June 27, 2014 12:16 am EST

Here Are Six Reasons Millennials Should Consider Life Insurance

1. You have dependents. First of all, life insurance is not for you. It’s for those you leave behind. The people who depend on you—your dependents. Dependents don’t have to be children. For insurance purposes, these are people who father with son on shouldersrely on your income, who would have to go without, should something happen to you. This could be a spouse, a live-in boyfriend/girlfriend with whom you own a house. You should also consider your children, parents, grandparents, siblings with special needs, etc.

If you have any dependents in a long-term care situation (or those you could envision requiring this help in the near future), either due to old age or disability, life insurance is a necessity. Most young people simply do not have the financial means necessary to cover these sorts of long-term care expenses. An insurance policy can help with that.

Additionally, if you have a stay-at-home spouse, consider the ramifications of your death. Not only would this person be forced to secure employment outside of the home, but pay for childcare as well. How quickly do you think your spouse could find something that would cover these expenses?

Life insurance gives you peace of mind, knowing your loved ones wouldn’t be financially affected by your death.

2. Costs are lower. Life insurance premiums are risk calculations based on mortality. Since average life expectancy is somewhere around 79 years old, there’s less risk for a company to insure a Millennial in good health. Less risk for the company, means relatively inexpensive premiums for you. Coverage can usually be obtained for pennies on the dollar. (Think about the cost of a fancy latte every week.)

Premiums are based on the age of the applicant and rates usually increase with age. If you purchase a policy as a 20-something, it will be at a lower rate than if you wait until you’re 40. You could save a couple hundred dollars a year, for as many as 30 years, if you act now versus later.

Plus, qualifying for coverage as a healthy Millennial can be a lot easier and less expensive than applying after you’ve been diagnosed with a health condition. Don’t wait. A health issue can crop up over night and qualifying for a life insurance policy can be a very different experience once you’ve been diagnosed.

3. You’d like an additional savings vehicle. If you always have a reason to dig into your savings, consider purchasing a permanent life insurance policy that not only has a death benefit but a savings component as well. You can borrow against it as well as use it in retirement, depending on the policy and company behind it.

Think of a permanent life insurance plan as a portfolio asset that will help secure your loved ones and your retirement. Your generation understands the importance of saving for its future. A permanent life insurance policy can help you do that with minimal effort on your part plus there’s no limit to what you can contribute to the savings portion, unlike a 401(k) or a Roth IRA. Once you’re retired, you can draw on the savings portion of the policy tax-free.

4. You’d like to supplement your company-backed insurance. Millennials who are fortunate enough to have a good paying job with excellent benefits may receive life insurance through their company. While this provides some peace of mind, consider purchasing other, independent coverage. If you become sick and are no longer able to work, your work policy will no longer cover you. Since you’ve been diagnosed with a terminal illness, you may not be able to secure a life insurance policy at this time. Now, when your family needs the benefit the most, they no longer have it. Plus most basic coverage will not cover everything your family needs at a time when they are ill-equipped to provide for themselves.

5. You want your funeral expenses and debts covered. Even if no one depends on your income, such as a spouse or children, you should consider your debts and your burial expenses. The average funeral alone costs between $10,000 and $15,000. Some debts would be waived with your death while others would be collected through whatever assets you left. Are your parents in a position to handle these sorts of expenses or will this create a financial hardship for them?

Millennials will want to decide what amount of coverage they need to pay for both funeral expenses and their recoverable debts when deciding an amount of insurance coverage.

6. You’d like to leverage riders for more coverage. Life insurance is not all about the death benefit paid out to your loved ones. There are also riders that can be added to policies to address needs for things like long-term care and disability. You are more likely as a young person to be injured in an accident than you are to be killed in one. If you were injured and unable to work for a certain period, or permanently disabled, do you have a plan in place to cover your expenses? A disability rider to your life insurance policy could safeguard against the unexpected.

Frankly, most people will never need the financial comfort provided by a life insurance policy while they’re young. But if your family is the one who does, your forward thinking and planning will ease their concerns during a very difficult time. How will you plan for your future?

April 4, 2014 6:00 pm EST

Here Are A Few Things You Need To Know About Whole Life Insurance

life isurance blank bar chart and glases

What is whole life insurance?

A whole life insurance policy covers you for your entire life, not just for a specific period such as term insurance. Your death benefit and premium in most cases will remain the same. Whole life insurance also builds cash value, which is a return on a portion of your premiums that the insurance company invests. Your cash value is tax-deferred until you withdraw it and you can borrow against it.

Are there choices within whole life insurance?

