Category Archives: Life Insurance

Is Whole and Universal Life Insurance a Rip-Off?

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The following is a response to an article on DavidRamsey.com titled “The Truth About Life Insurance”. The original article can be found here.
For those who are not familiar with David Ramsey, he is a very financially savvy figure who gives some fantastic advice on common financial sense, and has helped thousands of people get out of debt. This provides them a solid basis to start down the path toward financial stability and peace. However, there is one particular area where we must disagree with Dave, and that is on the subject of life insurance. Dave teaches to “Buy Term and Invest the Difference” citing rates of return and badly built permanent life insurance policies to assert that people who buy these policies get, “…ripped off for years…”.

Dave advises to invest in mutual funds, as they get a higher rate of return. Let me explain how they calculate “average rate of return” in a mutual fund. Dave’s example of a 12% average rate of return is more reasonable, but let’s assume there’s a mutual find out there that averages 25%! Wouldn’t that be great! Here’s how a stock brokerage arrives at that number.

Let’s say we start with $100,000 in our mutual fund and the market has a GREAT year and our fund rises 100%.

Now we have $200,000 but the market has a bad year and falls 50% – we are back at 100,000.

Another great year, and our $100,000 goes up 100% again.

We are back to $200,000 but then another bad year hits and our mutual fund goes down 50% leaving us with $100,000 again.

(100 – 50) + (100 – 50) = 100 divided by 4 (years) = 25% average rate of return.

You have gotten a 25% average rate of return on your $100,000 and still have not earned a dime. It is truthful but misleading, and this is how a mutual fund calculates an “average rate of return”. This DOES NOT take into account taxes in any form, adding further exposure. Does that sound fair?

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In a whole life insurance policy that pays 6% yearly compounding on $100,000 in cash value over 4 years will leave you with $136,048.89…and this is not taking into account any policy dividends that would add to the policy’s cash value, any paid-up additions, or any contributions. Granted, dividends are not guaranteed in any given year, but there are life insurance companies who currently have 80+ years of continuous dividend payments, so there is a safe assumption that dividends will continue to be paid in many cases. The reason it works this way is that compounding interest cannot fall to a negative, and the value of each unit of that policy can never decrease like a stock share. A mutual fund can fall at the drop of a hat.

We are not advocating against term life insurance! In fact, term life is a great low-cost product and serves many different uses! However, the advice to “buy term and invest the difference 100% of the time” is logically and mathematically flawed. I hope I’ve made that very clear. If you’d like a free term life insurance quote or whole life insurance quote, contact us and we will educate you on the REAL “Truth About Life Insurance”.

Florida Term Life Insurance – Making It Work For You

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Term life insurance in Florida and nationwide has one inherent flaw – it expires. In every life insurance quote there is a minimum that the company can charge for any given amount of death benefit. This is called “term life insurance” because is has a given period of time or “term” that the policy is good for, which is expressed in numbers of years. The most common term options are anywhere from ten to thirty years in duration, but after that time has expired, the life insurance policy contract has been fulfilled. If the insured is still alive, the policy expires. For some this isn’t a problem, they can just go out and get a new term policy, but for others this is an impossibility.

The problem lies in the applicant’s insurability. Can someone’s health change over a ten or twenty year period? Absolutely! In fact, it can change instantly and unexpectedly. Tragically, our lives can change in the blink of an eye. A doctor’s visit with a diagnosis that you did not expect, or a split second on a busy highway – that’s all it takes! Do you know someone who has had a life changing accident or sudden illness? If someone has a term life insurance policy, and in the course of that term contract has a life changing illness or injury, it can affect their ability to obtain a new contract after the term expires. In fact in many cases, they will not be able to obtain insurance at all. The life insurance carrier will see them as a bad risk and will decline coverage.

