The Ultimate Life Insurance Guide

Everything You Need To Know To Better Understand Life Insurance

Whether you want to find out about Term Life, Whole Life, Universal Life , Indexed Universal Life ; or if you are in need to Life Insurance for Business Matters like Key-Man Life or to fund a Buy-Sell Agreement; or simply obtain a Quote, you’ve come to the right place.

What Is Life Insurance?

Life Insurance is one of the most important Insurance Policies a person (or business) can purchase.

Statistics confirm that 100% of the people in the world will die at some point in time!

When you will die is the unknown!

This Insurance was designed to offset the financial burden created due to your premature death!

What Are The Different Types Of Life Insurance?

Experts agree that Life Insurance is something that people should have.

The real difference comes when you ask about what type of Insurance Policy to purchase.  Some people think that a person should never purchase “Permanent” Policy (to be explained later) and that you should purchase a Term Policy and invest the difference.

Other experts believe that you should purchase as much Permanent Insurance as you can afford.

At ALLCHOICE, we believe in two truths!

  1. The best Life Insurance Policy (Term, Universal Life, Whole Life) is the one that is in force at the time of your death
  2. There is no one best Life Insurance Policy for every person and situation.

Let’s take a look at the different types of Life Insurance Policie that exist

What Is Term Life

Term Insurance is probably the most frequently purchased type of Life Policy.

Term Insurance, for the lack of better analogy, is like renting a house.

When you purchase the policy, the contract states the guaranteed term of the contract (example 10, 15, 20, or 30 Years).

The contract also states the amount of premium you will pay over the course of that specified time.

Most Term Life Policies sold today hold the premiums level for the entire term of the contract, however, there are Annual Renewable Term (ART) Life Policies which will increase in premium each year.

Why Buy Term Life

Simply stated Term Life Policies are the least expensive Life Policies you can buy.  In essence, you get more bang for your buck.

Why To NOT Buy Term Life

As a person grows older, the actual cost of insurance increases.  So, if you do purchase Term Life when you are young, as you near the end of your Term Policy you will be forced to purchase another Life Policy at a much higher cost.

In addition, should you have a change in health, you might not even be able to qualify for another Life Policy.

What Is Whole Life

If Term Life  is the equivalent of Renting, Whole Life is actually purchasing the house!  With Whole Life  you enter into a contract with the insurance carrier that states you will pay a specified premium until you die and in return the insurance carrier will pay a Death Benefit to your beneficiary.  Whole Life Insurance also offers the Tax Deferred Build Up of Cash Values within the contract.  These cash values can be taken out of the contract completely should you decide you no longer need the life insurance, or they can be taken as loans against the policy should the need arise then repaid when you have extra capital.

Why Buy Whole Life

Whole Life Insurance is guaranteed to be there at the time of your death as long as you pay your premium.  Whole Life Premiums are also set, so you will not face the situation where you are required to pay higher premiums as you get older.  In addition to the guarantees of Whole Life Insurance, you will also have access to the cash value build up should you need those funds.

Why To NOT Buy Whole Life

Money$$!  Whole Life Insurance premiums are much higher than the Term Life Insurance premiums.  If you have a young family, your main concern might be obtaining the most insurance coverage that you can afford.  The facts are that while Life Insurance Premiums are cheaper today than they will be when you older, you family needs the maximum amount of coverage you can afford today!

What Is Universal Life (UL)

Universal Life Insurance is a hybrid between Term Life Insurance and Whole Life Insurance.  With Universal Life Insurance the person purchasing the policy has flexibility with regard to how much premium he/she will pay from year to year.  The Universal Life Insurance contract states the minimum amount of premium a person can pay to achieve a certain amount of coverage for a certain amount of time.  The Universal Life Insurance contract also states a maximum amount of premium a person can pay for a certain amount of coverage.  Depending on the amount of premium you decide to contribute into the policy will determine whether the policy acts more like a Term Life Insurance Policy or more life a Whole Life Insurance Policy.

Why Buy Universal Life

Flexibility is the main reason most people purchase Universal Life Insurance.  For a young person who understands the value of Permanent Life Insurance but can not afford to purchase a Whole Life Insurance Policy might purchase a Universal Life Insurance Policy and pay premiums closer to the minimum required premiums then increase his premium outlay as he gets older and is hopefully earning more money.

Why To NOT Buy Universal Life

Universal Life Insurance Policies are probably the most misunderstood Life Insurance Policies available.  The reason is not that policies are bad, but those who sell these policies do not properly educate their clients about how the policies work.  The same Flexibility that is the main selling point of the Universal Life Insurance Policy also becomes the biggest detractor.  many people will purchase a Universal Life Insurance Policy and contribute as close to the minimum required amount of premium with the intention of increasing the premium payments “next year” when he/she has more money.  The problem is that “next year” turns into “next year” and so on until the policy lapses due to there not being enough money in the policy to sustain the coverage

Who Should Purchase A Life Insurance Policy?

