life insurance, and I have no interest in any entity that does. However, I am concerned with the lack of planning I see in the financial statements of many investors I advise. One common mistake is that many investors follow this oft-repeated advice : Buy term life insurance and invest the difference. 

Suze Orman tells her readers "... the only type of life insurance you need is term insurance, because it's simple and affordable. Other plans include investing components, but you'd do better to buy the cheaper term policy and invest on your own. " 

Dave Ramsey says " no way " to buying cash-value life insurance. He also advises buying term. 

Not Such a Good Idea 

I have a problem with this advice for several reasons. 

First, most people who buy term insurance don't " invest the difference. " They " spend the difference. " 

Second, for those who do " invest the difference, " there's no assurance their investments will be profitable. Many investors don't understand risk and lose a significant portion of their invested funds. 

Third, most term insurance policies lapse without paying out a claim. Premiums for these policies increase as you age, making them unaffordable when you need them most. At that time, you may not be able to obtain any life insurance if you have serious health issues. 

The Problem With Insurance Agents 

What are the alternatives? 

The primary problem with exploring insurance options is the necessity to consult with an insurance agent. Most people don't understand that their insurance agent isn't a fiduciary. The agent has an interest in generating commissions, and that creates a conflict of interest. This can mean an agent won't necessarily present you with the low-cost alternatives that may be in your best interest. 

The solution is to not rely on agents. Instead, if you're considering life insurance where the annual premium will be $10, 000 or more, you should retain the services of a fee-only insurance consultant. These little-known specialists charge an hourly fee, and they have no interest in any policy you may purchase. They provide unbiased advice and act as your fiduciary. 

A competent fee-only insurance adviser should save you many times his fee. Glenn Daily, a fee-only insurance adviser, has a list of other advisers on his website. As he notes, there aren't many of them. 

Building Cash Value 

I interviewed one insurance adviser, Scott Witt, who's a former actuary for a large insurance company. I asked him to give me an example of a policy that would be a wise purchase but that an insurance agent would be unlikely to recommend. 

Witt said a 29-year-old, in excellent health and a nonsmoker, could purchase a cash-value life insurance policy with a death benefit of $1. 2 million and pay a premium of $17, 000 a year. 

Here's the kicker. After only one year, the illustrated cash value of this policy would be more than $15, 000. After only five years, the total premiums paid would be $85, 000, but the illustrated cash value would exceed that amount. In 20 years, it's extremely unlikely that any additional premiums would have to be paid to keep the policy in force. 

At that time, the illustrated cash value would be $584, 132, representing an internal rate of return of 4. 9% on the amount invested in the policy. This is a higher after-tax return than you're likely to earn by investing in high-quality bonds. 

When our hypothetical 29-year-old gets to age 49, she'll have insurance in force of $1. 2 million. She can take the cash value out of the policy if she wants, up to the amount of the premiums paid, tax-free (but this would reduce the death benefit). When she dies, the death benefit will be paid tax-free to her beneficiaries. Do you think she believes she made a dumb investment? 

Lower Sales Costs = Lower Commissions 

Why is your insurance agent unlikely to present you with this type of policy? Because it's a " blended insurance policy, " meaning it combines whole life and term into a single policy, resulting in higher cash values. It can do this because of lower sales costs. Lower sales costs mean lower commissions. Now you have the answer. 

Several large, highly rated insurance companies sell blended policies, including Northwestern Mutual, Guardian, New York Life and Mass Mutual. According to Witt, these companies have a history of using reliable illustrations, based on recent experience. 

No single type of insurance is suitable for everyone. But for some well-advised investors, buying this kind of cash value life insurance can be a very smart choice.

Life Insurance Ownership Is at a 50-Year Low, But Now's the Time to Buy

LIMRA, the insurance research firm, recently released a survey with a couple of startling statistics. Namely, individual life insurance ownership is at its lowest point in 50 years, even though 40% of survey respondents said they'd immediately have trouble meeting their basic living expenses if a primary wage earner in their households passed away. 

All told, the study found that close to a third of households have no life insurance coverage. To be fair, not everyone needs life insurance. If you're single and no one is relying on your income, you don't need it. If you're married, but you don't have kids, and your spouse could survive on his or her income alone, you don't need it. 

But if you have kids, or anyone else who depends on your ability to bring home a paycheck each month, you need life insurance. 

" Pretty Dramatic " Price Cuts 

Interestingly enough, this low point in coverage coincides with a time when the cost of term life insurance policies -- the cheaper option, and the one that is generally sufficient for most people -- is at an all-time low. 

