Life Insurance Counselor Page
 

On this page you will find information on the type of life coverage's available in the market today and what they mean to you. You will also find some of the frequently asked questions on a life insurance application and answers as to why they are asked.

Types of Life Insurance Policies Alphabetically - Followed by a list of Rider explanations.

These are 'Our' Simplified condensed explanations of the more common forms of Life insurance contracts. Since policies may vary from company to company and will be effected by the statutes of every state please look at these explanations as general information only. For specifics contact a life insurance agent or company doing business in your home state. Insurance companies may have some modifications. These “simplified narratives” should not be considered as a full portrayal of any particular plan.

THE CAST OF CHARACTERS IN LIFE (Insurance)

Credit Life

Usually guaranteed issue, regardless of health or age, is designed to pay off a debt, after the insured’s death. An example would be to cover the purchase of an automobile loan amount. The dealer may ask if you would like to have credit life and if you agree the insurance is included with your payments. Since the credit life is added to your finance agreement you will be paying interest to the lender on the insurance premium.

On the Plus Side:

Easy to acquire & normally guaranteed issued.

On the Minus Side:

Usually higher premiums than other types of insurance.

Endowments

The cash value and the face amount will be the same at a certain period of time. If the policy owner purchases a 20 year endowment for $100,000.00, the policy owner will receive $100,000.00 in cash at the end of 20 years. Sometimes an endowment is referred to as forced savings . With an endowment, there would be a death benefit of $100,000.00, or whatever face amount that is purchased.

On the Plus Side:

Cash build up..

On the Minus Side:

Endowments usually have higher premiums then other types of life contracts.

Group Life Insurance

Many health plans provided through an employer will include group life insurance with the health plan., normally in the $10,000 to $50,000 range.

On the Plus Side:

May be paid entirely or partially by an employer.

On the Minus Side:

May not be transportable if you leave the employer.

Industrial Life

Usually policies of $1,000.00 or less, premiums are paid, weekly or monthly. The policy is usually sold to be used for burial expenses.

On the Plus Side:

Affordable

On the Minus Side:

Low face amounts.

Term Insurance:

Coverage is for a specified “term”. This period of time may be 1, 5, 10, 15 or 20 years etc. Death benefit is paid, only if death occurs during the “term” of the contract.

Some policies may be renewable for additional “terms” depending on the provisions specified in the contract. Many “term” policies may also be convertible, which means the policy owner may have the ability to convert the contract to a permanent plan written by the same company. Limitations as to when the conversion is allowed and as to what type of plan, are normally contained within the “term” contract.

Level term:

The death benefit remains the same for the entire length of the contract.

Decreasing term:

Death benefit decreases as the years go by. Decreasing term is used frequently to coincide with the payments of a loan such as the loan on a car or home. As the balance of the loan decreases, the face amount of the term policy will also decrease. Amortization of the loan, should be coupled to the decreased amount of the insurance at specific intervals to make sure they are closely in sync. (Normally, decreasing term is not renewable although many companies will allow the contract to be converted to a permanent policy based on the remaining amount of coverage. The cost of decreasing term remains the same for the life of the policy, although the face amount decreases.)

Increasing term:

The purpose of these plans is to keep the face amount of the policy in sync with inflation or other needs. In most cases premiums will increase at the same time.

On the Plus Side:

Low cost premium in purchasing pure insurance for a specific period of time. Term insurance may be coupled with other forms of permanent insurance to fill a need for a larger amount of coverage for a specific length of time.

On the Minus Side:

Coverage is for a specific length of time and although the premium for a limited length of time may be low it can be much more expensive if retained for the life of the insured, since the cost of term in the later years of life can be very costly. There is no cash accumulation to use for emergencies or retirement.

Normally, term insurance cannot be renewed past the age of 65.

Universal Life

Universal life accumulates cash value that earns interest for the policy holder. All companies will have a guaranteed minimum interest rate. ( 4 to 4.5% being the norm) Companies will adjust the actual interest they pay, based upon the current interest rates or attach the rate to a specific and traceable financial table.

Universal life offers flexibility, not available in most other types of contract. The policy owner may decrease or increase the face amount of the insurance or the premium. (Insurability requirements may have to be met if the face amount is increased) Basically Universal life is a whole life policy that has been divided into two portions. “Death benefit and cash value”

Universal life has many interesting variations in it’s usage. JBR Group, suggests discussing them with a Life Insurance agent or insurance company and to also check with your tax advisor, under current IRS tax rules, income tax on the interest earned is deferred. (you do not pay income tax on the interest each year) When ready for retirement, the insured can take out monthly payments for the rest of his or her life TAX FREE, assuming that the policy remains in force. This means you could have a retirement check each month and still have a death benefit. If you cancel the policy and take out the cash, any gain, would then become taxable.

On the Plus Side:

Flexible premium and face amount. Guaranteed minimum interest rate. Death benefit plus retirement assist. Low cost over a long period of time. Tax free earnings may be tax free at retirement.

On the Minus Side:

Higher premium for short term policies.

Variable Life Insurance

A whole life policy connected with a separate account, which consists primarily of a portfolio of common stock and other securities-based investments.

Due to the investment risk, the federal government has declared that variable contracts are securities and are thus regulated by the Securities and Exchange Commission, the National Association of Securities Dealers and other government bodies. With variable life, insurance companies take the risk for the face amount of the policy, any gain or loss of the portfolio portion is at the sole risk of the policy owner.

