Not too hot – not too cold – but just right!  Unlike in the Goldilocks fairytale, most people don’t get it “just right” when it comes to insurance. Most of us are either under-insured or over-insured. Yes, over-insured!

So, let’s start with how much life insurance your family truly needs. If either you or your spouse dies, would the survivor(s) have sufficient means to:

• Pay off debts
• Maintain their lifestyle and continue to save for the future;
• Pay added expenses, such as funeral arrangement, legal or estate tax bills.

If your family has the financial capacity to cover the above (make sure you go through the exercise for each spouse), then you likely don’t need insurance at all. If you don’t, then you’ll need to buy life insurance.

Your insurance needs are generally highest when you are just starting out with your career and family. Typically insurance needs gradually taper off as debt is paid down and assets are accumulated.

(While there are some specific reasons for holding life insurance throughout your entire lifetime (eg. business succession, transferring cottage assets to family members, dependents with special needs), these insurance needs are less common, more specialized and will definitely require individualized professional advice.)

Too little insurance:
Typically younger people don’t have enough insurance, and often it is the wrong kind.  Usually we need a lot more insurance at the beginning of our careers, when children are young and especially if one parent stays at home. Term insurance generally works best here – it’s cheap and exactly suited to this type of need. However, with little understanding of insurance and the ever increasing complexity of insurance options, many younger people are talked into universal life policies that don’t match the reality of their lifelong needs. These insurance policies are also touted as savings vehicles, but as far as I’m concerned, they are unnecessary, expensive and too complicated for the average family.

Too much insurance:
What I’m seeing lately are many people in their 50’s or 60’s who put their insurance plans into place early on, but haven’t recently updated them. Since their last insurance review, their debts are much lower or paid off entirely, savings and investments have increased and, with kids now out on their own, household expenses are substantially lower. With these life changes, there may be little or no need for continuing to pay insurance premiums.

So, if the kids are relatively self-sufficient, if one income is now enough to live on, or if you have accumulated enough assets, then it’s time to revisit your insurance policies.  Remember that term insurance premiums increase with age, so you may be getting the double whammy of paying more for coverage you don’t actually need anymore. I just went through this analysis with some clients and it saved them over $4,000 a year!

Just the right amount:
Take a few minutes to review your insurance coverage. Be realistic about your current circumstances and needs and your future requirements. (And don’t be pressured by those darned “bears” into paying for more insurance than you really need.) Determine exactly what the correct balance is for you and your family at this specific stage of your life. After all, it needs to be “just right”! – Karin Mizgala

Karin Mizgala is a Vancouver-based fee-only financial planner with an MBA and a degree in psychology. She’s the President of LifeDesign Financial and co-founder of the Women’s Financial Learning Centre.

I am a strong believer in using Term Life Insurance and encourage most of my clients to use Term Insurance to meet their life insurance needs.  Term insurance is often available through your employer, but in many cases it is best to NOT get it through your employer.

There are four reasons that this is the case:

1.    Your rate will most likely be cheaper if you buy your life insurance from someone other than your employer’s group life insurance provider.  If you are healthy and are paying for insurance coverage through your employer, you’re probably paying too much. Group insurance policies must provide insurance to all employees – whether or not they are healthy.  When you are part of a group life insurance plan, your premiums are averaged in with those of unhealthy individuals in your company who are also a part of the group plan.  The way that a group policy works is that typically the life insurance company waives the required health exam for all employees. Instead, they just average the price for all the employees and offer one or two rates for males or females at any given age. The insurance companies know that they will receive a lot of unhealthy insureds this way, so the rates are higher and the healthy people end up overpaying.  If you look outside of your company for life insurance, companies don’t have to insure everyone.  If you are healthy you will be able to qualify for their very best rates.