" Insurers have been lowering rates for at least 15 years on term life insurance. In 1994, the lowest rate in the country for a 40-year-old male who wanted a $500, 000, 20-year-level term policy was about $995 a year. Today, that same 40-year-old, in perfect health, could buy the same policy for well under $400 a year. So that's pretty dramatic, " says Byron Udell, founder and CEO of accuquote. com. 

These prices are influenced by a lot of factors -- interest rates, changes in life expectancy -- but Udell thinks they're slightly more likely to go back up at this point then they are to continue to fall, particularly if interest rates stay low (which limits an insurance company's ability to earn money on premiums). 

Either way, if you've been putting off purchasing a term life policy, now's the time to buy. Here's what you need to know : 

• Where to buy. It used to be fairly easy to find a life insurance agent, but they are fewer and farther between these days, says Udell, largely because prices -- and thus commissions -- are so low. These days, your best bet is the Internet, where you can search for and compare policies on sites like Udell's or Insure. com. Compare your options not only by price, but by the company's rating, which tells you how financially secure it is. 

• What to look for in a policy. Term life insurance is generally sold in 10-, 20- and 30-year policies. If your kids are teenagers, and you just want coverage until they graduate, you're probably fine with 10 years. If they're younger, or your spouse is dependent on your income as well, you want a 20- or even 30-year policy. If you truly want coverage until you die -- and not just in case of an early or sudden death -- then you probably want a permanent policy. But keep in mind that the premiums can be up to four times more expensive. 

When in doubt, go longer, says Udell, because while the premiums will be more expensive on a 20-year policy than on a 10-year policy, you can always stop paying when you don't need it anymore. If, on the other hand, you get a 10 year and decide you really needed a 20 year, you may have trouble getting another affordable policy if your health has declined by the time those 10 years are up. 

" You can sometimes convert a 10-year to a universal or whole policy, but it will be a permanent premium, " notes Udell. " You won't have to qualify medically, but let's say a 40-year-old bought a $500, 000 10-year term policy for $230 a year. Ten years later, when he's approaching age 50, assuming prices are the same as they are today, he'd be looking at $4500 a year to convert it to a term policy with level premiums. " If you do go short, make sure your policy has that option to convert -- some don't, and some require you to do so within the first five years. 

• How much coverage you need. In general, it's more than you think. There are a lot of rules of thumb floating and formulas floating around -- many say you can just multiply your income by seven or eight -- but I don't like any of them. I think it's better to actually take a look at your current income, and figure out how much of it your dependents would need to replace if you died. Be sure to take into consideration factors such as how long they'd need to replace your income, inflation, how they would invest the death benefit, and whether you want the policy to cover extras like paying off the mortgage, college, or an inheritance. You don't have to do this on paper. Insure. com has a good calculator, as does Udell's site. 

• How healthy you are. These policies are underwritten, which means you'll need a medical exam. The results of that make a big difference, a few hundred to even a thousand dollars a year at the current term-policy rates. But if your health changes in any way -- particularly if you've stopped smoking -- be sure to call up your insurer and ask to be re-underwritten, says Udell. 

" Smoking alone causes your rate to quadruple, " he explains. " If you stop for one year, you'll get the standard non-smoker rate, which is around $750 a year right now. If you stop for three years, you might be eligible for the preferred rate, which is in the $400 range. "

What to Know About the March 31 Health Insurance Deadline

Those who don't sign up for health insurance by March 31 will face a penalty of $95 per adult or 1 percent of household income. 

As the March 31 enrollment deadline approaches to sign up for health insurance under the Affordable Care Act, many consumers may be thinking, “another month, another Obamacare deadline. ” But this date will be a defining one for consumers without affordable health insurance, as well as for the law’s critics and advocates. 

The March deadline will mark the end of the open enrollment period for consumers looking to purchase health insurance plans on the federal health insurance marketplace. After March 31, Americans without health care plans will have to pay the Obamacare penalty. For the Obama administration, the enrollment numbers on that date will help to gauge the early impact of the president's signature health care law. 

Things are looking up since October 

Some of the biggest criticism the Obama administration has faced since the law took effect has been centered on the botched rollout of healthcare. gov. The online marketplace has been plagued with technical issues since it launched on Oct. 1, prompting outcry from both consumers and lawmakers. Users complained of outages, slow response times, error messages and system crashes. 

