10 Commandments of Life Insurance
The following five tips is a continuation from last week’s column of the 10 most important considerations when buying and reviewing life insurance. The goal is to help you avoid costly and easily avoidable land mines.
However, at the risk of over-simplifying, these guidelines will be useful to all life insurance buyers, regardless of the amount or type of coverage you are buying.
6. Living Benefits. Are you a beneficiary of your own life insurance policy?
A frequent complaint about life insurance is its lack of living benefits for the insured or policy owner. That is not the case today with more policies allowing you to draw against the face value in the event of a critical, chronic or terminal health event. A heart attack, bypass surgery or a severe stroke can all create financial havoc. Longer term health problems such as MS, Parkinson’s and Alzheimer’s also create financial difficulty for your family.
For example, if you purchase a $2,000,000 policy with these living benefit riders, you will be able to draw up to a maximum of $1.5 million, depending on which type of health event you experience. For no additional premium, why continue to own a policy that offers nothing at a time you may need additional resources most?
7. Term Conversions.
Talk about avoiding land mines: It is IMPERATIVE to know the conversion deadline if you own a term policy or plan to buy term insurance. Most people underestimate, at the time of purchase, how long they need coverage. The conversion option within a term policy allows you to convert the policy to permanent coverage, without new medical evidence. Once this deadline passes, you will need to provide brand new medical evidence if you wish to keep the coverage after the term period. Staying aware of the conversion deadline is one more reason to regularly review your inforce coverage – See commandment #1.
Fail to remember the conversion deadline and you will face skyrocketing premiums if you need coverage at that time.
8. Avoid or minimize surrender penalties.
Life insurance gets a bad rap as an investment vehicle. Life insurance, as an asset class, does not deserve this label. Life insurance with severe surrender penalties has been the cause for the bad investment label. With surrender charges lasting up to 20 years in some cases, it becomes vulnerable to attack, causing the policy cash value to be zero in the early years.
Rule: When buying life insurance for investment purposes, make sure to demand illustrations with little or no surrender charges.
There are numerous methods for eliminating or reducing surrender penalties. An experienced agent will provide alternatives upon request.
9. Buy only from an experienced professional.
Life insurance companies DO NOT sell direct-to-consumer; you must buy from a licensed agent. That agent may be someone you know, a digital agent or web site, a metal agent or kiosk or a stranger on the other end of a phone line. Whichever one of those you choose, that agent is compensated by the insurance company. With the exception of life insurance without commissions or no-load life insurance, insurance companies compensate agents through built-in commissions. Therefore, it is in your best interest to buy from an experienced professional who will counsel you through the process. You gain nothing by trying to “do it yourself”. In fact, you will pay for something you do not use.
10. Consider universal life instead of term – ALWAYS.
Realizing that I am going to hear from many of my peers, I cannot stress this enough. Traditional term insurance played an important role in the past 30 years. Unfortunately, it has some fatal flaws that can easily be avoided and fortunately, some permanent policies provide the best of both worlds. Well priced permanent policies offer:
- Very comparable premiums compared to term;
- No conversion deadline – coverage as long as needed;
- Immediate surrender value = superior net cost.
Life Insurance 2.0. The upcoming issue introduces the new title for this column.
Ted Bernstein is a third-generation licensed life insurance specialist and nationally recognized industry innovation expert in alternative distribution strategies and life insurance product development with decades of speaking out and advocating for changes on behalf of consumers. A member of the Association for Advanced Life Underwriting, he was the first to introduce life insurance without commissions or “no-load” life insurance in the mid-1980s and launch the first fee-based Life Insurance Policy Audit and Review service for trust companies and life insurance fiduciaries. His newly introduced innovation, the Installment Life Option, is game-changing. To learn more, visit www.lifeinsuranceconcepts.com or call 561-988-8984.