May

17

Term Life Insurance - Top Ten Rules

Category: Articles | 1 Comment

Most days I find that the biggest part of my job as President of Life Insurance . Net is educating consumers and even agents on the basics of how life insurance works and on how it should be structured to fit into our clients lives. I’ve been blogging on other topics lately and decided that the form of a life insurance blog would let me just lay out some basic ideas in a reader friendly format. So I hope that you find this useful. Feel free to leave questions and comments and I’ll see if I can bring a little clarity to what doesn’t have to be a confusing marketplace.

For starters, here’s a great little piece from the state of New York The top ten questions you should ask about life insurance. here is the original article.

1. When should I consider buying a term life policy?
Term insurance is generally used when the need for death benefit protection is temporary or if you are unable to afford the premiums of a permanent life insurance policy. Term insurance typically provides for the largest immediate death benefit amount for each premium dollar. It is appropriate if you are seeking protection for a specific need that will end at a future date such as to pay for a child’s college education expenses, to repay a loan or to replace income should death occur prior to retirement.

2. How does term life insurance differ from permanent life insurance?
Permanent life insurance is intended to provide protection for your entire life. Generally, the premiums for permanent insurance are higher at least initially than for the same amount of term insurance. A portion of the permanent life insurance premium is used to build-up a cash value in the policy. The cash value can be used in a number of different ways including allowing you to take out a loan against the cash value. Term insurance, as described in question one, provides protection only for a specified period of time and typically does not build up any cash value.

3. What are the main types of term life insurance available for purchase?
In general, there are three main types of term insurance available:

  1. Level term insurance
    The amount of death benefit protection you purchase will remain the same for the entire term period. The premiums you pay for this level amount of death benefit may also be level for the entire period, may be level only for a specified period, or may increase over time.
  2. Decreasing term insurance
    The amount of the death benefit protection you purchase will decrease over the term period. Premiums for a decreasing term policy usually remain level throughout the term period. Decreasing term insurance is generally purchased by those who have financial obligations that decrease over time such as a mortgage or a personal or a business loan.
  3. Annual renewable term insurance
    The amount of the death benefit protection you purchase will remain the same for the term period. The premiums you will pay for this level amount of insurance will increase each year.

4. What is “renewable” term life insurance?
Many term life insurance policies are described as being “renewable”. This feature allows the policy to be renewed for another term period without having to show that the insured is in good health. As long as you pay the premium due, the policy will automatically renew for another term period subject to a maximum age limit. The premium due upon renewal will most likely be higher than the premium you paid for the initial term period.

5. What is “convertible” term life insurance?
Some term life insurance policies are described as being “convertible”. A conversion provision allows the owner of the term life policy to convert from the term life insurance policy to a permanent life insurance policy during a specified period of time without having to show that the insured is in good health. The conversion period is shorter than the duration of the term insurance coverage.

6. How long will coverage under a term policy continue?
How long coverage under a term policy will continue will depend on the type of and duration of the term policy you purchase. For example, if you purchase an annual renewable term policy your coverage may be renewed each year up to a specified maximum age limit. If you purchase a 10 year level term policy you will have coverage for 10 years. If you purchase a 10 year renewable level term policy you will have coverage for 10 years and then have the right to renew your term coverage for another 10 years.

7. Will the premiums due for term life insurance change over time?
Whether or not your premiums remain level for the entire term period or increase over time will depend on the type of term policy you purchase. Premiums for a term policy may be either level or increasing. Premiums can also be guaranteed in the policy to remain level for a specified period of time and may increase thereafter. In general, for most term policies the premiums will increase over time.

Some term policies provide for what is known as “indeterminate” premiums. This means that the policy will set forth a schedule of maximum guaranteed premiums. The insurer can never charge more than the maximum premiums in your policy. However, the insurer intends to charge you what is known as the “current” premiums which are less than the guaranteed maximum premiums in your policy. Ask to see both sets of rates before you make a purchase.

Term insurance is very competitive with respect to premium rates. Shop around and compare.

I hope you’ll check out one of my insurance websites for an affordable term life insurance quote .

8. Can an insurer cancel term life insurance?
A term life policy will stay in force as long as you continue to pay the premiums due. If you miss a premium due date you will have a 31 day grace period to pay the premium due. Your policy will remain in force during the grace period.

