It is a big topic. There is a lot debate and opinion about what exactly is it, what does it do, and who needs it.
· Insurance in general; is “transference of risk” (financial risk) to make you “whole again” (indemnify). A small payment to protect against a large loss.
· Premiums. The money you pay for your insurance product.
· Death Benefit. What the sum of the payout is (example: “$200,000 policy”)
· Term Insurance. Pure insurance lasting for ‘x’ amount of years.
· Whole/Universal etc. Life. Insurance with a “savings plan” to age 100.
· Owning an insurance policy creates an “estate”.
Bottom line, but seriously folks!
Obviously you ‘ain’t gonna’ get your own death benefit! To be selfish – would you hope to collect someone elses? Okay, so you grow up and smell the coffee. Your family (unless already financially independent) will need to pay for your funeral – at least, and you may be of a generous heart, and wish them all well, grant them your love eternal, and give them a nice chunk of money to make sure they will be okay after you’re gone. How much will do that? $10,000? $100,000? A million? You would be surprised that with-out a plan, even a million dollars can go POOF! in just a few months after the death of the breadwinner. What is stopping them from going to Vegas? Now try a policy with a plan – something like $4,000 a month until you would’ve been 65, – now would that be better? Yes, they have this now!
There are new, innovative products that will actually provide monthly income. One must realistically consider what the monthly needs for the family will be. Is your current insurance “old school”? Rates going up? Value low? Is it time to check in on it? Probably.
One of the harshest debates is the one between the two basic camps of life insurance. One is ‘permanent insurance’ and the other is ‘term insurance’ or “pure insurance”. The reason the debate is so strong is that these are very big life decisions, and even though both are “insurance”, the differences are what is causing the debate.
The size of the decision of how to select and what to sign-up for is overwhelming to most folks. Insurance agents and brokers are decidedly in at least two camps on the issue. Some sellers of life insurance will simply sell you whatever you pick and be rather nebulous about the client’s choice, preferring to avoid the complications of the issue.
Okay – so I am of the opinion that insurance should be just that – insurance. On the other hand, the idea with permanent insurance is that there is an investment or savings vehicle attached to the product. Permanent insurance has a few names, “Whole Life”, “Universal Life”, “Lifetime”, etc. This controversial product is the heat source for most of the arguing going on.
A policy that you keep paying for until death, or until is fully paid, or until the client reaches age 100 – at which time, it is designed to be fully paid, and has a “side pocket” where supposedly your “savings” is handled by the carrier to grow some kind of monetary reserve to either pay down the premiums if you have a tough patch in life and can’t make the payments, or if you wish to take a loan – of your own money, and are encouraged to repay to bring your account back to “square”.
Now hold on a second… Term insurance is just that – pure insurance – and it’s a lot cheaper. If one were to go buy “insurance” and you were told that term is not so good because it ends – at the end of the term -yes, it does end at the end of the term. If you wanted a 20-year term policy, with guaranteed level premiums (the payments never go up), then at the end of 20 years its over. You made a deal with an insurance carrier that if you die in that period of time, they would simply pay your beneficiary the principle of that policy you initiated when sign the contract. Simple. Straightforward.
Which policy gets the agent a fatter commission? A cheap, straightforward term insurance policy? Or an expensive “Whole Life” policy? Something to think about. …hmmm. Term a smaller one time commission or permanent – a commission plus years of residual commissions.
What I call the “Responsibility Clause”.
In the “Whole Life” style plan, you feel like you may have secured your retirement with the higher priced Lifetime policy. But there may be hidden dangers in that. Will you really know how your money be handled in that arrangement? Will be enough to carry you through the senior years if you are healthy and live to be 90?
If you some saved money on buying term insurance, and took responsibility to invest that “savings” in some sort of plan that would really develop into a “retirement plan”, you could really do quite well. That of course is just my opinion, but, I would definitely seek advise from a licensed advisor and perhaps, no, make that “for sure” – get a second or third opinion to make sure your strategies are realistic.