Whole life insurance by default lasts the entire life of the insured, but is more expensive. The challenge becomes, “How do I avoid paying an arm and a leg, but keep my insurance through my whole life?” Term life insurance is much less expensive than whole life insurance, but it runs out. What you might not know, is that there are MANY different kinds of conversion options and policies available. Here is what to look for to make sure you’re not left without life insurance coverage in Florida – if someone takes out a term life insurance policy, for a few extra dollars they can get what’s called a “conversion privilege”. What this means is that anytime during that term contract, the insured can change or “convert” that policy into a permanent or “whole life insurance” policy without having to provide further proof of insurability. This, of course, requires a certain kind of term life insurance, but an experienced agent I’ll know how to build it. Furthermore, if you do convert to whole life, keep in mind that there are numerous kinds of whole life insurance, and you want to convert into a policy that serves the purpose of SOLVING YOUR PROBLEM – and that is keeping your same life insurance coverage for your whole life. Some policies get this done very well, others are more focused on cash buildup and cash value. Keep in mind that there is a difference and make sure your life insurance agent explains it fully to you.

The point we are driving home is this: If done right, a term life insurance policy can be converted to a permanent life insurance policy or “whole life insurance” regardless of how your health has changed over the years. This is such an important concept. As a consumer, this can save you thousands of dollars and lots of headache over the years. Do yourself a favor and ask the questions. Need prices? Get a free term life insurance quote today.

Florida Health & Life Insurance Coverage – Efficiency In Insurance

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When it comes to Florida health insurance coverage and life insurance, there’s a word that should come to mind. A word often overlooked in the insurance world, mainly because most consumers do not have the knowledge of what to look for.

“Efficiency”

What does it mean to have efficiency in your insurance coverage? The definition I’d like to use for this article is, “Making every premium dollar go as far as possible, without being over insured.” The concept of efficient insurance coverage is foreign to most consumers because nobody really makes people stop and think about it. People don’t randomly ask themselves, “I wonder… am I getting the most out of my insurance premiums?”. What does it take to determine if you’re investing in your protection efficiently? We’ll start with health insurance and then move on to life insurance.

Efficiency in health insurance has a lot to do with cost and risk sharing, which makes sense considering that’s all that insurance really is – the sharing of risk with an outside entity for a premium. What you’re about to read might shock you. One seemingly helpful benefit in health insurance may very well be causing more harm than good, and when you see what I’m talking about, you’re probably immediately going to disagree. I’m talking about a “Doctor visit Co-Pay” benefit. The concept of a Co-Pay seems to make a lot of sense. Instead of paying the whole bill for a doctor visit, you pay a flat pre-set amount instead, and the insurance company pays for the rest. Sounds good right? In many cases co-pays can be a very good thing. Families with a lot of children, and people with ongoing medical conditions have a GREAT need for co-pays… but that doesn’t apply to everyone.

Consider the following two facts: 1) Co-Pays do NOT apply toward a health insurance deductible or out-of-pocket maximum in most cases and 2) Having Co-Pays on a plan costs money. If health insurance coverage has Co-Pays included in the price of the premium but never get used, it’s not an efficient use of premium dollars. On the same token, if Co-Pays are used heavily but do not apply toward a deductible, the out-of-pocket exposure is still higher which costs the insured more money. Again, not an efficient use of premium dollars for many.

Having efficiency in a life insurance policy is far more complex, and we suggest reading our previous blog post about term life insurance to somewhat familiarize yourself. Since life insurance has widely varying degrees of coverage, options, and flexibility, we won’t go into every small detail today but instead cover some of the basics. Life insurance can be the best or worst investment you will ever make in yourself. Think about it, in a health insurance plan there are certain perks and up-front benefits that you have access to just from owning a plan. In life insurance, there’s a possibility that you will pay thousands of dollars over the course of the policy and never get any kind of return on your investment if you outlive the policy’s term. This is known as term life insurance. On the other hand, life insurance such as Universal Life Insurance and Whole Life Insurance provide a vehicle to accumulate cash value over time at either the current interest rates, or through dividends. Would you rather pay for life insurance that you know you’ll be paid back on, or would you rather pay for life insurance that you may get zero return from? This is essentially the difference between term and permanent life insurance. Granted, there are policy riders and benefits that can help fill in the gaps between term and permanent life insurance, but that’s a conversation you need to have with your insurance broker. No two families have identical needs and situations, and there are enough options and flexibility out there to fit any situation.