An individual term life policy can be canceled by the insurer only for non-payment of premium. If you do not pay the overdue premium payment within the grace period your term policy will terminate. The policy cannot be canceled due to a change in your health status.
If you purchase term insurance through a group such as an employer-employee group your term coverage may terminate when you are no longer an eligible member of that group e.g. your employment ends. Be sure to read the termination provision of your group term life certificate.

9. What is a “Return of Premium” feature?
A “Return of Premium” feature is a feature that has recently become popular and may be offered in conjunction with term life insurance coverage. The return of premium feature will generally provide for a refund of all or some of the premiums you paid for the term insurance at the end of a level term period or at end of the term coverage period if no death benefit was paid out during that period. The parameters of the return of premium feature will vary depending on the term life insurance policy you purchase. The return of premium feature can be offered by a separate rider to the term life policy for an additional cost. The return of premium feature may also be a provision within the term life policy. Term life policies with this feature will be more expensive than a term life policy that does not offer this feature. You should consider whether the return of premium benefit is worth the extra cost.

10. What premium mode should I choose when purchasing term life insurance?
Most companies offer a variety of premium modes including annual, semi-annual, quarterly or monthly. In deciding which premium mode to choose you should consider the following:

If you choose to pay an annual premium and then decide to terminate your policy before the end of the year, the insurer is not required to refund any portion of the premium paid.

Generally, there is a higher cost associated with more frequent premium modes. Ask your agent or the company for a comparison of the different premium modes and the costs associated with each before making your purchase.

Apr

26

Split Dollar Plans - Life Insurance for Businesses

Category: Articles | 2 Comments

The Use of Split-Dollar for Buy-Sell Arrangements

The split-dollar insurance plan can be used as a method for funding a buy-sell agreement. The style of split-dollar arrangements should be coordinated with the client’s objectives and the type of buy-sell agreement being considered.

If the type of buy-sell agreement being considered is that of a stock redemption entity plan, a collateral assignment style of split-dollar would not be effective. However, an endorsement style of split-dollar could combine the repurchase of shares from the stockholder’s estate and provide for additional life insurance benefits for the personal needs of the stockholder.

For example, consider a buy-sell agreement that values the stockholder’s shares of the business at $500,000. In addition, the stockholder needs personal life insurance in the amount of $400,000. Where the corporation may purchase $500,000 of life insurance on the stockholder to cover the buy-sell agreement alone, it would now purchase $900,000 on the stockholder and enter an endorsement style of split-dollar insurance for the amount of $400,000. The stockholder would have the current economic benefit on $400,000 attributed as income each year, but not on the $500,000 of coverage retained by the employer. Upon the death of the stockholder, the employer receives $500,000 of death benefit proceeds tax-free to satisfy the terms of the stock redemption entity buy-sell agreement, and the stockholder’s named beneficiary receives the $400,000 of death benefit proceeds tax free via the policy endorsement.

If the type of buy-sell agreement being considered is that of a cross-purchase arrangement, both a collateral assignment style of split-dollar and an endorsement style of split-dollar could be effective. As in the previous example, assume that the value of the stockholder’s shares of the business is $500,000, but now we have two equal stockholders in the corporation.

With a collateral assignment style of split-dollar insurance plan as the method of funding the agreement, the difference is that the stockholders are the owners and the beneficiaries of the policy on each other’s lives. Under this scenario, the loan regime applies to the owner of the policy, even though the insured is the other stockholder. The owner of the policy is responsible for the loan, not the insured or the beneficiary. Upon the death of one of the stockholders, the surviving stockholder receives the death benefit proceeds tax-free, settles the outstanding balance of the loan to the corporation, and uses the balance of the death benefit proceeds to satisfy the terms of the cross-purchase buy-sell agreement.

With the endorsement style of split-dollar insurance plan as the method of funding the agreement, the employer applies for and owns a $500,000 policy on each of the stockholders. Each stockholder names the other stockholder as the beneficiary of the policy. Under this scenario, the economic benefit regime applies, and income is attributed to the stockholder on the life of the other individual insured stockholder.

Get a quote on a split dollar life insurance plan today.


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