2.    You will not lose your coverage if you change jobs or retire.  Generally group life insurance is not portable, although most companies will allow you to convert it into some sort of permanent (i.e. Whole Life) policyOnce that happens, you will have to apply for a life insurance policy and you will be older and probably not as healthy and risk being turned down for a policy.  If you are not in the best health, this can cost you a lot of money.  If you have purchased your insurance outside of your employer’s group policy, you will not lose your insurance.

3.    When you buy your term life insurance from someone other than the group life insurance provider at your employer, the rate will normally be a flat rate for the term of the insurance.  The cost of group life insurance policies can increase each year – and generally vary each year according to your age.  For example, a 45 year old will pay more for the same amount of insurance than a 35 year old will.

4.    Your company may not allow you to buy as much life insurance as you need through their plan.

For these reasons, it’s smart to obtain your own life insurance policy in addition to or instead of the coverage offered by your employer.

If you have questions on this or would like some pointers to good sources for buying Term Insurance, please email me or call me.

Beneficiary
The person(s) named in the policy to receive the life insurance proceeds upon the death of the insured.

Cash (Surrender) Value
The amount that is available in cash for loans and that may be available for withdrawals. Accessing Cash Surrender Value may reduce the death benefit and may increase the risk of lapse.

Convertible Term Insurance
Term insurance which can be exchanged (converted), at the option of the policyowner and without evidence of insurability, for a permanent insurance policy.

Dividend
A return of part of the premium on participating insurance that is based on the insurer’s investment, mortality, and expense experience. Dividends are not guaranteed.

Face Amount
The amount stated on the face of the policy that will be paid in case of death. It does not include additional amounts payable under accidental death or other special provisions, or acquired through the application of policy dividends.

Insurability
Acceptability to the company of an applicant for insurance.

Insured or Insured Life
The person on whose life the policy is issued.

Level Premium (Life Insurance)
Life insurance for which the premium remains the same from year to year. The premium is normally more than the actual cost of protection during the earlier years of the policy and less than the actual cost in the later years. The building of a reserve is a natural result of level premiums. The payments in the early years, together with the interest that is to be earned, serves to balance out the underpayment of the later years.

Loan (Policy Loan)
A loan made by a life insurance company from its general funds to a policyowner on the security of the cash value of a policy.

Paid-up Insurance
Insurance that will remain in force with no need to pay additional premiums.

Participating Policy
A life insurance policy that is eligible for the payment of dividends by the insurer (see also Dividend.)

Permanent (Life Insurance)
Any form of life insurance except term; generally insurance that builds up a cash value, such as whole life.

Policyowner
The person who owns a life insurance policy. This is usually the insured person, but it may also be a relative of the insured, a partnership or a corporation.

Premiums
Payments to the insurance company to buy a policy and to keep it in force.

Renewable Term Insurance
Term insurance which can be renewed at the end of the term, at the option of the policyowner and without evidence of insurability, for a limited number of successive terms. The rates generally increase at each renewal as the age of the insured increases.

Term Insurance
Life insurance that does not build up cash value and where the premium normally increases as the insured gets older.

Universal Life Insurance
A flexible premium life insurance policy under which the policyowner may change the death benefit from time to time (with satisfactory evidence of insurability for increases) and vary the amount or timing of premium payments. Premiums (less expense charges) are credited to a policy account from which mortality charges are deducted and to which interest is credited at rates which may change from time to time.

Whole Life Insurance
A basic type of permanent life insurance which can provide lifetime protection at a level premium. Premiums must generally be paid for as long as the policy is in force.

If you are a homeowner who recently closed on a loan or refinanced a mortgage, then it is likely that you have been inundated with offers for “Mortage Protection” or “Mortgage Life Insurance”.   The letters appear official — as if they are sent by your lender — but in 9 out of 10 cases, they are not.  Often times, your lender will partner with an insurance company and send out an offer for Mortgage Life Insurance, but these are far outnumbered by the others.  At the bottom of the letter, there is a disclaimer stating that the loan information was obtained from public records.  Anyone can obtain these records and in Georgia (especially Atlanta), there are numerous life insurance agencies marketing to homeowners.