On the Plus Side:

Possible growth from the stock and bond portion.

On the Minus Side:

There may be little gain, no gain, or even a loss, depending upon the stock market and how the insurance company invests your money.

Whole Life

Premiums are level and guaranteed for the life of the contract. The insurance company cannot increase the premiums as you get older. The premiums are designed to be paid from the date of issue to age 100. (there are some exceptions to this age) Many companies will give you some options as to how the premiums are paid. These may be a single premium whole life, where only one larger payment is made at the time of issue and no additional premiums thereafter. There may also be limited pay plans, such as 10 or 20 years, with no premiums required thereafter.

On the Plus Side:

Permanent insurance for the life of the insured. Level premium means the cost will be constant. Cash value may be usable for emergencies or as a supplement to retirement. If the insured lives to age 100, the cash value is usually equal to the face amount of the insurance.

On the Minus Side:

Whole life doesn't have many disadvantages.

Riders and Waivers

Coverage attached to a life insurance contract for an extra premium. Waiver is a type of rider usually used to exclude benefits and for which no premium is charged.

Accidental Death (Double Indemnity)

Normally doubles the face amount of the insurance contract if death is due to an accident, however it may be written for other amounts, such as triple the face amount. Some contracts may specify the type of accident, while others may refer to any accident. Death usually has to occur within a specific period of time from the date of the accident.

Cost of Living

The high inflation rate of previous years worried many people with regards to the face amounts of their insurance contracts. Many thought the face amount would not be adequate to cover family expenses by the time death occurs. The cost of living rider allows for a change in the face amount of the insurance, to help eliminate this concern. However there are limits as to the amount the policy may be increased or decreased to in any year.

Guaranteed Insurability

A rider that guarantees that on specified dates in future (or at specified ages) the insured may purchase additional insurance. Other conditions may also allow extra insurance to be purchased, such as the birth or marriage of a child. Option dates are usually at ages 25, 28, 31, 34, 37 and 40. The advantage of this rider is that it provides the ability to purchase additional insurance, “regardless of the health of the insured”

Living Need

Allows the terminally ill to obtain part of the insurance proceeds prior to death. The purpose is to provide necessary funds while the insured is still alive. This rider is usually added for no extra cost, however you may have to request it. Any amounts paid, will be deducted from the face amount of the insurance policy.

Waiver of Premium

A rider that states the insurance company will waive the premium in the event of total disability. Usually there is a 6 month period of disability required. After 6 months the insurance company will pay the premium for you until age 65.

Frequently asked questions for life insurance and why are they asked?

When giving information to receive a quote on life insurance you will be asked some questions that may seem a little odd, the following will give you an idea as to why they are necessary for a life insurance company. Just click on the topic and we will offer a bit of counseling on the subject.

Aviation: This question usually asks if you are considering or have recently been flying as other than a fare paying customer to an airline. Private pilots or folks who fly frequently in small non commercial aircraft are a higher risk to insurance companies. However, some companies may still offer you a policy but at a higher cost or offer you an “aviation clause” in place of the higher premium. This clause states that the policy will not cover a death that results from your aviation activities.

Date of Birth: This gets a little weird and should be discussed with your agent. Some companies consider your age to be the age you will be at your closest birthday. (i.e. if you turned 39, 7 months ago they will call you 40) Others keep you the same age for the entire year (i.e. if your going to be 40 tomorrow you are still 39 if you take a policy today) Why is this so strange? The older you are the shorter your life expectancy, your risk of death increases. The good news is that life expectancy has gone up so in most cases the change in premium shouldn’t be all that great.

Driving Records: A lot of people question this but it makes a lot of sense. Bad drivers are at a greater risk than safe ones and this can be easily proved by highway statistics. The greater the risk you are to an insurance company the higher your rates will be. DUI (driving under the influence of alcohol or narcotics) is a no brainier. DUI drivers have a very short life expectancy.

Height and Weight: Overweight people will pay more for a policy because they are a greater risk. Ones that stay in shape and control their weight get the best rates. (There’s a moral here we think) Height is used to establish your proper body weight. Some people may be just too short for their weight. (yes that was an attempt at humor)

Hobbies: Scuba divers, sky divers, rubber band jumpers and car racers may want to read this. These hobbies are inherently dangerous, and while that’s what might make them fun, insurance companies are not that amused. So be prepared for some higher premiums or exclusions if these type of activities get your blood pumping.

Occupation: If your job contains an extreme exposure to death it will be categorized by insurance companies. So be prepared for a higher premium.

Residency and Travel Questions: Live in North America and save. Why? It’s easier for a company located in North America to write and service policies to residents of their own country. Some companies may ask if you have been a resident for three (3) years or longer. They ask this because if you have been a resident for that amount of time the odds are greater that you’ll be staying.

Why do the companies need to know if you have plans to travel out of the country or stay away for extended periods? Disease is a greater threat in third world countries and they may have viruses your system is not prepared to combat. Some locations may be at a lack of common antibiotics.

Then there is concern for the political climate of an other country especially if it has a history of being unstable. The end result is still the same, "the greater the risk the higher the cost of a policy."

Sex: Boys pay more than girls. Why? because the ladies live longer. We think to expand on this any more would result in some type of an attempt at humor, so enough said.