When I talk to people every day about the their life insurance, I’m often amazed at that people don’t realize just how many people outlive term insurance. I was working with an employer the other day and they had just installed a term life plan that would last until an employee turned 80. I think most people would think that was long enough. I’ve got a friend of mine who’s father has had congenital heart failure and numerous other health problems. He turned 80 this year. So, if I guy like that with so many health problems can outlive past 80, what do you think the chance is you will? Pretty good.

While everyone needs term life insurance, it’s important to know that chances are good that you’ll outlive it. I don’t remember exactly where I saw it but I once saw a statistic that 98% of people outlive it. I personally own term life insurance but I realize that while its a great deal and it would be the best decision I ever made if I die while I have it, the likelihood is that I will instead pay thousands of dollars for nothing.

The insurance companies really have it made because of the confusion, their agents and policyholders play right into their hands and here is how. Let’s say you have two choices of policies. The first choice is a policy that is guaranteed to pay as long as you pay your premium which is guaranteed to never go up and a modest face amount of say $75,000. The second policy is one that might pay if it doesn’t expire first.  BUT, the second policy is so much better because it pays way way more than the first let’s say $500,000. Most people will look at it and say the second because it will be cheaper and pay so much more. But because you will outlive it, it will most likely be a waste of money.

So what to do?

Here is what I suggest. Buy one whole life policy that will last your whole life that is guaranteed to pay. Buy a second term life insurance policy for as big a face amount as you can get for as long a term as you can get. Make the whole life policy equal to the value of the estimate premiums of both the whole life and the term combined. Then when you die, you’ll capture all of your premiums back instead of being left with nothing which is what most people do.

When I first started working in financial services, I never thought I’d buy annuity products. My only experience with them was the immediate annuity type. An immediate annuity begins paying you right away and usually last the rest of your life. Once I started working with an insurance company, it was then that I became familiar with a variable annuity. A variable annuity did not pay you right away. Your money was invested in subaccounts that mirrored mutual funds. These seemed great because they were tax deferred, but you did have to pay a fee for insurance inside the contract. This insurance cost pays the death benefit of at least equal to the amount you invested to begin with. Every annuity is different so you have to read the contract.

If you are considering buying an annuity, you’ll have to purchase it from an insurance company because of the built in insurance inside the contract. I was not a big believer in buying annuities for a 401k rollover. That kind of changed this year because the market was so far down. One company that a friend of mine works at offered an annuity that guaranteed your principal investment even if the market went down. He had clients that chose to annuitize their contracts because they could recover their lost principal. Talk about a deal. Needless to say, they don’t offer those contracts any more.

I think you might buy annuities if you’ve already maxed out all of your qualified accounts as far as the IRS is concerned. You might buy an annuity to protect your principal in case of your death. But the most common thing people use an annuity for is to guarantee an income stream from you principal for life.

To me the biggest down side to buying an annuity that’s variable are the surrender charges inside the contract. Some surrender charges last for a significant period of time. If you would need to cash your annuity in, or move it, you could incur a substantial fee. As far as the types of annuities I sold the most of, it was the variable type. Those contracts had nice investment options inside them that you could direct on your own. Most of the time, I was trained to rollover qualified money into them to fund IRA’s. I don’t know that I would do that today. The insurance the annuity provides though would have really helped someone had the died during the last year, because you might not have lost as much money. Check around before you buy annuity contracts as every company is different.

Hey there again. Today I wanted to talk about how people are often surprised that I recommend that they buy term life insurance. I think the reason that they are surprised is because with most issues and ideas today, there are always two sides. You are either on one side or on the other. I really don’t think that you should look at any decision with such polarity when the middle of the road makes more since.

In my case, even though I’ve enrolled thousands of people into whole life insurance policies, (and also own one myself) I also own a huge 20 year level term policy. Why? Well, if the worst happens today, my family needs a lot of money. Term insurance is the best way to provide that money in case the worst happens NOW. The thing is though, that they worst probably won’t happen and my term policy will probably never pay. In which case, I still need to pay for my burial and final expenses once it has. While I can buy burial insurance to go to the funeral home, I prefer it go direct to my beneficiary.

While I bought my policy from a friend of mine, I suggest most people just buy term life insurance online. Pick a good company and then pick the largest face amount you can afford. I think over a million is probably appropriate especially if you are younger. The fact is it takes alot of money to do anything these days. My health insurance alone is as much as my house payment. And I wouldn’t go under $200,000. It’s just to cheap if you are healthy.

You can also buy term life insurance through your employer but in most cases it goes up in price every five years and is way more expensive when you get close to retirement. You are better off getting your own policy with a locked in rate for a longer period of time. I have seen some companies over level term through their employer but not often. The thing you have to remember is that you do not own or control group term insurance. One company we work with is in danger of losing their group life contract and another one actually just opted to cancel their own. If you would happen to work for an employer that does that your insurance disappears.

