Key Man Life Insurance: What Is It and Who Needs It?

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Often, the difference between successful and unsuccessful businesses can come down to the determination and vision, as well as financial backing, of primary individuals within the company. These individuals become key to the success of the company, as a whole. But, what happens if that person suddenly and unexpectedly dies? A crew without a captain will sail off course, if they aren’t unified in a plan of succession.

Morbid as it may be, it is a fact of life and an unavoidable topic for businesses. Although you can never replace a “key man” you can propel their life’s work to greater heights through insured financial support and agreed-upon courses of action. Still, none of this will miraculously occur without careful planning and frank discussions with all invested parties. Let’s explore some of the FAQs of this type of insurance to see if your business is a likely candidate and what steps you can begin to take to secure your legacy.

Which Businesses Benefit From This Kind of Coverage?

By and large, small and developing businesses are the most likely candidates, as much of their revenue may be tied to their growth and expansion, whereas established businesses may have insulated themselves for the potential of a key man loss. Small business models often rely on re-investment, both financially and individually as part of their winning strategy. They are dependent on certain individuals and their contributions to make the machine operate correctly.

How Does the Coverage Work and How Much Is Needed?

Just like most insurance, a policy is acquired, the premium is paid and, if the policyholder passes, the company collects and is hopefully given a lifeline to manage the loss of their key person. Which brings us to the question of how much insurance is needed. For most businesses, the worth of a key man needs to be assessed, based on how much they add to the company, as a whole. Therefore, the more key they are, the more coverage the company should purchase. And don’t just consider what they bring to the company, but what the company would need to survive, if this person was suddenly lost. Overall business debt, investors’ returns and employee retention are some of the most common concerns and questions businesses purchasing this insurance will discuss.

What Are the Potential Drawbacks?

Overall, key man life insurance is an excellent safety net for smaller businesses, but there are some potential disadvantages to be considered. or instance, premiums aren’t tax deductible and, when a key person passes, creditors could make a claim to the premium pay out. In addition, if a key man leaves a business, their coverage can’t travel to their new business. However, there are some options becoming available to alleviate the potential of wasted premium payments. Talk to an agent today to see what your business’ options might look like.

Key man insurance is an excellent way to safeguard your small or medium-sized business from the catastrophic loss of a vital member of the business. It may be something that people avoid discussing because of the sensitive nature of the decisions, but it is much less comfortable or possible, when an actual loss occurs. Have these discussions and make rational decisions when all parties can contribute and develop a plan for the near and distant future of your company.

11 Things You Should Consider Before Purchasing Life Insurance

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For most American families, purchasing life insurance is an important financial purchase. Upon the named insured’s death, the beneficiaries will receive a death benefit that will, hopefully, ensure their financial security for years to come. With over 2,000 life insurance companies to choose from, and a myriad of policies to sift through, choosing the right coverage can prove to be a daunting task. With that in mind, we’ve put together some tips to ensure you get the best value for your money.

1) Evaluate Your Insurance Needs

Most consumers are under the impression they only need life insurance if they have dependents. The truth is, most of us stand to benefit from owning a life insurance policy. Whether you’re young and single, the primary breadwinner, or a stay-at-home mom, you should consider all the facts before making such an important decision. If you’re unsure, meet with an insurance agent. He or she can assist you in evaluating both current and future needs and provide you with the information necessary to make a decision that helps you rest easy at night.

2) Take the Time to Really Consider How Much Coverage You Need

How many individuals depend on you financially? Are you the primary source of income for your family? If you’re a stay-at-home-mom, what does the family depend upon you for from day-to-day? What does your family’s financial portfolio currently look like? How will your loved ones pay for final expenses and outstanding debts upon your death? These are all questions you should consider when determining how much coverage you need.

3) If You Have a Current Life Insurance Policy, Assess it Carefully

Do you currently have a life insurance policy through your employer? Or perhaps your parents purchased one for you when you were a child? Speak with your agent first before canceling anything. There may be an option to change your policy to fit your current needs. Or, it could have hidden coverage that adds significant value to your portfolio.

4) Term vs Permanent

There are currently two basic types of life insurance: term insurance and permanent insurance. A term policy typically offers you more coverage for a lower premium. Coverage is offered for a set time period and the policy does not build up cash value. Permanent policies come with a higher price tag, but remain in place for as long as premiums are paid. They also build up cash value, which can be borrowed against at any time. Each policy has its own set of pros and cons that should be considered carefully before purchasing.