What exactly is Mortgage Protection Life Insurance? 

 Basically, it is a life insurance policy designed to pay off the mortgage balance in the event of the death of the homeowner.  Often times, the policy has a decreasing benefit (face) amount that decreases in direct proportion to the decreasing liability of the borrower.  Sometimes, the lender is named the beneficiary of the policy to protect against loan default.  More commonly, the policyholder names a spouse or someone else as beneficiary so that they can pay off the mortgage in one lump sum or continue making mortgage payments.

Many Mortgage Protection policies also offer riders (additional features) that include disability insurance and Return of Premium.  The disability insurance benefit is designed to pay the m0nthly mortgage payment in the event of the homeowner’s disability — the inability to work due to injury or illness.  The disability riders are not as strong as most disability insurance products, but that is another topic altogether.    The Return of Premium (ROP) rider refunds the premium paid if benefits are not used by the end of the mortgage term (usually 30 years).  It is important to read the fine print when selecting this rider because ROP riders vary considerably.

Most of what has been written about Mortgage Protection Insurance has been critical, however, these products can work for some people as described below.  What I really like is that these offers send out a good message – a needed reminder – that your mortgage is a very large debt and adequate life insurance coverage is needed to protect your loved ones. 

The Bottom Line:

 Mortgage Protection Life Insurance is not a good deal for the vast majority of people.  The rates tend to be substantially higher than level term insurance products.  A good, low-cost 20 or 30-year term policy will provide the protection one needs (Term Quotes available at www.insuranceadv.com).  Life insurance carriers will allow the face amount of the policy to be lowered by the policyowner as desired.  This can be helpful as the need for life insurance decreases over time (as the mortgage and other debts dwindle). Periodically lowering the face amount can also save money spent on premiums.  For more information on this strategy, see laddering life insurance post.

 Mortgage Protection is just a neatly packaged way to offer life insuance.  Some would say it is gimmicky and in some cases they are right.  The offer received in the mail can sometimes be misleading.  However, there are many agents who market to new homeowners, recognizing their potential need for additional protection.  And sometimes they offer legitimate products that can serve the homeowner well.

Why does Mortgage Protection cost so much?

For those who want to know precisely why Mortgage Protection Insurance costs more than level term insurance, the following explanation should suffice.

Mortgage Protection Life Insurance is typically sold as a “Non-Medical” product. Non-medical means that no physical exam (blood,urine samples, etc.) is needed to qualify. The insurance company makes the application process simple and quick by asking a limited number of health questions. Mortgage Life Insurance is generally sold with just two undewriting classifications: Standard Smoker and Standard Non-Smoker. Most companies offering medically underwritten term life insurance offer three or four Nonsmoker (NS)underwriting classifications, e.g. Standard NS, Standard Plus NS, Preferred NS, and Preferred Best NS. So, for someone in excellent health the rate for Preferred Best NS will be considerably less than Standard NS. For a non-smoker who may be overweight and taking medication for Hypertension, they might qualify for the Standard NS rate.

It wouldn’t make sense for a very healthy person (normal weight, and no medical issues) to apply for Mortgage Protection Life Insurance because they would be forced to pay the same rate as others who are less healthy. There are exceptions to this rule, but this is one reason why Mortgage Life Insurance isn’t a good option.  If someone has health concerns and does not want to get a physical exam, then this could be the way to go.  In that case, it would be best to check out the other Non-med life insurance products on the market.

If you have more specific questions, please  comment below or email me: greg@insuranceadv.com or call 678-236-1600

Are you working on any issues such as high cholesterol or losing a few extra pounds?  Do you simply just not have the time to take a medical exam? Our Hybrid Life product offered through Fidelity Life may just be the perfect answer for you.