Buying term life insurance is particularly important to pay off your debts but as I see it, it is more important to use it as income replacement should you die too soon. Most people only see it as a way to pay off your debts when you die and only buy that much term. I think that is a mistake. I think that you should buy way more than that to replace the income a person would have made had they lived. A lot of people I talk to, don’t want to make anyone rich when they die which is fine and therefore, don’t insure their income. This kind of thinking is really what makes families always struggle, because they want each generation start from scratch. I guarantee you that wealthy people don’t think that way. Insure as much income as you can afford to replace.

It’s not really difficult to learn how to buy term life insurance. Check online for quotes, call your insurance agent and check out the insurance companies rating. Make sure that it is rated excellent by AM Best. Why buy term life insurance? Because it’s cheap if you are healthy and the if the worst happens, your family will need it. And buy some whole life as a base amount of insurance for when it expires unused.

I’ve always thought the the term cash value life insurance was more of an old school term. What it refers to is the cash build up inside of a whole life policy. This cash reserve is the money that allows an insurance policy to remain in force for whole life. Somewhere along the line, the concept of a cash value life insurance policy became a no-no with some financial gurus because the financial return of the cash value inside the policy isn’t as good as investments outside of an insurance policy.

I don’t know where it started, but in an effort to sell more whole life insurance, agents felt like they had to sell it as an investment. Even when I first started in insurance, they had developed variable life insurance where you can invest the cash value of life insurance into separate accounts or mutual funds that can theoretically perform just as well as mutual funds outside the policy. Insurance agents produced illustrations of over funding the policies to create a tax free income. The fact is that most of these policies didn’t live up to the hype because it was being sold as something that it wasn’t. I think they even referred to it as a “personal pension” plan.

And that is the real fallacy of the life insurance industry. Creating products that let the consumer down and selling them through agents that don’t know what they are selling has been their worst enemy. Life insurance is an important tool for everyone’s financial plan, both term and whole life. What’s really needed is a life insurance policy that is completely guaranteed for life with a guaranteed value and premium structure. In this economy, when all else has failed, guarantees are what consumers need for the foundation of their security.

I am always amazed that you can present two products to a person. On the one hand, one that’s guaranteed to pay and the other that might pay and some will tell me that the one that has the least chance to pay is always the best option. The main reason they do this is because the face amount is more and the premium less. It’s an easy decision to pay less. And, it’s almost a subliminal thing as well because term pays so much more you feel like you are getting so much less with whole life.

While life insurance with cash value shouldn’t be the end all be all though, what’s needed is a little bit of both types. Some whole life and a bunch of term life is the ideal way to go. The reason I say that is that you are always going to have to pay some final expenses when you die. You’ll most likely live a long time and the term that might pay will almost always expire before you do. Financial experts that suggest you only need term because you can eventually self insure forget that most people will not ever get to that point. When all their term expires unpaid, and they haven’t saved anything, their families are then stuck paying the full cost of their final expenses. Don’t let this happen to you.

As I was working today, I got asked a common question that many people ask and that is what is the difference between term and whole life insurance? In this particular case, the gal I was talking to had a term policy with her work and also some insurance with her insurance agent. She was trying to decide on whether she should take advantage of the whole life insurance  plan offered through her employer. Based on the premium she was paying, I could tell that the policy she had through her insurance agent was a term policy as well.

It’s kind of hokey, but when I explain to people the difference between term life and whole life insurance, I tell it like this. In the beginning God created two types of life insurance, term and whole life.  In the beginning, it was perfect. Everyone knew what they were getting because everything was guaranteed. Term lasted for a certain time or time period and then expired with no cash value to the owner; and, whole life was guaranteed to last your whole life and had a guaranteed cash value. Then, man got involved but more on that in a minute.

The most common type of life insurance that people own is called group term. This is the insurance that your employer gives you for free in most cases. It’s term is while you are employed where you work. While it is good insurance the reality is that in the vast majority of cases, it will expire unused. Which is good, because it means we will live along time but on the other hand, when we really need it, the insurance company takes it away from us. This means your beneficiary will probably never collect. It’s normally not a big deal, because you never put any money into it anyway.

You can also by term life insurance on your own. I know that in my case, I purchased a 20 year level term insurance policy. The great thing about term insurance is that is cheap. I think that in my case, I pay around $49 a month for million dollar policy. But again, it’s cheap for a reason. Why? Because, I’ll most likely outlive it. Term insurance has no value to it other than the death benefit. So, when it expires you have nothing, so it is more like renting your coverage. Should you have some term insurance? Definitely, because it is so cheap and it can help eliminate debt if you die too soon.

Whole life on the other hand, when it was first created, was designed to last your whole life and pay when you die as long as the premium was paid. You get less insurance and the premium is higher, but in the end, if you die, it will pay no matter when or how old you get. If you get to the point where you don’t want the coverage anymore, after you have had it awhile, it will start having some cash value that you could use for your own purposes while you are alive by either cashing it in or borrowing against it.

That is the simple explanation of the difference between term life insurance and whole life insurance. The fact is that of these two types of insurance, you’ll hundreds of different term and whole life products and that is because man got involved and screwed with a simple concept.

