 Affordable Life Insurance at 80? |
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kimmer727 | Term Life Insurance? |
I have Term Life Insurance for my husband. I have recieved a letter, stating that I may want to change this policy to Permanent Life Insurance. Why would I want to do this, what is the benefit or difference between the 2? |
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Wendy S
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Think of life insurance this way: Term insurance is like renting a house - permanent insurance is like buying it.
With Term insurance premiums start low and increase greatly as you age and each term (1 year, 5 years, 10, 20, 30, etc) renews. Often there is a point where you can no longer renew it (age 75, 80, etc.). It builds no cash value, so you get nothing if you cancel or the policy expires. You can, though, purchase a lot of insurance for very little money compared to Permanent policies.
With Permanent insurance (Whole Life or, in some cases, Universal Life), the premiums are higher, but the policies build cash value. You can keep the policy forever as long as you pay the premiums.
Only you can decide if it's right for you. There are so many variables in your life that affect your decision (you may not need life insurance after a certain age, or you may need it to pay estate taxes or pay off debt) and so many different types of policies that you really need to sit down with an insurance agent you trust and go over the options.
Good luck! |
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Financial JUSTICE
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Here's the real reason why you are urged to convert your term policy into a permanent life insurance: It gives more commissions to the agent and increases profits for the insurance company.
You should remember why you bought life insurance in the first place. Hopefully your reason is to protect your family against financial loss in case you die.
Here is the difference between the two types.
Term insurance:
1) Premiums stay level for certain amount of years.
2) Premiums are initially lower than permanent life insurance
3) It does not build cash value, so it gives you the freedom to decide where you want to save your money (I hope you have an IRA account setup).
Permanent life insurance:
1) Premiums may remain level as long as the policy stays enforced.
2) Premiums are higher because these types of policies builds cash value.
3) If you wanted to withdraw money from the cash value, you have to borrow it and pay loan interest on it.
4) Cash value have low rate rate of return (usually between 1-4%).
5) Insurance company keeps your cash value when you die.
I don't know what kind of term insurance you have. I hope its a 20 or 30 year level term insurance. I personally own a 30 year term insurance and I invest about $300/month in mutual funds that are inside my Roth IRA. Right now, I don't have much money saved, I have a mortgage to pay, got kids to take care of, so my need for life insurance is very high. As time goes on, my financial responsibilities decrease. In 30 years, I'm pretty sure I don't have any financial obligations and I'm confident I would have at least $700k in my retirement account. By that time, there is really no point for me to have life insurance. |
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PFS rep
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Kimmer.
The answer to the first question is, you wouldn't want to change the policy to 'permanent life insurance'.
You already have the right type of life insurance, term. Term is for a certain amount of time or term. It is very cost efficient, for example, $30/mo. for $200,000 face amount. The only thing you want to check is the length of the term. If you have the amount of 'protection', face amount, then make sure that it will last the amount of time that you will need it, term. Term can be for 10 to 35 years in length. Pick the one that is suitable to your needs.
Life insurance is a financial tool that you need for a period of time, when you have no money to take care of things if a bad situation arises.
Start a program to get out of debt now, start saving for the future, and render life insurance unnecessary in the future, (end of term).
Calculate insurance needs as by adding possibly all of the following: mortgage balance, debt, education expenses, income replacement, and final expenses. This may amount to maybe $500,000.
Permanent life insurance is quite literally term with a savings portion. The term is 1 year, meaning the cost of insurance goes up every year. Who would want that?
The savings portion grows none in the first few years and after that very, very slowly. The average rate of return is usually between 1-3 % per year, no matter what the policy may say it is. Who would want that?
If death occurs, the face amount is awarded to the beneficiary, and the company keeps the savings portion, unless one would want to pay a higher premium to have it. Who would want that?
The agent sent you the letter to try to increase his income. Permanent life insurance is very expensive, and pays the agent many times more than term life pays. The increase in costs go to feed the old time monster cash value life insurance companies.
Evaluate how much need you have, and how long of term you need. Then price compare.
The agent that contacted you wants your money. Go to another agent, see if he beats the price, if he does, then change and save $.
See that YOUR needs are met. Don't meet the agents INCOME needs.
Here is to shopping smartly. |
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car
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Well put Wendy S.! |
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FromTheTop
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Ditto Wendy S... |
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samy
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Well, I found a VERY (V_E_R_Y) good article about term life insurance vs. Whole life insurance here: http://all-insurance-online.blogspot.com/2007/09/term-life-insurance-vs-whole-life.html |
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