Can some one explain the different life insurance options in laymen's terms?

Question

My hubs is self employed, I don't work and we're hoping to start a family very soon. We don't know enough to make an educated choice right now. We want to get the most for our money and heard there is a life insurance/investment plan where you can get interest on your plan and then get money out later... I would love it if someone could break this all down for me. Thanks!

Answer 1

i visited http://about-insurance.weebly.com and you can actually compare whats best insurance plan for you.

Answer 2

hello, you could try this http://about-insurance.weebly.com you can also compare quotes from others.  

Answer 3

There are 3 plans.  

A) Term.  This is a 10, 20 or 30 year contract.  It gives you the most bang for your buck.  If either doesn't die by the end of the contract, then the contract, aka "policy" expires.  They say thank you for you money and the benefits are now void after the expiration date.

B) Universal Life.  This accrues cash value and its more expensive.  This contract doesn't have an expiration date.  You feel more of a pinch now than later.  For ex.  It can cost you $60/month for $150,000 in benefits under this plan or you can buy a term policy at $25/month and get $300,000 in coverage.

C) Whole Life.  Most expensive.  No expiration date.  It also includes terminal illnesses.  They will allow you to cash out your benefits after you paid into them for several decades to pay your medical expenses.  

B & C are good but...to start...your better off getting a 30yr term policy.  Why? This was offered as most mortgages cover 30 years.  So, whatever your payoff balance is on your house, add an additional $150,000 on top of that and that can be the amount you buy....

Hope this helps.  

Answer 4

You should definitely seek the advice of a life insurance agent.  If you have an auto agent, I'm sure they'd love to meet with you and educate you.  They can also help you determine what type of policy is best for you.  Everybody else explained how term/universal and whole life policies work so I will try to give you different advise.

If you like the "investment" opportunities of life insurance (it can be a great method to supplement retirement/college savings), and you're not just worried about a payout if you die then I would suggest the following:

Before meeting with an agent, have two figures in mind.  First, how much money do you want to pay out to your beneficiary if you die?

The following acronym is helpful in determining a figure, L.I.F.E. (easy to remember, huh?)  That stands for Loans (pay off any existing home/car loans and credit cards).  Income (replace your income or your husbands.  Choose a number of years, like 10 for example, and multiply that by the number of years you'd like income replacement.  If you want 10 years and make 100k a year, then it would be 1 million).  F stands for final expenses (the average funeral costs about 8-10 grand).  The E stands for Education (would you like to leave money behind to pay for your children's educations?  Depending on the age of the kid, you may want 100-250k per child).  

The number of what you really want is going to be astronomical, and many people have to settle for less, but at least it gives you an idea.

The second figure you should have in mind is how much you're willing or able to spend on life insurance a month.  If it's only $50, then you'll proabably have to settle for term.  If it's $300 a month, then you'll probably have choices, possibly including using a combination of term and permanent policies.  If the agent knows how much you want to spend, they can figure out how to maximize the money.  Very often you will really need 2 policies each to meet all of your needs.

If there are any companies that sell Phoenix Wealth Management products in your area (where I live State Farm sells it) they have a really cool policy called the Joint Edge.  It's one policy that is Variable Universal Life (your money gets invested for you) and it will cover both spouses...plus it tends to be very cheap.  For young couples, it's often only slightly more expensive than buying term insurance.  I'm a huge personal fan of that policy and my wife and I have one ourselves.

Good luck...be prepared and don't be afraid to ask for advice from your agent, and feel free to shop numerous companies to find the best prices.

Answer 5

In general directly from the hip terms...if your household income is less than $100k you don't want or need a cash value plan.  Look at a term insurance policy.  A whole life policy yields about 2% if you hold it for 20 years.  Your mattress almost pays as well.  If you're higher income, don't qualify for a Roth, etc... they can make sense.

http://www.InsurancePickle.com/life-insu...