You see, in the early 80′s, interest rates rose to unseen before levels and many people questioned the logic of putting money into a whole life policy where the cash value was guaranteed low rate of return like four percent for example. After all, why put money anywhere earning 4% when you can double digit returns from a certificate of deposit from your local bank. The insurance companies heard these complaints and developed a new product called universal life insurance. In it, you could earn current rates of return from short term interest rates. But there was a trade off, and that was that you were no longer guaranteed that your whole life would last your whole life. In fact, interest rates declined to lows we have never seen before and a lot of these policies lapsed an in a sense became very expensive term policies.

Recognizing that short term investments had their shortcomings, a new product was introduced called variable life insurance. Now, you had the choice of where to invest the cash value of your policy from a selection of funds similar to what you might find in a 401k at work that basically resemble mutual funds. This was great as long as the market was good. But as 2008 proved to us, there are no guarantees here either. My mom owned a VAL contract from Prudential that tripled in premium because her fund values did not perform as was expected. And this was about eight years before the market collapse. Who knows how many people lost what they thought was whole life insurance only to discover that the premium wasn’t guaranteed for life. And again, it was another expensive term insurance policy.

The difference between term and whole life insurance has dominated financial talk shows and magazines to the point that no one knows what to buy and in the end the life insurance companies make double the money. First, let’s say someone has a whole life insurance policy like God created in the beginning. This would be one that was guaranteed for life, both premiums and face amount. Eventually, someone will come along and convince them to cash it in in favor of term policy. This is an easy thing to do, because the premiums are lower and the face amounts higher. So, the insured, cashes his policy in and let’s the insurance company off the hook. In exchange, the person buys a term policy that they will most likely outlive. Again, the insurance companies win.

So what is the answer? What should you do now that you know the difference between term life and whole life insurance?

Well, here is what I suggest. Purchase a little of both. Both are good and serve their purpose. Get enough guaranteed whole life insurance policy to cover the estimated burial cost when you retire. Above and beyond that buy a huge term policy with the longest duration premium guarantee, something like 20-30 years. As long as you are healthy, rewrite your term insurance every 2-5 years to extend your term.

Don’t let the difference between term life insurance and whole life insurance confuse you into buying nothing. Buy one that is guaranteed to last and one that will pay a lot when you need the most paid.

I wanted to spend a little bit of time covering some basic terminology about group life insurance. There are three basic types of group life insurance.

• Basic Group Term Life Insurance
• Voluntary Group Term Life Insurance
• Voluntary Group Whole Life Insurance/Universal Life Insurance/Variable Life Insurance

Basic Group Term Life Insurance

Basic group term life insurance is an amount of term life insurance coverage provided on the employee’s life. If an employee dies, a death benefit is paid. Most often, it’s a flat amount of coverage like $20,000. It can also be a multiple of salary such as one or two times the employee’s annual salary. If the employee’s annual salary was $25,000, then a 2X annual salary plan would be $50,000.

Usually the cost of basic group term life insurance is paid for by the employer and employees normally qualify for coverage regardless of health. An employer can provide up to $50,000 of basic group life on an employee’s life without an employee being taxed on the premiums.

ALERT! Although basic group life can be portable or convertible, in most cases it terminates when an employee retires or terminates employment leaving employees without coverage when they leave.

Voluntary Group Term Life Insurance

Voluntary group term life insurance is an amount of term life insurance coverage that employees can purchase above and beyond the amount provided by the basic group term life plan. Additional amounts may also be purchased on spouses and dependents. If an employee, spouse or dependent dies, a death benefit is paid. For the employee, coverage works like the basic group life in that it’s normally a flat amount of coverage or a multiple of salary. On spouses and children, coverage can be a flat amount or a percentage of the amount an employee has selected. Upon initial enrollment, certain amounts may be obtained without medical questions.

The cost of voluntary group life is paid by the employee through payroll deduction. It increases in price as the employee ages usually in five year increments. It may be portable or convertible when an employee leaves employment.

ALERT! An employee is usually required to purchase voluntary group life in order to purchase spousal or dependent coverage. If an employee does not need additional insurance protection, this could eliminate some employees from participating who otherwise would.

Voluntary Group Whole Life Insurance, Universal Life Insurance or Variable Life Insurance

Voluntary group whole life, universal or variable life coverage is an amount of life insurance coverage that an employee can purchase and maintain even if they retire or terminate from an employer. Coverage can be purchased on employees, spouses, children and sometimes grandchildren. Employees can, in most cases, purchase coverage on family members even if they do not purchase coverage for themselves. If a covered person dies, a death benefit is paid. With these types of plans, these policies also build cash values that can be used while the insured or owner is living.

The cost of this type of insurance is paid for by the employee through payroll deduction. It is almost always portable at the same rate and amount of insurance if the employee leaves employment.

ALERT! Universal life and variable life insurance policies are not without risk and these types of policies may not be guaranteed for the life of the policy.