Today, (here we are at the end of the first decade of the 21st Century,) most life insurance companies are getting the message. They are putting their research departments on making products that fit our current times. Not only that, people are living longer, the actuarial tables show that. This is causing prices to ease and the gamble that insurance carriers will have to pay on the policy is less risky and since they want your business, the premiums are starting to reflect that.
Now, if you have properly cared for your nest egg…
In my opinion, you shouldn’t really much need life insurance when you retire. Your kids are grown and have their own families and insurance plans. You mortgage is paid off. You should have a portfolio of healthy and smart investments and other types of protections to deal with the retirement years. Of course you must consult qualified and licensed experts and weigh the consequences and take your best shot. Doing nothing at all is the worst plan, obviously, you wipe out your family, financially. Stressful stuff!
Protect your estate with a Revocable Living Trust (RLT)
…and steer clear of probate. Give a gentle gift to your family – of not having to fight amongst themselves on the event of your passing. It will include your final instructions to your family. In a Living Trust you can do all this before you become unable to give the instructions due to the difficulties of old age. It’s my opinion that for less than two thousand bucks you may save your entire estate from probate sounds pretty smart. You can assign trustees to protect your estate if you are in a long-term-care situation. A Revocable Living Trust has many advantages over a simple “will”, but I’ll save that for another article.
Annuities. The opposite of Life Insurance.
Also, the discussion of what exactly is an “annuity”? Sure, all the “insurance industry people” know exactly what it is. Most everyone else seems rather unsure. Chatting with the nice young fella at my bank, I asked if he could tell me what he thinks an “annuity” really is… thinking about it for a minute, he said, “No, I really don’t know what it is.” He didn’t know. He didn’t know what the basic function of an annuity is. Why? Because no one had ever explained it to him. I wish I could go back to age 22 with a great job and begin my annuity! Ah… 20-20 hindsight.
In a nutshell, on annuities. It just keeps paying – for life!
Okay. An annuity is a type of financial contract you set up with an insurance company, to make payments into it for a certain amount of time (years) and someday you tell the company to “annuitize me!” where they will then begin giving you monthly payments of your money, which may have been grown at a pre-decided rate PLUS – keep making the payments to you for as long as you live – even if that time far exceeds the payments of funds you originally placed into your annuity. There may be some tax implications but the idea is that after you become a “senior”, your tax bracket ought to be quite a bit lower. You will get the statements from your company, so don’t sweat it. Again you will need to consult enact this with your friendly and caring (and licensed) insurance broker. There are a variety of annuity choices. Learn what would be best for you.
This article is for general information only. There is a lot of information freely available on the net, and from brokers and agents, and worthy of study. It is strongly encouraged that the individual takes care of one’s own concerns for their estate, and puts forth effort into learning and understanding these concepts and products. Some products you may find, are better suited for your particular situation than others. This article simply is an introduction to these concepts and products, along with a few of my opinions.
For sure, however, time is ticking, don’t wait to get your plans started!
I am licensed to sell Life, Accident and Health Insurance in California only. I am licensed to sell Revocable Living Trusts in all states except Louisiana. This article is not a solicitation to sell any insurance related products. For further info you may visit my web site here; http://www.poweref.webs.com Please send me a hearty “Hello!”
Selling Insurance in the 1980’s is different than today’s insurance market. One thing remains the same, give the client a true benefit, and they will love you and recommend you to their friends and family. The “Use” value must exceed the “monetary” cost and it’s a win-win. We are all smart enough to do this for each other in this world. Benefits of insurance – the latest thing is to think “How much a month will my family need?” – then double it.
Nels Jenstad is a humanitarian, musician composer and educator with a day job in the insurance field. Here we work that the musicians of tomorrow will be able to create – in an atmosphere with a little less risk and a little brighter sense of making lasting contributions to society. If we all take care of each other, the arts will pull us up.