Yes, the most common choices include traditional, interest-sensitive, and single-premium whole life insurance policies. A traditional whole life insurance policy gives you a guaranteed minimum rate of return on your cash value portion. An interest-sensitive whole life insurance policy gives a variable rate on your cash value portion, similar to an adjustable rate mortgage. With interest-sensitive whole life insurance you can have more flexibility with your life insurance policy such as increasing your death benefit without raising your premiums depending on the economy and the rate of return on your cash value portion. Single-premium is for someone who has a large sum of money and would like to purchase a policy up front. Like other whole life insurance options, single-premium whole life insurance accrues cash value and has the same tax shelter on returns.

What are the benefits of choosing a whole life insurance policy over other types of life insurance policies?

Unlike term life insurance, a portion of your premium money goes toward your cash value which in turn could pay off your entire policy only after a few years. Also, your premium will remain constant during the time you are covered unless you choose otherwise. And, unless you make a change to your whole life insurance policy, you have lifelong coverage with no future medical exams. Whole life is also a good choice because of the tax savings.

Should I purchase a whole life policy for an investment?

The rate of return on a whole life insurance policy is very low compared to other investments, even with the tax savings factored in. Most investment professionals would agree that life insurance should not be used solely as an investment tool and you should judge your policy choices on the protection and not the rate of return. But, if you are in need of life insurance, the tax benefits and cash value is an added bonus when purchasing protection for your loved ones.

March 20, 2014 3:35 pm EST

Which Is Right For You: Permanent Or Term Life Insurance?

Few people who have bought insurance – or even window-shopped for quotes - have escaped the debate over term versus permanent insurance.

And the wrong kind of life insurance can do more damage to your financial plans than just about any other financial product today. So, the first and most important decision you must make when buying life insurance is: term, permanent or a combination of both? Let’s look at each.

Term life policies offer death benefits only, so if you die, you win (so to speak). If you live past the length of the policy, you (or, more specifically, your family members) get no money back.

Permanent life policies offer death benefits and a “savings account” (also called “cash value”) so that if you live, you get back at least some of, and often much more than, the amount you spent on your premium. You get this money back either by cashing in the policy or by borrowing against it.

Permanent life insurance is more expensive

As you might expect, permanent life insurance premiums are more expensive than term premiums because some of the money is put into a savings program. The longer the policy has been in force, the higher the cash value, because more money has been paid in and the cash value has earned interest, dividends or both.

The debate is all about that cash value. If you buy a policy today, your first annual premium is likely to be much higher for a permanent life policy than for term.

However, the premiums for permanent life stay the same over the years, while the premiums for term life increase. That extra premium paid in the early years of the permanent policy gets invested and grows, minus the amount your agent takes as a sales commission. The gain is tax-deferred if the policy is cashed in during your life. (If you die, the proceeds are usually tax-free to your beneficiary.)

The saying you always hear is, “Buy term and invest the difference.” The fact is, it depends on how long you keep your policy. If you keep the permanent life policy long enough (and the market ever fully rebounds), that’s the best deal. But “long enough” varies, depending on your age, health, insurance company, the types of policies chosen, interest and dividend rates, and more. The reality is that there is not a simple answer, because life insurance is not a simple product.

Guidelines to live by when buying

Even with all of these variables, there are some guidelines you can follow. The key is how long you plan to keep the policy. If the answer is less than 10 years, term is clearly the solution.

If it is more than 20 years, permanent life is probably the way to go. The big gray area is in between. Here is where you need an expert to run the term vs. permanent analysis for you. Of course, this assumes you keep the policy in force. Most people drop their policies within the first 10 years, but if you do your homework now, that shouldn’t be the case for you.

How to choose

Categorize your insurance needs by their use. If you need $60,000 for college and your youngest child will graduate in three years, you need $60,000 of term insurance as a short-term hedge against your death, thus insuring that your child can finish his or her education. Meanwhile, if your estate will owe $200,000 in taxes at your death, you probably need permanent insurance, because you’re not likely to die in the next 20 years (you hope). You also may want to re-evaluate your estate plan, but that’s a different issue.

January 13, 2014 7:45 pm EST

The Meat and Potatoes of Term Life Insurance

Insurance can get confusing. This is an important reason it pays to have a knowledgeable person make you understand it before you purchase it. In simple terms, imagine buying a video game system from a salesman, and then he sells you video games for a different system. Both purchases are useless because what you bought isn’t compatible. If you had the right person explain it to you, you’d know that what you were buying before you bought it. Today’s explanation is Term Life Insurance.

WHAT IS IT?

A term life policy covers you for a specific period of time (such as 10, 20 or 30 years). If you die during the term period, the person you named when you bought your policy is paid the coverage amount. If you don’t die during the specified term period, your coverage simply ends. Term life generally does not build cash value nor does it include any features related to cash value.

WHY IS IT GOOD FOR ME?