5) Evaluate the Future of Your Policy Before Purchasing

When evaluating potential policies, ask your agent to generate a year-to-year display of values and benefits for each. How quickly does the cash value grow? Does one beat out the other over time? These comparisons will assist you in determining which policy offers the most value for your dollar.

6) Discuss Your Rider Options

Most policies offer additional coverage in the form of riders. Some offer access to your death benefit before you die, while another allows you to use the policy’s cash value to pay for long-term care expenses. When considering policy options, be sure to inquire about these riders, as many are very low in cost compared to the benefit they provide.

7) Get to Know the Companies You’re Considering

When applying for a policy, you’ll be asked several questions regarding your health. It only makes sense then, that you should do the same. Research the companies you’re considering. How financially stable are they? How long have they been in business? Hopefully your insurance policy won’t be needed for quite some time, so it’s important that you partner with a company that is in it for the long haul. A.M. Best is a great resource, as is your state insurance department.

8) Understand the Policy Before Purchasing

It’s important that you read the fine print before signing on the dotted line. Are there certain instances where death benefits can be denied? If so, what are they? Are premiums level, or do they vary from year to year? How long before cash value starts to build? What portion of the benefits or premiums isn’t guaranteed? Meet with your agent to clear up any confusion before making your final purchase.

9) Consider Your Beneficiary Carefully

Choosing a beneficiary sounds simple, right? While it’s pretty straightforward most of the time, you do want to consider it carefully, as there are instances where the wording could result in unexpected tax or legal issues. Check out our blog Tips for Choosing a Life Insurance Beneficiary for some helpful advice.

10) If You’re Turned Down for a Policy, Don’t Give Up

Don’t get discouraged if you’re turned down for a policy; there are plenty of other options out there. In fact, the Vista Life team specializes in finding a policy for consumers who’ve been turned down in the past. While there are some instances where an individual is uninsurable, this is not the norm.

11) Review Your Policy Every Few Years

Life happens and family dynamics change. If you’ve had any major changes occur, meet with your agent to discuss. This will help ensure the policy serves it’s purpose should the unexpected occur.

Tips for Choosing a Life Insurance Beneficiary

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As you probably already know, there are multiple steps to purchasing a life insurance policy. After obtaining quotes and selecting the policy and coverage that’s right for your family, you’ll be asked to answer some medical questions and possibly undergo a medical exam. During the application process, you’ll also be required to select a beneficiary for your new policy. While this is typically pretty straightforward, there are several potential financial, tax-related, and legal issues that could emerge if your beneficiaries aren’t named properly.

To avoid these potential complications, it’s important that you carefully consider who your beneficiary should be. If this is a decision you’re struggling with, the following advice should help clear up any questions.

But first, let’s start with the basics.

Beneficiary Basics

First, it’s important to know that there are two basic types of life insurance beneficiaries.

  1. Primary beneficiary: A primary beneficiary is the first person(s) to receive the death benefit should the insured die. If the primary beneficiary dies before the insured, the policy will automatically defer to the contingent beneficiary.
  2. Contingent beneficiary: Also known as the secondary beneficiary, the contingent beneficiary is eligible for the death benefit if the primary dies before the named insured.

To avoid any complications and ensure the death benefit payout process goes smoothly, it’s recommended that you select both a primary and contingent beneficiary when setting up your policy.

In addition to the two types of beneficiaries, there are two classes to consider as well.

  1. Revocable beneficiaries: With a revocable beneficiary, the policy owner has the right to modify the beneficiary designation without the preceding beneficiary’s consent.
  2. Irrevocable beneficiaries: Under this class, the policy owner cannot modify the beneficiary designation without written consent by the original beneficiary.

Due to the potential legal complications that could arise from opting for an irrevocable beneficiary, the most straightforward option is revocable.

Now that you have a better understanding of the types of beneficiaries, how do you choose? You can name any of the following:

  • People: This could be a family member, legal guardian, or even a business partner.
  • Estate: If you choose your estate as the beneficiary, the death benefit will go to the Executor of the estate. It’s important to note that your estate can only be named if you’ve drawn up a last will and testament. If this is the path you’re considering, take a moment to discuss any tax implications with your agent, financial advisor, or accountant.
    Trusts: If you have a trust already set up, naming your trust is an option.
  • Charity: Charities can be named as either the primary or contingent beneficiary.

