Guide
Buying
Life Insurance
Term life
Whole life
A life insurance product that most people didn't know was a life insurance product
OF
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Pros and Cons of the most popular type of life insurance
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Fixed Indexed Annuity
Universal Life and Indexed Universal Life
CONTENTS
Best kept secret for older people with a few health issues to get covered
A life insurance policy, a tax shelter, and a critical care package all rolled into one
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TABLE
Term life is the most popular type of life insurance on the market today. Why? It's cheap... and it really is a great product when it's used for its intended purpose. A term covers you for a period or "TERM" of your life. Once that TERM is over, there is no more coverage. It's gone, it's over, there's nothing left*. You stop paying, and it stops covering you. After serving in our industry for over 13 years, I have seen many shocked faces when I have done policy reviews for people and show them in their policy where it ENDS. I have seen people get very mad and very frustrated with their previous agent because they thought what they were paying for was going to last them until they die. I have seen cases where the agent that sold them their policy actually led them to believe that it would because of something known as the extended term phase of their policy. You will see this clause in a lot of TERM policies that will allow you to "keep" your policy past the initial TERM, but at a hefty cost. You can actually see this in your policy, where for the first 20 years you will pay something like $510 per year then in year 21 the cost jumps to over $2,000 a year the first year and then jumps again to $2,500 per year the year after that and continues to increase every year. Legally a company can call this type of TERM a whole life policy because they will "allow" you to keep it for as long as you live... for a price. The only time it might make sense for someone to pay the extremely high premium past the initial TERM is if the person who is covered is dying at the time it is coming to an end. It might make financial sense to pay an extra $10,000 in premiums over the course of a few years if the family knows it will eventually pay out $100, 000 for instance. You might wonder, why wouldn't they just let that one go and just get another one then? Because if the insured person is dying, they will no longer qualify for a policy. Beyond this obscure situation, it would however, just make more sense just to get another policy once their current TERM ended. The challenge people face here is that they are older now and the new premium will be a lot higher now. So why would you buy a TERM product then? If you are a young parent and have young kids in the home, a 20 year term might make a lot of sense because you need your family to get the most coverage for as little as possible while you are still raising them. Once the kids are raised, the financial risk to your kids might be eliminated after 20 years (families with special needs children are often better suited with either a whole life or universal life product as they last until you die for this reason). Another popular reason people might use a term is to cover their mortgage. A 30 year term, pairs nicely with a 30 year mortgage. Once the mortgage is over, so is the TERM, and so is the financial risk you had when you had a mortgage. Now you might be wondering what that * was for up above aren't you? This is a good time to cover it. *Some TERMS do offer all of the money you put into the policy back at the end with no interest, but a complete refund nonetheless. There is a great strategy I can discuss with you to use this feature to pay off your house 5, 10, and even 15 years early using this strategy. It's a pretty neat trick if you are a candidate for this type of coverage.
by chris long
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term Life
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There is a great strategy I can discuss with you to use this feature to pay off your house 5, 10, and even 15 years early using this strategy.
Book a time to speak with Chris and find out what options are right for you
whole life
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Whole Life is exactly what it sounds like, unlike TERM, it covers you for your whole life until the day you die. And because it covers you for your entire life, and not just a period or TERM of your life, it’s more expensive. You get what you pay as they say. This type of coverage typically also has some type of cash value that is accessible after a few years for the insured (if they own the policy) to use. The cash amount on the inside isn’t typically enough to retire on, but it is there. The real reason it’s there is to help fund the policy if the insured lives longer than the insurance company predicted them to. Modern Whole Life policies aren’t really used to grow cash anymore, it’s newer cousin the Indexed Universal Life are good vehicles for that. However, they have become great vehicles for seniors to purchase as Final Expense or Burial Coverage policies. Over time and with this trend, insurance companies have adjusted their pricing and risk tolerances to accept conditions that are not normally covered by TERM products. TERM products are designed by the insurance company so that the person insured lives for the entire TERM of their policy 93% of the time (side note: only about 7% of term policies ever pay out because that is how they are designed). Because the insurance company knows they WILL be paying out a claim at some point in time, they look at and accept a lot more conditions like heart attacks, cancers, strokes, etc.. when approving people for coverage. Each company has their own “sweet spot” on what risks they are willing to accept and at what cost. This “sweet spot” is something Long Group Financial is particularly good at finding.