If you’re looking to obtain affordable term life insurance coverage but have a few health issues to work on you will absolutely love this product.  Hybrid Life is a blend of all cause (level term) and Accidental Death Benefit.

Our Hybrid Life product offers a high face amount of coverage almost immediately – most policies are approved within 24 to 48 hours.  You have the ability to defer a medical exam for up to 6 months!  During which time you will have coverage unlike traditional carriers where you have to wait up to 3 months. Perfect for those who need that extra time to bring cholesterol levels down or drop those extra pounds.  You also have the choice to not undergo medical underwriting, in which case you would still be able to keep your blended policy in force.

If you choose to take an exam, the policy’s mix of coverage (all cause vs. Accidental Death Benefit) will be adjusted.  Best part is that if the underwriting is unfavorable (ex: decline) the initial mix of coverage and payment amounts will not be affected.

An example of how this works is: A male age 35 (non-smoker) seeking $750,000 20 year term policy – initial hybrid split is $209,816 all cause and $459,184 Accidental Death Benefit.  Once an exam is taken the amounts can differ in terms of the all cause going up and the Accidental Death Benefit decreasing.

This is the ONLY term life product of its kind out there and we at America Direct are pleased to offer it to you. This product is also annually renewable until age 95!

Currently there is no online quoting due to the nature of the policy.  Stay tuned as we are diligently working on providing the ability to get quoted online.  In the meantime, for more information or to start the process, please call one of our friendly, knowledgeable agents today at 888.440.1554.  You can also email us at hybridlife@americadirect.com.

Author: Christine Wandt, Internet Marketing Specialist

Article By Michael Sylvia NV-MLD # 46286

Purchasing a home is for, most families, the largest financial investment. Therefore it would be prudent to protect that purchase with life insurance. The benefits are huge compared to the relatively low cost of a life policy. Just picture where your family would be if you were suddenly taken out of the equation. Life Insurance can not replace you as a loving spouse or parent however, it can replace your future income.

There are a variety of insurance programs which can be designed around your lifestyle. The simplest form of life insurance as the least costly is term insurance. A term insurance policy is flexible in that it can be tailored specifically for you. Mortgage insurance is a typical life insurance policy. It is the least expensive of all policies. The term policy runs the length of the mortgage. It also decreases in value each year to correspond with the decreasing debt. So for a 30yr mortgage the policy runs 30 years. Consequently a 15 decreasing term policy will reduce each year for 15 years.

Remember a term insurance policy is flexible. It need not decrease at all depending upon the clients interest. A term insurance policy can be easily tailored to fit the home owners wishes. It can be purchased to run the length of the mortgage and stay level so money will be left over after the mortgage is paid off to replace your income or to pay off other debts which have accumulated over the years.

Whichever way your term insurance policy is set up it will allow your family to achieve financial security for a small premium. No one can foresee the future isn’t it wise to invest a few dollars to guarantee your families independence in the event something catastrophic happened to you?

Direct Access Lending NV-Broker #405
650 White Dr. Suite 200
Las Vegas, NV 89119-9018
Tel (702) 617-9900 x1133
Fax (702) 617-9970

Posted in Business, Conventional Loans, FHA Loans, Finance, Las Vegas, Nevada Realty News, Real Estate News, VA Loans Tagged: 1st time home buyer, Conventional, Direct Access Lending Blog, FHA, Housing, Las Vegas housing market, Loans, low Interest Rates, Michael Sylvia, Mortgage Banker, Realtors, Realty News, Tax Credit, VA

As promised in yesterday’s post, I am going explain the financial reasons why we picked the type of life insurance policy that we did.  I highly recommend reading yesterday’s post, but as a reminder we decided to go with the 30 yr level term at $375 a year instead of the Whole life $1575.99 a year policy.