So, what I'm saying is that may not be an appropriate plan for you at all.  Look for term insurance (if you fall under my from the hip guidelines) and get pure coverage and the right amount.  A good broker/advisor can help you out.  

Answer 6

There are 2 main kinds of life insurance.  Term and Cash Surrender Value.

Term is pure insurance.  You die, it pays.

Cash Surrender Value is term Insurance with a poor investment plan attached to it.  It will typically yield between 0% and 4%.  With this plan, you can borrow your own money at, typically, double the interest they are paying you.  If you fail to pay it back, they take it, interest, and fees out of the death benefit.

Your best bet is to get term insurance and a separate investment plan.  Since he is self employed, with a decent financial person looking out for you, together, you can save about $90k per year into tax sheltered savings.  And when you have children, you can do even more tax sheltered savings with child IRA's.

I hope this helps.

Answer 7

Think of the difference between term and whole life/Universal Life like living in a house:

Term insurance is like renting a house.  You live there for a temporary basis (covering debt, kids education, etc).  You build up no equity (no cash value).  Every couple years the landlord (the insurance company will likely bump up the rent (term policies premiums go up after certain time periods like every 5, 10 or 20 years as you get older).  Eventually the landlord might kick you out for missing your rent (term policies don't have a back up plan if you miss a payment) or they just flat out kick out out period (term policies eventually expire at age 80 or 85 and they just get cancelled).  When you get kicked out (policy expires) or move out (cancel the policy), you hand back the keys (the policy) and you get nothing back in return and just move on.

Whole life is more like owning a house.  It's for the longterm needs (IE: funeral costs, taxes, etc).  Once you buy it, you own it...the landlord can't kick you out or jack up the prices (whole life policies have level premiums and do not expire).  The longer you own the place, the more equity you build (whole life builds a cash value).  If you make increased payments you build more equity (universal life policies have a side investment account that grows tax sheltered if you put in a little more than the required premiums).  If you can't afford the payment that month you might be able to borrow from the equity (take out a policy loan from the cash value).  Once you decide to move out (cancel the policy) you get soem money back (the cash value).  Sometimes you can get a mortgage that pays off the house in 20 years and then you keep the house (Limited Pay policies...you pay premiums for XX years and then the policy is your and you don't pay on it after that).

Buying a house is always more expensive than renting one, but it's a more stable thing to do if you need it long term.

Easy way to figure out which you need?

How long is the need?  If it's less than 20 years (paying off a mortgage, debts, or making sure the kids are taken care of until they can support themselves), go with term.  If it's a longer term need that might never go away (IE: funerals will always cost money, you will always have to pay legal fees and taxes when you die, and you will always die at some point), go with whole life.  If you decide on whole life and have a large networth or might have a large networth in the future, look at a universal life policy for the tax sheltering.  It's not uncommon for some people to have a mix of all of them.

You're best bet is to contact a liscensed insurance broker that can sell all the different types, he can quickly assess what you need, how much you need and which are the best companies to get each through.  Avoid any company that only sells one of the types of insurances and not the others (I call them one trick ponies).  They will find a way to squeeze you into their mold to make you fit the product instead of finding what is right for you.  Not naming names, but these types of one trick ponies are places that typically promote Buy Term and Invest the Rest.  This is a flawed theory and doesn't always work as they seem to promote it.  Also, don't by online unless you are familiar with the products and companies.  Cheapest is not always best.  It's better to spend an extra dollar on a reputable company than cheap out on a fly by night (A broker will be able to explain the good from the bad).

This is a VERY general overview of how each one differs and shouldn't be taken completely litterally since different states, provinces and countries all have different products and regulations.

Answer 8

Term life insurance is like betting the company that you will die before the end of the term, if you die, they lose and pay you, and if you're still alive, they keep the money.