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universal life
Universal Life is like a blend of Term and Whole Life. It’s priced closer to Term because it’s typically underwritten with the same type of health criteria of Term, but it is a permanent type of life insurance like Whole Life is. Because the insurance company only accepts “healthier” people with Universal Life, they expect them to live longer and can afford to put more money into the cash growth of the policy for the client instead of keeping more of it for themselves to grow for when they will eventually pay out the claim. This makes this type of policy more attractive to prospective buyers. There are two types of this kind of policy, regular Universal Life and Indexed Universal Life (IUL). Indexed Universal Life uses stock market gains to grow the money on the inside of the policy whereas regular Universal Life uses an interest rate set by the insurance company. Universal Life is closer to Whole Life in this regard. Of the two types, Universal Life is typically a little cheaper to purchase because the insurance company is limiting the cash growth and keeping more profits for themselves. Indexed Universal Life policies are GREAT tax shelters. They provide excellent cash accumulation inside the policy and when the insured is ready to use some of that money, they simply take loans out against the policy that they never pay back (when they die, the death benefit pays off all of their loans against the policy). Here’s the magic, since the insured only took LOANS out against the policy, they don’t claim the money as income. No income = no taxes paid on it. Viola, tax free retirement money. If you try to do this same loan strategy using a 401K, 457, or 403b, when you die, the money that was in the account would pay off the loan but not the taxes. You would burden your family with that tax debt. This is why most companies will force you to take distributions from your said account instead of loans against it, especially after age 59 ½. If you are healthy enough to qualify for it, the Indexed Universal Life plan (also known as a Lifetime Benefit Plan if you are a state employee) is one of the best ways to protect your family in the event of an early death, but hedge against rising income taxes. Depending on what company you go with, some offer additional “Living” benefits as well. Living benefits cover medical type emergencies like having a heart attack, getting cancer, having a stroke, getting badly hurt in an accident, etc.. This is an area where an IUL really shines as a product. Let’s say you are putting $100 / month away into a savings account, money market, or even a ROTH IRA. $100 x 12 months = $1,200 a year plus some interest. In 5 years you would have somewhere around $6,500 with a decent interest rate. What happens if you get cancer or have a car wreck that leaves you disabled and unable to work in year 5? You would have around $6,500 to your name to deal with that situation. However, if you were putting that same amount of money into an IUL and that happened to you, you would have somewhere between $50,000 to $100,000 depending on how you set it up. This is why you have to medically qualify for an IUL, it’s a protection asset as well as a tax free growth vehicle.
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it’s a protection asset as well as a tax free growth vehicle
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Fixed Indexed Annuities are indeed life insurance contracts. Traditional Life Insurance policies, like TERM Life, protect your family if your life is cut short, an Annuity protects YOU if you live too long. It is able to do this because it is the ONLY financial vehicle that will continue to pay you a monthly or yearly amount, even after you have exhausted the principle and interest that was grown inside the account. This makes it a VERY good retirement vehicle when used properly. "But I thought Annuities had a bad 'wrap' in the financial industry"… short answer, they did.. past tense. Before tighter regulation was put in place, there were a lot of companies that offered “variable” annuities (some still exist today). A variable annuity moves up and down with the market while still maintaining surrender fees. Surrender fees are what it would cost the annuitant (that's you) to take their money out of the account completely before their annuity contract was up. In addition, many variable annuity companies charge maintenance fees for their service. When you mix maintenance fees, surrender fees, and a product that can lose money in the market and you can’t even take it out without heavy penalties because of the surrender fees, a “bad wrap” ensues, and rightfully so. Fixed Indexed Annuities “fixed” all that. Instead of having your money exposed directly to the stock market like a variable one does, they instead give you partial gains when the market goes up, but lock your principle and any gained interest when the market goes down. That is why they are considered “safe”, they literally can’t lose your money by design. Fixed Indexed Annuities don’t have any fees either, but they do still have surrender fees during the contract period. In fact, this is why a person that wants to put their money into a Fixed Indexed Annuity has to undergo what’s called “Suitability”. Suitability is like financial underwriting. The insurance company wants to make sure putting your money into this vehicle is a good “fit” for you. If you have low liquidity, and you might need that money during the contract period, they will typically decline your suitability. Seems crazy that they would refuse to take your money, but insurance and annuities are highly regulated, unlike a broker that will take your money regardless of suitability concerns. Fixed Indexed Annuities are a great vehicle if you want to safely grow your money without fees. Many Fixed Indexed Annuities can even actually double your money every 10 years or so if you set them up properly. Long Group Financial specializes in helping people set these up so that they do. Book an appointment today and talk to us to see if an annuity is a good fit for you.
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Long Group Financial 7785 Baymeadows Way STE 107 Jacksonville, FL 32256 office@lgfsupport.com www.lgfsupport.com