Consumers can expect a relatively smooth experience on the site now, though the administration has admitted that issues still persist. In December, the White House completed a series of fixes that allows the site to handle up to 50, 000 users at once, and the system was working 90 percent of the time, according to a Health and Human Services report. 

Furthermore, about 4 million Americans have enrolled in health insurance plans through the federal and state exchanges since Oct. 1, the administration announced last week. This is a big jump from the approximately 106, 000 Americans who enrolled in plans during the first month the online marketplace was open, signaling a turnaround from the earlier technical challenges with healthcare. gov and many of the state marketplace sites. 

Still a long way to go 

Still, the recent enrollment figures don’t come close to the 7 million Americans the White House originally projected would sign up for health care before the March 31 deadline. The Congressional Budget Office recently modified the estimation to 6 million, citing the glitches in the online marketplace. 

However, health care experts say there will likely be an increase in enrollment as the deadline nears, and last-minute shoppers search for plans. 

Another changing deadline? 

The enrollment deadline could be extended again for any number of reasons. The administration previously pushed back the deadline for those enrolling in coverage that would start on New Year’s Day from Dec. 15 to Dec. 23. Then, on Dec. 23, it extended the deadline another 24 hours. It has also extended deadlines for those with pre-existing conditions, as well as the employer mandate, a key provision of the law. In this case, employers with 50 to 99 employees were granted another year before they have to offer health insurance to workers. 

There’s a strong suspicion among Americans that the deadline may be pushed back again. In a January poll by Bankrate, about 62 percent of more than 1, 000 respondents believed the March 31 deadline would be extended. Only 29 percent said they believed it would stand. 

Still, there’s much confusion about what the deadline actually means. Roughly 55 percent of Americans don’t know that March 31 is the cutoff date to purchase health insurance under the individual mandate provision of the law, according to the poll. 

Missing the deadline 

Don’t be caught off guard about the consequences of missing the deadline. After March 31, consumers looking to purchase plans through the marketplace won’t be able to do so until open enrollment begins again in October. If you miss the deadline, you can purchase insurance outside of the marketplace at any time – but be aware that you won’t receive any premium subsidies (think “discounts”), and you will likely be subject to a penalty for the time you were uninsured. 

If you are without coverage come March 31, you may face a penalty on your 2014 tax return. The fine will be $95 per adult and $47. 50 per child or 1 percent of your household income, whichever is greater. In 2015, that will increase to $325 per adult or 2 percent of income. 

Which is Better For You : Term or Permanent Life Insurance?

You can buy level term insurance and match the length of the level premium period to the amount of time your need exists. 

Permanent life insurance is one of the most confusing topics in personal finance. This makes a discussion of whether to buy term or permanent insurance a daunting task. 

Let’s first define some terms : 

Term insurance provides a level premium and a level-death benefit protection for a stated period of time, such as 10 or 20 years. 

Permanent insurance typically provides both a death benefit and cash savings. There are different types of permanent insurance, including whole life, universal life, index-universal life, variable life and variable-universal life. 

The initial premium for permanent insurance is higher than for term insurance with a comparable death benefit. A portion of the premium may be invested, eventually providing a buildup of cash value. 

Pros and cons of term insurance. Term insurance can be a good fit for younger individuals and families, who need protection against the loss of income of a primary earner for a stated period of time, at an affordable cost. In most cases, a medical examination will be required. 

Term insurance does not build cash value, so at the end of the term, the policy will have no value. 

An additional benefit of term insurance is that it is a simple product, so comparison shopping is quite easy. The market for selling term insurance is competitive, presenting good values for consumers. 

Brant Steck, director of client relationships for Brokerage Unlimited, Inc., in St. Louis, recommends buying a level term insurance policy and matching the length of the level premium period to the amount of time the need exists. At the end of the level-premium period, the policy should not automatically cancel (unless instructed by the policy owner), but the premium will likely increase quite markedly if you elect to continue the coverage. You should consider a term policy with a conversion privilege, which will permit you to convert the policy into permanent insurance, without proof of insurability, and lock in the rate class you had at the inception of the policy. 

For many consumers, the only way they can afford the coverage they need, for the time when they need it, is through term life insurance. For those people, it’s the insurance product of choice. Jeremy Ragsdale, vice president, Life Insurance and Annuities at TIAA-CREF, notes that more than 85 percent of the policies sold by TIAA-CREF are term policies, although they represent a much lower percentage of total premiums. 

Pros and cons of permanent insurance. Permanent insurance may provide protection for your entire life. If a guaranteed level premium is important to you, make sure your policy provides for one. 

