Life Insurance Why are we talking about this?

Life Insurance When should I buy?

Life Insurance What are my choices?

Clarification “Assurance”- Definite “Insurance”- Possible In the USA, insurance refers to both

Life Insurance Protection Policy  Term Life Investment Policy  Whole Life  Universal Life

Term Life Face amount (protection or death benefit), Premium to be paid (cost to the insured), and Length of coverage (term). Premium for set term  5-30 years ART (Annually Renewable Term) Level Term Life  Be careful... Mortgage Term Life  Decreases value every year/ level premium Set payout at end No cash value

Whole Life Permanent Investment Very high premium Premium contributes to cash value and total coverage Very high fees- low internal rate of return when compared to similar, safe investments High (but often times hidden) commission  As much as 1 year of premiums Important note: Life Insurance is income tax free- not estate tax free

Example Say a 40-year-old nonsmoking male has a choice between a $250,000 Met Life universal policy with a $3,000 annual premium and a same amount of renewable term coverage with a 20-year fixed premium of $350. At the end of one year, the universal policy, assuming it paid 5.7% per year, tax-deferred, would have a cash value of exactly zero (cash value is the amount you would get back if you canceled the policy). But say he had instead invested $2,650 (the difference between $3,000 and $350) in a no-load mutual fund that averaged a total return of 10% annually. At the end of the first year, he'd have $2,841, accounting for taxes on the earnings at a 28% rate. At the end of 10 years, he would have accumulated more than $46,000 in after-tax savings in the mutual fund. Over the same period, the cash value of the policy would have climbed only to $31,819. -Smartmoney.com

Whole Life Surrender Values often times don't equal premium for years

Universal Life Product generated from advice: “buy term and invest the difference”  Similar to Whole life  Investment policy  No fixed death benefit or premiums unlike whole life Interest sensitive- moves with interest rates Financial market sensitive- Variable Universal Life

Key Differences Universal life offers monthly payment flexibility, and lump sum payment options, as well as flexibility over controlling death value payout High surrender fee though While more flexible than whole life both are not good options for people with incredibly variable incomes as taking policy loans

Accidental Death Insurance Cheap Like term life Does not cover health problems, or high risk activities

Side notes Life insurance can be transferred to the beneficiary before death, to avoid estate taxes  Or put in a trust  Often times it cannot be switched back though- (ie: after divorce)  Estate tax is for over $5 million in Back to $1 million in 2013  Now does whole life make sense? Likewise- you can buy life insurance on someone else  Term life can generate incredible returns  Moral problem?

Unclaimed Life Insurance How do Life Insurance companies make money? One way: ¼ of policies are not claimed!