Many policy owners have more than one beneficiary they would like named on their policy. There are two approaches you can take in this situation: per stirpes or per capita.

Per stirpes: Under this option, the death benefit would be divided equally among the named beneficiaries and/or their surviving children. For example: You designate your two daughters, Allison and Nicole, as beneficiaries of the policy. Allison dies before you, and you pass away next. Nicole would receive 50% of the proceeds and Allison’s surviving children would receive equal amounts of the remaining 50%.
Per capita: Under the per capita option, the death benefit would be equally divided amongst all the surviving beneficiaries in the lineage line. For example: Using the above scenario, assume Allison had three children and Nicole had none, when you passed away. The proceeds would be divided equally between Allison’s three children and Nicole. Each beneficiary would receive one-fourth of the insurance death benefit.

The Dos and Don’ts of Life Insurance Beneficiary Designation

The following are a few tips to keep in mind regarding your policy’s beneficiary.

  • DO consider who has the most to lose financially when naming your beneficiaries.
  • DO name both a primary and secondary beneficiary.
  • DO designate proceeds to be paid out in percentages rather than a fixed dollar amount.
  • DO make sure your will and designations aren’t conflicting.
  • DO notify anyone who has been named as a beneficiary.
  • DO consider the language of your policy to ensure your wishes are properly carried out.
  • DO review your policy every few years.
  • DO make necessary amendments to your policy when a major life event occurs. For example: marriage, divorce, birth, or death.
  • DO discuss any tax ramifications with an agent or advisor before listing your estate as the beneficiary.
  • DON’T make generalizations, such as “spouse” or “children.” Doing so could lead to complications during pay-out time and leave your grieving family to define your intentions. Be specific.
  • DON’T name a creditor as a policy beneficiary.
  • DON’T name minors unless a guardian has been designated for them.
  • DON’T complicate things. If you have a separate named insured, owner, and beneficiary, this could result in higher tax payout.

If you’re at the beneficiary consideration stage of the process, you’ve made a great deal of important financial decisions to ensure your family is protected. It would be a shame if your intentions weren’t carried out, simply because you overlooked an important detail. Or for your family to be embroiled in a legal or tax battle that could have been avoided. Discuss your options with an experienced agent before signing on the dotted line; and don’t forget to review your policy every few years.

When a Loved One Refuses to Discuss Life Insurance

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Life insurance isn’t exactly the most pleasant of topics to discuss. I’m pretty sure it’s the talking point at very few, if any, cocktail parties. In fact, broaching the subject of death would probably be considered tasteless in some social circles.

In many settings, I can understand this mindset. But, what if it’s a family member who doesn’t have life insurance and refuses to tackle the issue?

Well, the good news is – you’re not alone. According to the 2016 Insurance Barometer Study by LIMRA, more than two thirds of adults in the U.S. don’t have an advisor or agent to guide them in planning for their financial future and are unsure where to turn.

The unfortunate news, is that life insurance is a critical component to the financial planning of anyone with a family and/or dependents. Not tackling this subject head-on could leave your loved ones in serious financial trouble. At the very least, it could force your family to make some difficult decisions during an already devastating time.

If you have a spouse or loved one who refuses to discuss life insurance, it might be time to take a different approach. Here are a few pointers that might help you open up a dialogue on the subject.

Understanding Why Will Help You Lead a More Productive Conversation

When trying to tackle any difficult issue, it’s important to understand where the other person is coming from. This will provide insight into what information you should bring to the discussion and your empathy will help you determine how.

There are a number of reasons why people choose to avoid the life insurance discussion. Perhaps the biggest reason, is that it forces them to face mortality. The discussion of death isn’t exactly a light subject, so it’s something most of us tend to avoid whenever possible. It would make sense, then, that the topic of our own death would be downright unnerving.

Cost is another deterrent for discussing life insurance. While this is understandable for the family that’s barely scraping by as it is, LIMRA’s Barometer Study also reveals that 80% of Americans overestimate the price of life insurance, with Millennials overestimating by as much as 213%. Armed with the right information, many consumers are willing to give up that daily Starbucks coffee to ensure their family is financially secure. While it might be difficult to imagine fitting it into your budget, those living paycheck to paycheck have the most to lose from an unexpected, uninsured death.