Permanent insurance accumulates a cash value, and the policy owner may be able to borrow against it tax-free or use it for retirement or other goals (like education). Premiums are initially higher than for term coverage. 

Who should consider permanent insurance? According to independent insurance consultant Glenn Daily, permanent insurance can make sense for consumers who need to create liquidity in order to pay projected federal estate taxes. He also recommends permanent insurance to those concerned about asset protection, where state law provides that the cash value and death benefits of insurance policies are not subject to claims by creditors. 

Permanent life insurance also has an element of forced savings that can be attractive. In this environment of low interest rates, Daily notes that some policies have been paying a tax-deferred return of 4 percent or more. Of course, mortality and administrative costs of the policy will still be deducted. 

Steck notes another situation in which permanent insurance may be the preferable option. If you are a retired couple concerned about spending money because it will deplete the inheritance you wish to leave for your children, Steck recommends designating a small portion of available funds and buying a survivorship-permanent policy. This policy should have a no-lapse guarantee. Steck believes this kind of policy will assure the couple that their children will receive the intended inheritance, while allowing them to enjoy their retirement. 

Ragsdale notes that permanent insurance is no longer used only for estate planning or wealth transfer. He has seen an increase in policies issued to those who are older than 50, to cover newly acquired mortgages and other financial obligations. 

Most retirees don’t need significant (or any) life insurance when they retire, unless they still have dependents, need to fund funeral expenses or provide for their spouse. 

Term insurance often prevails, in theory. Both Daily and Steck believe term insurance is the best option for most consumers. Daily considers it the “default option” and says he “has to be convinced” that cash value insurance is a better one. 

You have probably heard the expression “Buy term and invest the difference, ” as a justification for buying term insurance. This saying is premised on a critical assumption : You will actually invest the difference instead of spending it. It also assumes the historical performance of the capital markets will continue in the future. 

Insider information on cash-value insurance. Few consumers understand there are skilled professionals who can recommend cash-value policies that may be more suitable than those typically offered to them. For example, a “blended” policy combines whole-life and term-life into a single policy. This kind of policy may generate higher near-term cash values and higher death benefits at life expectancy than whole life alone. Blended policies are sold by many highly rated insurance companies, including Northwestern Mutual, Guardian and MassMutual. These policies can be competitive with term policies for some consumers. 

Blended policies are not a panacea. Steck generally does not recommend them because of the heavy reliance on non-guaranteed dividends. 

When considering the purchase of permanent insurance, Steck believes it’s important to focus on what is guaranteed and what is projected (or hypothetical). You will need to carefully monitor the policy if you are making a decision based on hypothetical scenarios that rely on a projected dividend, interest rates or subaccount performance. You should also be prepared to make additional capital contributions, if necessary. 

A final recommendation. Daily, a fee-only insurance consultant, says that most clients who consult with him end up doing something different than what they had originally planned. He does not believe consumers are getting the information they need to make an informed decision. 

Steck believes consumers benefit from getting an objective, third-party opinion, but feels they can do so without incurring a fee by using an independent brokerage firm. His firm offers a “performance evaluation” of clients’ existing life insurance policies at no cost. He says many clients require only an adjustment to their existing policies, rather than replacement insurance. 

Whichever route you take, you would be well-advised to seek a second opinion when making a decision that has meaningful ramifications for you and your loved ones. 

Top 10 Life Insurance Myths

Life insurance is absolutely not straightforward product. Even expression daily lifetime policies have several parts that really must be thought of cautiously so that you can arrive in the right kind and quantity of coverage. But the particular complex elements of daily lifetime insurance are far less tough for majority of individuals to do business with than attempting to acquire a manage how a lot of coverage they wish and why. This writeup can briefly examine the highest 10 misconceptions surrounding daily lifetime insurance as well as the realities they distort. 

Myth #1 : I'm Single and Don't Have Dependents, therefore I Don't Need Coverage 

Even only individuals want a minimum of sufficient daily lifetime insurance to include the particular prices of personal debts, medical and funeral bills. If you're uninsured, you'll leave a legacy of unpaid expenses for your loved ones or executor to do business with. Plus, this is a very good method for low-income singles to leave a legacy to the favorite charity or any other lead to. 