The fact is that every member of your family (husband, wife, children) should have some Life Insurance Coverage in force.  Whether both parents contribute a “paycheck” or if only one does, both parents have a “financial worth” to the family.  The real question you may be asking is “Why do my children need life insurance?”  Let’s look at each member individually.

Whether there is only one bread winner in the family or two, the loss of income from either or both could leave the remaining family members in financial peril!  This situation, of course, is the easiest case to make for purchasing life insurance.

Many times, when there is only one “bread-winner” in the household, the spouse that “works” at home is overlooked from a financial worth perspective.  The fact is, if the stay at home parent were to prematurely pass, the remaining spouse would suffer a financial loss.  Think about the increased cost of putting children in day care or hiring a nanny to start with.  While there is no hard rule as to how to determine the financial worth of the stay at home parent, many publications state that you should act as if that spouse contributed anywhere between $35,000 to $50,000 per year.  At ALLCHOICE, we recommend our clients purchase an equal amount of Life Insurance Coverage on both parents if that is financially possible.

This may be the toughest thing an Insurance Agent ever does.  Most parents do not like to think about the premature death of a child, however, just because something is not easy to think about does not mean it should be ignored.  As someone who has lost a family member that was still a child, I know first hand how difficult a tragedy like this could be.  Imagine losing your child, do you believe that you would just be able to resume your life as if nothing happened.  Would you be able to return to your job the next day?  The fact is, there are many families that have literally had to declare for Bankruptcy due to the death of a child.

Can A Business Buy Life Insurance?

Life Insurance is not just to protect individuals and families from the premature loss of one its members.  The fact is that a business relies on certain members of their own just like a family does.

What would happen to your business if the top salesperson passed away, would the company lose income from the loss of sales?

Business owners will also use Life Insurance as a means to fund buy-sell agreements and guarantee corporate debts.

The majority of businesses in the United States are classified as “small business”.  Most small businesses share similar qualities.  Small businesses were established and are operated by the same person that is responsible for the producing the majority of the company’s income.  If this person were to prematurely pass, chances are that the business would face either an extreme financial hardship or face closing the doors completely.  A properly structured Key-Man Life Insurance Policy could help the business offset the temporary loss of income and/or have the funds available to hire a worthy replacement.

Banks and Lending Institutions have from time to time required small business owners to purchase life insurance as a requirement of lending money.  However, until recently, this was not a common practice.  The recent economic turmoil and resulting lack of credit within the Banking Industry has increased the frequency with which banks have required such requirements.  In essence, if Mr. Business Owner goes to the bank to obtain a loan for a building expansion in the amount of $300,000, the bank in addition to making sure the business and Mr. Business Owner are worthy of such a loan will require that Mr. Business Owner purchase a Life Insurance Policy in the amount of $300,000 with the Bank as the beneficiary of the policy.

Unlike large Publicly Traded Companies, small business owners face challenges with regard to the liquidity of the business.  For most small business owners, the single largest asset that they own is the small business.  Additionally, the family members of the small business owner are deciding not to follow in the small business owners business.  Assuming that the small business owner has planned adequately and has already agreed to sell his/her business to another party (most often a current employee of the business) for certain amount of money, chances are that party does not have the financial capability to pay the small business owner’s heir the purchase price in a lump sum.  Therefore, the heirs and the new business owner are faced with a few options.  First, the new business owner could obtain a loan for the purchase of the business.  Second, the heirs could agree to accept the purchase price in installments, but retain control of the company until the debt is finished.  Both of those options, while do-able, present many challenges and problems to both the new owner and the heirs of the old owner.  The better alternative is for the Proposed Owner to have purchased a Life Insurance Policy own the Business Owner (before his death).  This Life Insurance Policy would make the funds available for a clean buy and sell of the business at the time of the business owner’s death.

How Much Life Insurance No I Need?

Most people I have no idea how to value their own lives.

There are rules and myths that people will follow when trying to determine how much Life Insurance Coverage to purchase.  There are “rules of thumb” that state you should purchase an amount of Insurance equal to a multiple of your income (example 10 times your annual income).

While this may be sufficient for some people, this method of calculation does not take into account many variables that could be significant.

ALLCHOICE prefers to perform a detailed “Needs Analysis”.  The “Needs Analysis” will take into consideration variables like paying for final expenses, paying off debts, providing a college fund for your children, and income replacement.  Please contact an ALLCHOICE Advisor to have Detailed Needs Analysis Performed.

How Much Does Life Insurance Cost?

In today’s fast paced, purchase online environment…you will see television ads and/or internet advertisements telling you that a person this age could get this much coverage for this amount of money.

Here’s the secret…those ads and premium quotes assume the person will qualify for the very best rating class.  The fact is that most companies set their very best rates to be obtainable by about 2-5% of the population.

Translation: Unless you are a marathon runner, you probably will not get the rate you are quoted.

How Rates Calculated?

  • Amount Of Coverage
  • Age
  • Height & Weight
  • Medical History
  • Criminal History
  • Driving Record
  • CREDIT RATING (this is relatively new)