Lastly, it’s common for many to feel they simply don’t need the coverage, or have enough through their policy at work. What is the death benefit for your policy through work? $10,000? $20,000? The average funeral costs between $7,000 and $10,000. That doesn’t leave much for your family to handle the major life changes they’ll be facing in the coming years. One should also consider that the average American changes jobs ten to fifteen times in their lifetime. Your employer-provided policy cannot transfer with you from job to job.

What You Can Do

Now that we understand some of the reasons why your loved one might want to avoid the subject, let’s look at a few things you can do to help them see the light.

Do Your Homework Prior to Sitting Down

There’s a lot to consider when it comes to purchasing a life insurance policy. Part of your spouse’s resistance is the fear of the unknown, and not wanting to take the time to learn. Your best bet is to take a more hands-on approach, conducting much of the research prior to sitting down. Take a moment to visit the Vista Life Plan website for information regarding the different life insurance options available and to work up some quick quotes.

Our blog also offers tips on determining how much insurance you need, and a variety of other subjects.

Show Them the Numbers

With a majority of America unaware of how much life insurance really costs, it’s important that we dispel the myth that it’s unaffordable. Term life insurance offers consumers a flexible, inexpensive option and generally carries a rider allowing for conversion to a permanent policy within a certain timeframe. Since it’s affordable and easy to understand, this is the safest option to introduce to your reluctant spouse.

Wait for the Right Time

If you already know life insurance is a touchy subject in your household, it makes sense that you would wait for the appropriate time to discuss it. Set aside some quiet time to meet with your spouse. Eliminate any other distractions and stresses and be prepared for a little resistance. Offer the facts and do your best to not sound defensive. Remember, you’re asking him/her to discuss something they’re uncomfortable with; you can’t expect them to jump onboard without any opposition.

The Growing Importance of Life Insurance for the Modern Woman

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Women have redefined their roles both in the workplace and at home. Whether working as a stay-at-home mom or outside the home as a top executive, our value has increased exponentially over the last decade. We’re running businesses, holding political positions, and homeschooling our children, all while making sure the household runs smoothly. In fact, a recent Bureau of Labor Statistics study reveal that over 40% of mothers in the U.S. are now the breadwinners of the family. Yet, despite our ever-growing responsibilities, 1 in 3 women are underinsured for life insurance. Only 52% have life insurance at all, while those that are insured have 31% less coverage than men.

It’s important for us to remember the financial responsibility we have to our families and really consider how they would be affected should something happen. Regardless of your career choice, marital status, or annual income, life insurance is critical to ensuring our family’s financial health, long-term.

Still not convinced? Let’s consider a few scenarios and how life insurance could benefit women, regardless of their personal situation.

Single Women

It’s easy to assume there’s no need for life insurance when you’re single with no children. Life is seemingly carefree and no one would be affected financially if something were to happen to you, right? Well, that’s not always the case. As we age, we face the difficulties of caring for family members who’re no longer able to care for themselves. Stop and consider what would happen to them in the event of your untimely death. Where would they go? Who would care for them? Where would the funds come from? Who will pay for your burial expenses?

Life insurance can also prove its value to single women who have incurred debt, particularly if you carry a loan with a co-signer. Typically, when you die, the executor of your estate is able to sell off your property to cover any outstanding loans, and the rest is forgiven. But if you have a co-signed loan, the entire debt transfers to the co-signer, often putting them in a difficult financial bind.

If neither of these scenarios describe your situation, you might be okay without life insurance. Keep in mind, however, that life insurance premiums are, on the average, cheaper for women, but also increase in price, as you get older.

Stay-at-Home Moms

If you’re a stay-at-home mom, you know how hard you work. Most consumers purchase life insurance to replace a family member’s income but, what about all the hours you put in, day in and day out? You’re critical to your family 24/7, providing love and support that’s almost impossible to put a price tag on. While it’s difficult to think about, it’s important to consider how your spouse would make it all work should the worst-case scenario occur. A life insurance policy could provide your partner the financial support and security needed to get through this difficult time. He or she could use those funds to take a leave of absence from work, hire a nanny, or pay for a cleaning service – whatever’s necessary to help the household get back to some semblance of normalcy.

Single Moms

Most single moms are the ones primarily responsible for their children. Life insurance offers the peace of mind of knowing your children are cared for financially, should you die prematurely. It can provide the funds needed for childcare, college, and all the others events that will occur on the path to adulthood.

Working Women

As our day-to-day expenses become increasingly higher, many families have come to depend on two incomes. How would your family be impacted should one of those salaries disappear suddenly? A life policy can help ensure your family has the financial support needed, as they adjust to this unexpected new life.