Term vs. Whole- While term is definitely the cheaper of the two, whole is sold on two major selling points.  1.) As long as the annual premiums are paid, the coverage extends your whole life and 2.) Cash value builds into the policy, so should you ever need to cancel the policy you will have some cash available when you cancel.  Whereas with term, you get nothing if you cancel your policy.  Or do you?  What if instead you invested each year the difference between the prices of term vs. whole?  Would you come out ahead?  I did a simulation based on the price difference of $1,200.99 ($1,575.99-$375).   I assumed a 10% rate of return on investing if I did it on my own and a 4% return from the whole life.  It is very hard to determine what kind of interest rate you receive on a whole life policy as it varies by policy as well as there are a lot of other fees tacked on as well.  Here is what I came up with:

As you can see above, by going with term and investing the difference, you will come out way ahead of the cash value whole life insurance.  But what happens when you die?  I ran a projection for the next 50 years of my life (Age 28-Age 78) and here is what I came up with:

During the 30 year term policy you come out well ahead of a whole life policy.  However, after the 30 years are up there is a seven year stretch where the whole life policy would be better if you became deceased, although only five of those years have a deficit of over $100,000.  But as mentioned in the my previous post, my wife and I will not need life insurance in 30 years as long as we stick to and our financial game plan.  Also after the seven year gap, the investments you make with term insurance outgrow the payout of the whole life insurance! 

After looking at these numbers it was quite obvious that term life insurance was the way to go.  I know everybody’s situation is different, but I would run the numbers for your situation and decide what to go with.  I think most situations will end up like mine, with term insurance coming out way ahead.

 Tomorrow I will do another comparison.  This time between 30 year term life vs. 30 year term life with return of premium.

While selecting a term plan, the premium is recommended to be the deciding factor. But there are few other factors which are more important than the premium. The single biggest criteria of selection should be the policy exclusion. Generally, term plans don’t have too many exclusions. But there are some and you need to know them. Let me give you an example. A pure term plan from CompanyX is low on premium whereas one from CompanyY offers higher premium. Going by widely accepted (and recommended) logic, you would go for the plan from CompanyX. But let’s get into some details. The exclusion policy for CompanyX-plan includes death due to riot and few other unnatural causes of death among others. On the other side the only exclusion for CompanyY-plan is suicide. So, if you had read the policy details, you would have rather selected policy from CompanyY even though it is costlier.

Another not-so-technical deciding factor is your comfort/belief with/in the insurer. This may seem to be an emotional issue, but seeing big private insurance players near collapse (AIG etc), it does become an important factor. All the talk about insurance being a contract, insurance regulation etc is on one side but your personal faith in the insurer does make sense. I know this is a contrversial suggestion, but i would anyday prefer being safe than sorry. Remember all the experts telling you that having 10% of your portfolio in cash is makes no sense? Well, check out the experts now and see what they tell you.

Posted in Insurance

Coincidentally, we received several emails asking about a concept called “be your own banker”. This has been around for decades, but apparently is now being remarketed as “Infinite Banking”, “Bottomless Banking” among other catchy names. Why pay interest to a bank when you can enjoy the “extraordinary benefits of creating your own banking system”? One site claims the method will “make you rich”. Does it sound too good to be true? Sound like a scam? Read on.

The idea works like this: open a whole life insurance policy and fund it as much as you can. Then when you need to borrow money, borrow it from the policy tax free and pay the interest back into the policy which is really to yourself. (Of course, you must firt have the money you want to borrow, which sort of defeats the purpose of borrowing anyway, but there’s more.) The benefits include the fact that you get life insurance coverage, the interest you earn from paying yourself accumulates tax-free, terms of the loan are up to you and available anytime. Is it a scam? Well, if your skeptical alarms start going off, good for you because it certainly sounds like a scam. However there is a bit of legitimacy to it, yet it doesn’t necessarily live up to the promises either. As usual, the devil is in the details.

