9 Facts About Life Insurance Your Friend, Agent, or Broker May Not Tell You and May Not Even Know.
Did you ever wonder how term insurance aka temporary insurance can be so cheap? It depends on your age. If you are young, the odds of you dying are very low. As you age, your risk goes up in almost a linear fashion. As a result, term insurance can only be purchased up to a certain age. Many so-called advisors and even term insurance agents selling it though have some secrets they may not have shared with you.
FACT 1: Term Insurance is extremely expensive at older ages.
FACT 2: Nearly 98% of all Term Insurance does Not Pay OFF -pure profit for the insurance company due to lapse, price increases, and failure to pay premiums, and failure to qualify due to a change in health.
FACT 3 Policies sold with NO MEDICAL EXAM generally cost more money-higher risk to the insurance company
FACT 4: Term insurance at work is not portable and almost NEVER enough – You lose it when you leave your employer
FACT 5 Corporations use permanent CASH VALUE Life Insurance to fund Non Qualified Deferred Compensation
FACT 6: Banks own Cash Value Life Insurance as a TIER I ASSET
FACT 7: Rich People OWN Cash Value Life Insurance -In the last few years, a well known tech billionaire purchased a $100 million dollar permanent life insurance policy.
FACT 8: CASH VALUE LIFE INSURANCE is an ASSET…Term Insurance is a Liability
FACT 9: Buying life insurance from an agent over the phone does not guarantee you will get the best coverage OR the cheapest.
FACT 10: $1 Million dollars of life insurance will not make your spouse rich. In today’s low interest rate environment, it will provide $28,000-$40,000 per year of income depending on underlying investments.
IS TERM INSURANCE REALLY CHEAP?
It is important that you know what is in store for you should you decide to own only term insurance thinking it is the cheapest. Look at these actual annual 20 year Term Life Rates from one Highly rated Life Insurance company for a $1,000,000 policy
- AGE 25 $475
- AGE 45 $1325 (preferred)
- AGE 65 $11,205 (preferred) -$17,405 (standard) – some are already uninsurable at this age
- AGE 75 $25,755 (10 yr term only)
- AGE 85 Your look better on the outside than you do the inside and you are out of luck -you have to buy permanent insurance if you are healthy enough.
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If you lived to 86 – you spent nearly $517,000 and you have nothing to show for it. The policy ran out and will pay nothing to no one.
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Had you bought a Cash Value policy, you would have spent approximately $270,000, in premiums, stopped paying premiums around age 65 and had nearly $2 Million in cash value at age 85 with a death benefit of nearly $2.4 Million tax free dollars if owned correctly. Do you still think term insurance is the cheapest way to buy life insurance?
- You might be asking… Why would an 86 year old need life insurance? Many people want life insurance is to leave a tax free legacy for their children or grandchildren. Remember, IRA money is one of the highest taxed assets you can leave someone. It is taxed at the beneficiaries ordinary income tax rate after the distribution is added to their normal income. Families that have life insurance in place to fulfill inheritance goals generally live a more comfortable lifestyle because they are more free to spend their other money with confidence than if they were worried about running out of money and leaving their children nothing.
- If you buy a life insurance policy without a medical exam, you could be paying substantially higher rates. Some insurance companies are actually underwriting policies up to $500,000 and even $1,000,000 without an exam. They will review your medicine list, your driving record and ask health questions. Be careful and be honest though. If you lie on the application, your claim could be denied. An exam is pretty simple though and could save you thousands in premiums spent over the life of your policy. It may be faster to get a NO MEDICAL EXAM Life insurance policy but the savings you get by getting a preferred or preferred best rate class are worth it.
- Cash Value Life Insurance (CVL) uses the same tables as term for the cost of insurance. CVL though has a side account that earns interest based on the type of policy you own. Because the interest earned in cash value life insurance is tax deferred or even tax free if you follow the rules, your cost of insurance in later years is subsidized with your tax free earnings inside the policy so you can enjoy level lifetime premiums instead of huge increases when your term renews for another 20 years. Also, if you reach the point where you have enough money in other accounts to be uninsured, you can always turn the cash value inside your policy into lifetime guaranteed income.
- Cash Value is your money. You can withdraw it or take a loan against it just like you would your home equity whenever you need it AND it is available. Generally you will want to wait until the 6th year to get favorable interest rates compared to home equity loans or consumer based loans. By the way, policy loans do not come out of your policies cash value. (depends on the company) The cash value remains inside the policy to earn interest and serves as collateral in the event you die before it is paid back. Some life policies can earn double digit interest if they are Linked to a stock market index. This type of policy is called an Indexed Universal Life Policy. The cash value is never directly invested in the market, so you don’t have to worry about losing it in a down market. What are you earning in the bank on your emergency funds? Ask us about a custom proposal to show how you can have lifetime protection while enjoying liquid access to your CASH VALUE when you need it for emergencies, big purchases or anything else you want. All things considered, with life expectancies soaring, an optimal life insurance program should consider having both types of coverage in force.