Business Owners

Women now represent more than 30% of small business owners. As an entrepreneur, you’re now responsible for the financial well-being of your staff, as well as your family. Investing in a life insurance policy is a great way to ensure payroll and other operating expenses are covered while your estate is being settled. Many business owners also use it as a tool for organizing buy-sell agreements and as benefits for valued employees.

What Can You Do Now?

If any of these situations sound familiar to you, you might want to consider a life insurance policy. Many find the process intimidating, unsure of what type of policy is the best fit or how much coverage is enough. While most quotes can be completed online nowadays, they don’t provide answers to those burning questions. Find an agent that you can trust to offer guidance and support throughout the process. The world isn’t going to crumble if you end up with the wrong policy or you forget to add that rider that would have offered additional coverage. But it’s best to be educated on your options, so you secure a policy with the best coverage, for the best price.

No one wants to fixate on the doom and gloom of life, which is why proper planning for the future is so important. It helps alleviate present day concerns by setting the ball in motion for financial security in the future. Equally, the ones left behind are able to rest a little easier during such a trying time. And, with so many more women becoming integral parts of a family’s financial structure, life insurance has become critical for both men and women. Is your family covered? Ask the right questions and start making a plan today.

6 Items to Consider About Life Insurance Over 50

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It’s a common misconception that life insurance is only necessary for young, married adults with small children. The reality is, life insurance policies can prove beneficial at any age. As our lifespan continues to grow, people are having children later in life, further increasing the need for a policy that can take you to retirement age and beyond.

Are you over 50 and considering a life insurance policy? If so, read on for some expert advice to consider as you navigate through the decision-making process.

1) Do I Really Need Life Insurance at This Age?

This is a question only you can answer. Take a moment to consider who might be affected by your death. Who relies on you financially and how far into the future will they require your assistance? If you’re currently working, how would the loss of your income affect your family if something were to happen? What assets would your spouse or children have access to and what kind of debt are you still working to pay off?

Would a death benefit be helpful in covering the following once you’re gone:

Funeral costs –The average funeral costs more than $7,000. Have you set aside a portion of your budget to cover these expenses? Losing a loved one is emotionally taxing; adding the financial stress of paying for a funeral makes the process that much more difficult.

Medical bills –If your death is a result of an illness, you could leave behind a mountain of medical bills. An insurance policy could help relieve that pressure. When comparing policies and rates, ask your agent about the acceleration of death benefit rider. This is offered as a rider on many policies today and could help alleviate the financial pressures of an illness before passing on.

Estate taxes –Life insurance policies can help cover the costs associated with settling your estate.

Funding an education or providing a legacy – Do you have a loved one you plan on helping through college? Many consumers invest in a life insurance policy to ensure their family’s plan for a higher education isn’t derailed early. Policies are also purchased to ensure a donation is made in their honor to their favorite cause or charity.

2) How Much Coverage Should I Purchase?

While there’s no way to determine exactly how much life insurance your family will need, there are a few formulas you can utilize to determine the face value of your policy. Prior to shopping for life insurance, it’s important to consider your current financial, as well as your long and short-term goals. If your primary goal is to cover funeral expenses, you’ll require a lot less protection than the individual with a grandchild’s education to pay for or a mortgage to pay off.

3) What Kind of Policy Is Best?

There are multiple types of policies available, each with their own set of pros and cons. First, you’ll need to consider the two main types of plans and how each would help in accomplishing your life insurance goals.

Term insurance – Term policies offer a guaranteed death benefit of a specified amount, valid until the end of the policy term or until you stop paying your premiums. There is no cash value associated with term policies.

Permanent insurance – This works as a sort of savings account. A portion of your paid premium goes towards the policy’s death benefit, while the rest adds cash value. There are a number of different permanent policies available, so it’s best to speak with an insurance professional or your financial adviser before making your selection.

4) What About the Medical Exam?

The underwriting process varies from policy to policy. Some policies require you to submit blood work and undergo a medical exam, while others simply require the answers to a few questions. Once you’ve determined the amount of coverage and type of policy you need, your agent should be able to provide a clearer picture as to what will be required of you.

5) How Do I Choose the Right Company?

No matter what age you decide to purchase a life insurance policy, it’s important you select a company that will be there for you long-term. When considering your options, research the ratings of each company. A.M. Best Rating Services and Moody’s both offer a financial analysis rating that can help in identifying which company is the most stable. If you use more than one rating source, pay close attention to their rating system, as they do vary from site to site.