When considering life insurance, term life insurance is a good first choice – especially for families just starting out. Term life insurance is an easy, affordable way to provide financial peace of mind for you and your family. It helps fill the gap left by the loss of your income and protects your assets.

Term life can also cover specific financial obligations that will disappear over time, such as a mortgage, wedding expenses, college tuition or loans. In short, term life insurance provides an excellent answer to the question: How will your family manage financially if you die prematurely?

Because term life insurance is temporary and does not typically build cash value, coverage is generally less expensive than permanent coverage. There’s no commitment, either. If you decide to end your coverage before the term is up, you can simply stop making payments and that’s it – there’s nothing more to pay or any other obligations.

December 12, 2013 7:32 pm EST

5 Insurance Policies That Everyone Should Have

When it comes to buying insurance, there are so many options on the market today that you might not know what’s necessary and what’s superfluous. It’s important to be covered, but you can also be too covered. Paying for too much insurance takes money away from other areas, such as your emergency fund and your retirement savings. When it comes to insurance, there are basically five types that everyone needs.

Health Insurance

This is the big one. In 2009, over 60 percent of all personal bankruptcies were related to health insurance costs.

When purchasing health insurance, consider the following:

  • Needs: Young and healthy single people require less coverage than those with young families, the elderly, or those with chronic health issues. Do you plan on using your insurance a lot? If so, you’re going to want a low deductible and copays.
  • Doctors: One of the first questions you should ask about a plan is if it allows you to keep your current physician.
  • Cost: You can obviously only afford so much, so know what you can afford. Shopping for plans with higher copays and deductibles will save you money on your premium.

Car Insurance

Not only will you want car insurance, nearly every state requires that you have it. For those with an older car, no more than the bare minimum may be required. However, if you have a newer car or a car with a high value, you will also want to insure it against theft.

The main types of car insurance are:

  • Liability: Liability coverage comes in two forms: bodily injury and property damage liability. These cover damage to others and their property. They do not cover the driver or passengers.
  • Personal Injury Protection: This type of coverage will cover medical expenses related to driver and passenger injuries.
  • Collision: Get collision insurance if you want your insurance to cover the cost of damage done to your car, whether you are at fault or not.
  • Comprehensive: Collision only covers damage done in an accident. For example, if a tree falls on your car and destroys it, you’ll need comprehensive insurance to get compensation.
  • Uninsured or Underinsured Motorist: This covers you in the event that the person who hits your car does not have enough insurance to cover the damage — or any coverage at all.

Homeowner’s or Renter’s Insurance

Renter’s insurance covers you against damage or theft of personal items in an apartment. For urbanites, the low cost of renter’s insurance can be well worth the peace of mind that it provides. Homeowner’s insurance is absolutely essential. It protects your most valuable asset against damage and theft. However, sometimes homeowner’s insurance isn’t enough to fully protect your home. Ask if you need additional insurance against flooding, earthquakes, fires and other disasters that might not be covered under standard plans.

Life Insurance

No one likes to think about it, but life insurance is an essential component of protecting your family in the event that you pass before your time. There are costs associated with dying, such as burial and mortuary fees. Further, if you are the primary breadwinner, life insurance will help your family to offset the lost income. The latter is the main reason that people get health insurance. The single and childless might not need life insurance, but everyone else should invest in a policy now.

Disability Insurance

Disability insurance is actually quite a bit like life insurance. It reimburses you for income lost during periods of time that you are not able to work. As 1/3 of all Americans are disabled at some point, having this insurance makes good financial sense for the single and married, parents and non-parents. Disability insurance can cover permanent, temporary, partial and total disability. No one knows what tomorrow might bring and disability insurance is relatively cheap — far less than the cost of not having it if something goes wrong.

November 24, 2013 4:04 pm EST

The Benefits of Whole Life Insurance

Life insurance is a big choice for any person to make. It doesn’t just involve them, it involves their entire family being in on the process of getting whole life insurance. There are a bunch of different types of life insurance policies, but whole life is a great choice as a policy to go for.

Term life policies with protect you for a certain amount of time. If you get a 20 year policy, this policy ends at the 20 year mark, a whole life policy will cover you for the duration of your life. A whole life policy also has a cash value. This means that some of the money you pay into the policy every month is saved or invested, so you can be able to take money out of the policy or borrow against it.

What are some benefits to having a whole life insurance policy?

You beneficiaries are covered for the duration of your life. This makes people more comfortable than with the time limit placed on a term policy.

If you or your beneficiaries don’t file a claim, the money you pay into the policy every month isn’t a waste of money, but has a cash value for which you can draw on.

If you happen to be a high-income person who maxed out your tax deferred investments, a variable or variable universal policy serves you as an additional savings or investment tool.

Making a decision on what life insurance to choose is a difficult, but it doesn’t have to be too difficult. The important thing is choosing a policy that best looks out for you and your family.