Finding the efficiency in health insurance coverage and life insurance is not something you’re supposed to know how to do on your own, and there are MANY things that we did not discuss in today’s blog post. That’s why we make ourselves available as insurance professionals to guide and make sure you’re doing the right thing for you and your family. You may be leaving a lot of money on the table. For more helpful information, feel free to contact a broker to learn more about your options so you can make the most efficient decisions possible in your insurance coverage.

Term Life Insurance – “Fast Food” Insurance?

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We have all seen the ads on TV for cheap term life insurance. Companies want to show you their lowest and best rates and compete for your business…but is it really that simple? Life insurance is an investment that requires a lot of consideration and thought – it’s not an impulse buy off of the home shopping channel. Getting the wrong kind of life insurance is just as bad as throwing your money away. Actually, it’s more like eating a tasty, albeit unhealthy, fast food meal.

The cheapest term life insurance like they show us on TV is almost never the ideal plan for someone. It’s just a price tag. It’s like advertising for fast food. Think about the most inexpensive fast food item you can. Is that item really what you should be buying and eating? Sure it may taste good and it might have a low price, but is that really the best thing for your well being in the long term? Life insurance is exactly the same. You can buy the least expensive, most appealing looking life insurance policy, but are you really getting something that’s going to have the strength, flexibility, and guarantees that you need? What if you become disabled and can’t pay for it anymore? What if you become chronically ill with a condition that will not kill you, and are going through financial hardship just to pay your medical bills? Does your life insurance policy help with that? If you are relying on “Fast Food” life insurance, the answer is probably “No!”.

In reality, TV advertised life insurance is usually advertised at the highest, most healthy “super preferred” rate class. If you read the fine print, you’ll also see that 99 times out of 100 those same ads are advertising a price for a 30-year old male non smoker, with the assumption that they are in the peak of health with no issues whatsoever. You’ll also notice that the insurance is usually a 10-year term life insurance policy, sometimes with an unknown insurance carrier, that has no benefit riders, no conversion options, and no guarantees. Only around 2-3% of term life policies actually pay out, and it is statistically proven that it’s far more likely for an individual to become disabled prior to 65, as opposed to death.

So now, you might be asking yourself, “Is all low cost life insurance bad?” Fortunately, there are affordable life insurance options that pay for more than just the insured’s death, and provide for living benefits and flexibility as well. In fact, many of the gaps can be filled with term life insurance without having to pay for the more expensive permanent kinds of life insurance such as whole life and universal life. Surprisingly though, whole life and universal life can still be affordable if they are built correctly.

What should you do to make sure you are getting the right kind of coverage?

Ask these very important questions when you talk to a broker to inquire about life insurance for your family.

1) What is the plan’s expiration date?
2) Does the plan have a disability benefit?
3) What happens if I want to make changes?
4) What company is the plan written through? (you want to make sure the carrier is rated “A” or higher by A.M. Best)
5) Will the monthly payment ever increase?

Most people really have no idea what life insurance can really do for them. There is a plan for everyone out there, but one size does not fit all. Take your time. Ask questions. Get educated about your options and don’t make any hasty decisions. Having coverage for your family or business is important, but do not rush into it or you may be stuck with “Fast Food” life insurance that simply does not get the job done. Now that you’re more educated about life insurance in general, go back over any current coverage that you have and read over your policy. What do you see? If you’re not sure about what you have, or are starting to question if your plan was really the right decision, we may be able to help you. Consultations are free, but we can’t help unless you call.