In addition to their financial stability, conduct some research to understand the organization’s history. A company that’s been around since the 1800’s has a proven track record that far exceeds one established 20 years ago. Additionally, visit the National Association of Insurance Commissioners’ searchable database to view any complaints lodged against the insurance company. This can provide invaluable insight into how an enterprise does business and how they might treat you or your family in the future.

6) Where do I start?

While much of the information you need is available online, it’s a good idea to discuss your family’s unique situation with an agent before making any purchases. They can help ensure you purchase the right amount of life insurance, without going overboard, and that you get the most bang for your buck. Navigating through the process is generally quick and painless; the hard part is getting started.

9 Advantages of Term Insurance

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Ushering in the New Year fills us with hope and promise. It’s a time to reflect on all the great memories and lessons learned. Whether you make annual resolutions or continuously add to your list of goals, we start with a clean slate – 365 days to build the next chapter in your life’s book. For many, getting more financially fit is part of their goals moving forward. Investing in term life insurance is a wonderful and affordable way to ensure financial security for you and your family for years to come.

Navigating the ins and outs of life insurance options can be disconcerting, which can cause many to “save it for another day.” If you’re considering your first life insurance policy, there are a number of things to consider. Before making your final decision, we recommend speaking with a knowledgeable professional about your unique needs.

Term life insurance offers many advantages over permanent life products.

More Coverage for Less Money

Term life insurance policies allow for the largest death benefit at the lowest price, particularly in your youth. Some premiums increase at each renewal, however, so be sure to review the policy’s illustration with your agent before making a commitment.

Flexibility

The great thing about term life insurance is that it comes with many options. Coverage is offered for as little as one year, or as many as thirty years.

Simplicity

Unlike permanent insurance, term life is easy to understand. Because it’s simple in nature, shopping for quotes is both quick and easy, as is the decision-making process. You have just three decisions to make – length of term, coverage amount needed, and favored insurance company.

Added Riders for Broader Coverage

None of us can predict the future, making it that much more difficult to commit to a life insurance policy long-term. Insurance providers understand this and offer a number of riders to accommodate your evolving needs. If you’re unfamiliar with these riders, our blog Hidden Value: 8 Term Life Insurance Riders You Should Consider offers details on term insurance riders and their advantages.

Not Part of Probate

Unless the estate is named as the beneficiary of the estate, life insurance death benefits are not included as part of the probate estate. Thus, beneficiaries are paid without any of the typical delays cause by administration of the estate.

Often Exempt from Taxes

Term life death benefits are typically exempt from federal income taxes, as well as from state inheritance taxes.

Meets Short-Term Life Insurance Needs

If you’re looking to fulfill temporary life insurance needs, term life insurance is typically your best option. This is particularly true for consumers under forty-five and for terms of less than ten years. If term of protection needed is between ten and fifteen years, or if you’re older than forty-five, it’s best to meet with an insurance professional to discuss your options.

Convertible

We all know how difficult it is to make a decision now that can affect you for years to come. Most term policies have an option to convert to permanent insurance at a later date. This allows policyholders to have the best of both worlds – higher death protection during the younger years and locked-in premiums later in life, as they build up cash value.

Affordable for Those Just Embarking on Their Careers

Many young professionals realize the value of purchasing life insurance, yet don’t have the funds to commit to permanent policies. Because term insurance doesn’t build cash value, insurance carriers are able to offer higher coverage at a fraction of the cost of a permanent policy. This affords young families the peace of mind of knowing their loved ones are cared for should something happen, without breaking the budget.

While our life insurance needs vary, depending upon each unique situation, term insurance is a viable option for many. Vista Life Plan’s term life insurance tool can help you easily compare rates.

5 Reasons to Convert Your Term Life Insurance Policy

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Despite their advantages, many consumers forgo permanent life insurance policies for term life, instead. Term policies are often viewed as an affordable option for satisfying an immediate need for coverage. Some financial advisors even recommend purchasing term policies and investing any additional monies in the stock market for higher overall gains.

Most term policies come with a Term Conversion Rider, which allows the policyholder to convert their term policy to a permanent policy, should their family’s needs change. If you’re in the market for a policy, be sure to discuss this option with your agent.

Already have a term policy in place? Read on to find out the top reasons why you might benefit from converting your term policy to a whole life product.