There are several different types of more long term life insurance. One type links a savings account with the insurance. You regularly put money into the account, and then the company takes out the cost of the insurance plus the managing costs. Insurance is cheaper when you are young, so when you are young, you pay a lot more than the insurance costs, but the extra is saved in the account, so that when you are older and the insurance would cost more, you are paying less than it costs into the account, and using up what you saved when you were younger.  

You should talk to a financial adviser or insurance salesman and ask them lots of questions, since there are options for how much you would pay, what happens to the capital, and whether you can take loans on the savings amount, and these vary according to the plan and provider

Answer 9

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Answer 10

Here are the basic forms of insurance.  

TERM - this is for a specific period only. Most companies offer 10, 15, 20, and some 30 and even 40-year term policies. There is no cash value accumulation within a term policy and it is basically renting your insurance for a specified period of time. It's a very good option for folks who are tight with case and need insurance but don't yet have enough cash flow for a permanent policy. If you do have to get a term policy make sure it's a convertible term -- one that can be moved to a permanent policy without additional meds, etc. The down side to term is that you only win if you die. If you die when it's in force, great. If you should die even one hour after it expires, your family gets nothing.

PERMANENT INSURANCE. This is insurance that will cover you for your lifetime, no matter how long. There are various types of permanent insurance.

A lot of folks only know of an older one called WHOLE LIFE. In this there is cash value growth within the policy. The premiums are fixed in this type of policy. The basic idea is that you make premium payments and what is above the necessary to insure you go into the General Accounts of the insurance company. They usually guarantee you about 3-5% on this. However there is almost never any cash accumulation over the first five years and what they give you barely keeps up with inflation. As you age, the company may use the cash accumulation to pay for policy charges. Thus these often lapse or the person winds up at retirement with little if anything in the policy.

There is another permanent insurance called UNIVERSAL LIFE that is similar in many ways to the whole life, but here the premium payments are flexible. Again any cash value accumulation is put into the General Accounts of the insurance company and guaranteed at about 2-5%.

A third type is VARIABLE UNIVERSAL LIFE policy. Here, the cash value accumulates in Sub-Accounts (which are owned by the insured and NOT the insurance company). These accounts are out in the market and get market rates of return. Depending on the portfolios that you are in, these can average 8 - 12% over time.

Eight years or so ago, the insurance companies created another permanent type, EQUITY INDEXED UNIVERSAL LIFE. Here the cash value accumulation is a result of being compared to an index, usually the S& P 500. A lot of these policies average about 8% over time. They often have a cap and a floor and they are attractive to folks who like guarantees.

These permanent policies not only provide life long insurance for you, but the cash value in the account may be accessed tax free and if structured correctly, this can add much money to your retirement or even before so you may enjoy it while you're alive (as well as having the death benefit if something happens to you).

I suggest that you read "The New Life Insurance Investment Advisor: Achieving Financial Security for You" by Ben Baldwin. It's a bit dry, but you can see for yourself that what I've said is accurate.  All I ask is that if you speak to any agent local to you, make sure he/she is dually licensed so you can get the full story and not just the part of it that the singly licensed person wants to babble because it's the only way they can sell the only thing they have available.

Does this mean I think term is bad? Absolutely not. I often recommend it to folks who have a need for it, but usually it's a convertible policy that can be moved to a permanent one as their situation improves. However, term is NOT the be-all and end-all and it often increases in cost to a point where you can no longer afford it as you age. Also, say you're in a 20 year term, what happens if at age 45 you are suddenly diagnosed with cancer, or have a heart attack, etc. Your chances of having your policy renewed at age 46 again have dropped to about zero. If you died then at age 47 your loved ones would get nothing since no policy would be in force. Even with adult children, that would leave them liable for burial costs, any estate costs that may come due, etc. I suggest seriously that you find a good advisor local to you and explain your complete financial picture so that they can recommend something that is suitable for you and your needs.  Quite honestly, some of the answers already posted here seem not to have taken into account anything that's gone on in the industry in the past 50 years.