A term life policy is basically nothing but pure insurance on your life for a set period or term. With term life, there is no accumulation, no loans, and no bells and whistles- it simply pays if you die within the term. A common form might be to insure a healthy person for $500,000 for 20 years at a cost of $600 per year. Die within those 20 years and your heirs get $500,000 provided you paid the premium. Die in year 21 and they get zip. Whole life on the other hand, does not have a term. As long as the policy is “current”, it will pay when you die whether that is at age 40 or 95.

A feature of whole life insurance (WL) is that it “accumulates” something called “cash value”. In essence, you put money into the policy determined on an actuarial basis to accumulate to the face value by a certain age. For example, you may contribute to a $100,000 WL policy enough so that the policy will have accumulated $100,000 in contributions and earnings by age 95 (it varies by policy; sometimes it is 105). Since that accumulation is the policy owner’s asset, the owner is allowed to borrow from it provided it gets paid back to the policy. Since it is a loan, there are no taxes on the proceeds. Since the earnings in the policy (including interest you pay on the loan) are part of life insurance, they are not taxed as income unless you cash out the policy. (This is where the tax-freeness comes from.)

So with be-your-own-banker, you borrow from yourself accumulating the interest tax free. Obviously there is a catch. The first hurdle is that every policy has multiple fees built into it. One fee is called the “mortality charge” which is the actuarial cost to insure your life. Think of it as the cost of term insurance- the pure cost to protect against early death, only the policy pays at any age so the mortality charge is much higher than with term insurance which expires. The second hurdle is that WL policies have other fees built into the policy like admin costs which essentially amount to profits for the insurance company. Total fees are usually higher in the early years of the policy too because the insurer has to recoup sales costs. All of these fees and costs mean that the policy will take 7-10 years typically to “break even”. That is, it takes 7-10 years of payments before the earnings on the accumulated cash value are large enough to pay the premium so you don’t have to. Think of it like a bank account- it has to have a large enough balance to earn enough interest to pay some bills.

Instead of making up numbers for the sake of this article, I have asked an insurance broker I know to provide a quote for a plain-vanilla $100,000 whole life policy on a 40-year old healthy non-smoking male. This policy has a fixed annual premium of $887. Such policies provide projections or “illustrations” estimating future performance. This particular policy accumulates cash value of $7,070 in year 10 at current rates (read: not reliable) of 4.7% and just $4,500 at the guaranteed minimum returns promised. A little quick math shows that $887 invested at 4.7% each year will compound to $11,001 in ten years. But what about the $100k of insurance coverage you get in addition to the cash value? Well, a 30-year term life policy for $100k might cost around $150 per year, so compounding $737 instead of $887 gets you $9,141- still far outpacing the policy. At this rate, it is going to take a long time to have enough in the policy to buy a car. In fact, it will take until year 22 to have $20,000 available.

Let’s say we accelerate this process and put $5,000 per year into the policy in addition to the $887 premium. I backed into the mortality charges and so was able to calculate a cash value of $24,000 after year 4. Now, we can borrow $20,000 from ourselves via the policy to buy a car and “be our own banker”. Recall that we have to pay the money back, with interest, to the policy. Assuming a 6% rate and a 5 year “loan” to ourselves, we pay $4748 for 5 years plus the regular $887 premium.

At the end of year 9, the loan is paid back and our policy is worth $35,283, which doesn’t seem so bad or is it? Remember, we paid $5,887 into the policy for 4 years, then $5,527 for another five years. This works out to a negative 9.5% annual return! Total paid in: $51,183; ending value: 35,283.

Perhaps most surprisingly, this compares ok with the “traditional” way of doing things: Term life for $150, invest the $5,737 at the same 4.7% for the first four years, then take a traditional loan for the $20,000 at 6% (while the first four years continues to compound). When all is said and done, you end up paying or saving $47,288 and having $32,428. The annual return on the traditional program works out to -9.2% annually- slightly better than the be your own banker system. So who is getting rich with such programs? You guessed it, the insurance salesperson.