1) Your Family Could be Deeply Impacted Financially Following Your Loss

Anyone who’s faced the financial challenges that come with caring for a terminally ill or developmentally challenged family member understands its far-reaching effects. While it comes with a higher price tag, a whole life policy offers additional financial security through accumulated cash value. This can be borrowed upon at any time, adding another layer to peace of mind.

2) You’ll Likely Outlive Your Term Insurance

Term insurance has the advantage of being the most affordable option. But affordability comes with a price – you could pay years of premium, only to outlive the policy term. In fact, only about 2% of term life policies actually pay out. Once the term has expired, you lose all invested premiums, unless the policy is converted. While your family was protected in the event of your death throughout the term, you’ve made an investment that resulted in zero gains.

3) Restructuring of Your Estate

Unlike term policies, whole life insurance policies are a more effective strategy for estate-planning. Not only will they carry more security and value, they’re an effective way to ensure your family doesn’t suffer a devastating blow from incurred estate taxes.

4) Restructuring of Retirement Income

If retirement is no longer in your too distant future, you might want to consider converting your term life policy. The principal of a whole life policy is tax exempt, making it the ideal savings tool. These tax-sheltered policies can help ensure a consistent retirement income, so you can fully enjoy the fruits of your labor.

5) Financial Priorities Change

If you purchased your term policy 15 years ago, you were likely in a different position, both financially and health-wise. It was difficult to anticipate what might happen next week, much less 10 years down the road. If you feel a continuation of coverage might be necessary once the term expires, conversion could be your most affordable option. A new policy means another application and medical exam. Depending upon the outcome, this could result in higher premiums or, depending upon any health setbacks you’ve experienced, a declination in coverage. Fortunately, policy conversion allows you exemption from that medical exam.

Assuming your term policy has the necessary riders, you can convert some or all of your term life insurance policy anytime before the conversion expiration date. If you’re positive this is the avenue you wish to take, the earlier the better, as permanent policy premiums increase with age. It’s a good idea to review your life insurance policy with your insurance agent annually to ensure it still fits your family’s needs. After all, what’s the point in making such an investment if your family will still be left financially exposed?

How Much Life Insurance Coverage Should I Purchase?

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Purchasing life insurance is something many of us try to avoid. Some steer clear of the subject, assuming it’s too expensive to fit into their budget. Others just don’t want to disrupt their day with such morbid thoughts. Particularly when it comes to placing a value on their own life.

While it feels morbid, investing in life insurance has a multitude of advantages. The most important being the peace of mind of knowing your family is protected in the event of your death. But, how can you possibly place value on a human life? The reality is, every life is important and no amount of money can replace a human life. There are, however, a number of tips you can apply when determining the face value of your life insurance policy.

Realizing Your Human Life Value

The primary goal of your insurance policy is to provide for your family when you’re no longer there to do so. There are a number of factors included in the human life value equation, including occupation, age, income, number of children, and employer benefits. Let’s take a closer look at these components.

Income

It’s been a long-standing rule to multiply your income times ten when determining your life value. While this might be a great place to start, your age should be factored into this equation.

For example, a 72 year old will likely need less than a 40 year old. The 72 year old typically has less expenses, is nearing the end of his/her career, and has children grown and out of the household. They could probably get by with 4-10 times their annual income. Whereas the 40 year old has a number of years left in their career, has younger children at home, and still has many years left on their mortgage. When determining policy amount, this individual should consider 14-20 times their annual income.

It’s also important to remember that both spouses add value to the household. Many consumers feel they can get by with skipping an insurance policy for the homemaker. But think about all the your spouse does each day to ensure the house runs smoothly. Who will provide those services when they’re gone? Consider each of these services and how much it would cost to hire someone to perform them on an annual basis. You’d be surprised at how quickly the expenses add up.

The DIME Formula: A More Detailed Approach

The DIME formula prompts you to consider all the details of your financial situation. It stands for debt, income, mortgage and education.

  • Debt and final expenses: Conduct research regarding the current cost of funeral expenses. Add that to your total debt, with the exception of your mortgage.
  • Income: How many years would your family need financial support if you were to die unexpectedly? Multiply your annual income by that number.
  • Mortgage: What is the current balance on your mortgage?
  • Education: How many children do you have? What would be the total cost of a college education for each child?

While the DIME formula is more comprehensive than the first two life value options, it doesn’t take into consideration any savings, assets, or the unpaid contributions of a spouse that stays at home. If you’re looking for a more precise number, consider the following formula.