Myth #2 : My Life Insurance Coverage Needs Only Be Twice My Annual Salary 

The quantity of daily lifetime insurance every person wants depends on every person's certain condition. There are several components to take into consideration. In addition to medical and funeral bills, you'll want to pay out off debts like your mortgage and supply for your loved ones for some several yrs. A money flow analysis is sometimes necessary so that you can identify the true quantity of insurance that really must be purchased - the times of computing daily lifetime coverage based mostly merely on one's income-earning capability are extended gone. 

Myth #3 : My Term Life Insurance Coverage in Work Is Sufficient 

Maybe, probably not. For one individual of modest means that, employer-paid or provided expression coverage may very well be sufficient. But in case you've got a wife or husband or any other dependents, or understand that you certainly will want coverage on your death to pay out estate taxes, then further coverage might be necessary in case the expression policy won't fulfill the wants in the policyholder. 

Myth #4 : The Cost of My Premiums Will Be Deductible 

Afraid not, a minimum of for most cases. The charge of personal daily lifetime insurance isn't deductible unless the particular policyholder is self-employed as well as the coverage is made as asset protection to the business owner. Then the particular premiums are deductible upon the Schedule C in the Form 1040. 

Myth #5 : I Absolutely MUST Have Life Insurance in Any Cost 

In several cases, this is perhaps true. However, individuals with sizable property and no debt or dependents might be more contented self-insuring. If you might have medical and funeral prices coated, then daily lifetime insurance coverage might be optional. 

Myth #6 : I Should ALWAYS Buy Term and Invest the particular Difference 

Not essentially. There are distinct differences in among expression and permanent daily lifetime insurance, and the price of expression daily lifetime coverage could become prohibitively superior in later several yrs. Therefore, all those people who understand for sure they has to be coated in death need to contemplate permanent coverage. The total premium outlay to get a more costly permanent policy might be less when compared to the ongoing premiums that would last for several yrs longer having a less expensive expression policy. 

Five Chart Patterns it's important to know… 

There is likewise potential risk of non-insurability to take into consideration, that can be disastrous for those that could possibly have estate tax troubles and want daily lifetime insurance to pay out these people. But this risk could be avoided along with permanent coverage, that becomes paid up following a sure quantity of premium has also been paid then is still in force till death. 

Myth #7 : Variable Universal Life Policies Are Always Superior to Straight Universal Life Policies Over the particular Long Run 

Many universal policies fork out competitive desire rates, and variable universal daily lifetime (VUL) policies incorporate many layers of charges relating to each the particular insurance and securities parts present inside the policy. Therefore, in case the variable subaccounts inside the policy don't perform very perfectly, in that case variable policyholder could very perfectly notice a lower money price than somebody having a right universal daily lifetime policy. 

Poor market performance could even create substantial money calls within variable policies in which need further premiums to become paid so that you can preserve the particular policy in force. 

Myth #8 : Only Breadwinners Need Life Insurance Coverage 

Nonsense. The charge of replacing the particular providers formerly provided using a deceased homemaker could be beyond you think that, and insuring against the particular loss of your homemaker could create additional impression than one would possibly suppose, particularly when one thinks of cleaning and daycare prices. 

Myth #9 : I Should Always Purchase the particular Return-of-Premium (ROP) Rider on Any Term Policy 

There are sometimes completely different levels of ROP riders obtainable for policies in which supply this characteristic. Many monetary planners can inform you of that it rider isn't cost-effective and ought to avoided. Whether you embody this rider can depend upon your risk tolerance along with other doable investment objectives. 

A money flow analysis can reveal regardless of whether you might come back out ahead by investing the extra quantity of the particular rider elsewhere versus as well as it inside the policy. 

Myth #10 : I'm Better off Investing My Money Than Buying Life Insurance of Any Kind 

Hogwash. Until you achieve the particular breakeven purpose of asset accumulation, you will need daily lifetime coverage of a sort (barring the particular exception discussed in Myth No. 5.) Once you amass $1 million of liquid property, you are able to contemplate regardless of whether to discontinue (at least cut back) your million-dollar policy. But you make a huge likelihood whenever you depend solely on the investments in the first several yrs you've ever had, particularly when you have dependents. If you die while not coverage to them, there might be simply there is no other means that of provision following the depletion of one's current property. 

The Bottom Line 

These are simply a number of additional common misunderstandings regarding daily lifetime insurance in which the general public faces these days. Therefore, there are quite a few daily lifetime insurance queries you must ask. The key concept to grasp is you shouldn't leave daily lifetime insurance away from your budget unless you might have sufficient property to include expenses when you are gone. For additional info, consult your daily life insurance agent or monetary advisor. 

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