  1. Annual salary (times the number of years you’ll need to replace) + mortgage balance + other unpaid debt + funeral expenses + college education for children + cost of replacement services for stay-at-home spouse
  2. Total from #1 – savings – existing college fund accounts – additional assets – current life insurance

Determining the amount of life insurance necessary to support your family is a task no one finds pleasant. There’s no way of knowing exactly how much insurance would support your family properly. If you come up with a number and it’s lower than what you expected, go with the larger amount. Term life insurance policies are very affordable; adding a bit more to the policy’s face value will save you peace of mind, while barely making a dent in your budget.

Still not sure how much coverage is enough? Stay tuned – our next ebook will go into more depth regarding the amount and type of coverage that’s best for you and your family.

Young, Single, and Childless? Why You Still Need Life Insurance

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So, you’re officially embarking on the next chapter of your life. You’re fresh out of college, just started a new job, and are on the hunt for your first home. Congratulations, you’ve officially entered adulthood. Your twenties are a special time and you should enjoy every moment to its fullest. But, that doesn’t mean you shouldn’t make some “adult decisions” during this period. And purchasing life insurance should be one of those decisions.

Traditionally, people don’t start thinking about life insurance until they get married or welcome a baby into the world. What could you possibly need life insurance for before that? Who would you be protecting before that? Well, there are still a number of great reasons to consider purchasing life insurance above and beyond what your employer offers. Let’s look at a few reasons why your twenties or early thirties is a smart time to purchase.

Younger = Lower Premiums

The insurance company’s revenue is determined by the amount of premiums collected, minus the death benefits paid out for that specific risk group. Another words, every year that the insureds don’t die, their revenue goes up. The life insurance underwriter’s job is to identify the likelihood of an early payout for each applicant and the premium is adjusted accordingly. The risk of them paying out when you’re young is significantly lower. As a rule, that decreased risk is transferred to you through lower premiums.

Good Health = Lower Premiums

The other primary factor in determining your premium is your health. While it’s possible for any one of us to die at any time, you’re statistically less likely to meet an early death if you’re young and healthy. As each birthday passes, the risk of you developing a health condition rises. Once you reach your 30s, the chance of you developing a chronic condition like heart disease or high cholesterol rises considerably. So, for most consumers, the ideal time to purchase life insurance is in your twenties. Your health, coupled with your age, equates to the best possible premium.

Insurability Later in Life

A permanent life policy is recommended over a term policy, as this is a great opportunity to build a little nest egg through the cash value on your policy. Depending upon your financial situation, however, this might not be an affordable option for you. If you decide a term policy is best for your budget, don’t fret; you’re setting yourself up for a later date.

Most term life insurance policies include a term conversion rider standard on every policy. This rider allows you to convert your term policy into a permanent life policy without submitting to another medical exam. While your converted policy premium will reflect your age and overall health, this rider comes in handy for people who have developed medical conditions since the original policy’s inception. It makes the entire process smoother and more affordable.

While this rider comes standard on most policies, some companies require the benefit to be requested on the application. Be sure to check with your agent to ensure you don’t miss out on this valuable opportunity.

Living Benefits

Most people equate life insurance to death. And rightfully so. That is it’s intended purpose, right? While this is true, many people use their life insurance for living benefits as well.

Your whole life policy has the added benefit of accumulating cash value. This builds slowly at first, as there are policy set-up fees that must be paid down at its initially. But as time goes on, you’ll start to see the cash value really grow. This is your money that can be borrowed against at any time, for any reason. Many insureds use this money to help pay off student loans, offset the costs of their wedding, or even supplement their income when they get to retirement age.

When purchasing your policy, be sure to speak with your life insurance agent about the Acceleration of Death Benefit Rider. Should you become terminally ill, this rider allows you to collect on your death benefit early. This can help ease the pain of paying for medical bills or provide you with the funds to check some things off your bucket list before your death. It’s a living benefit none of us envision ourselves ever needing, but are grateful for if and when the time comes.

Your twenties are a time to celebrate. You’re officially out on your own, enjoying the wonderful gifts that life has to offer. It’s also a time to start considering financial priorities and setting yourself up for long-term success. The best time to purchase life insurance is when you’re young and healthy. If you invest in your future now, it’s one less thing you have to think about later, when you’re celebrating the growth of your family or a new home purchase. So don’t delay; speak with an insurance professional about your options today.