Today I would like to talk about ways to approach the challenges that end of life planning can bring. That includes recommendations for best types of policies there are, with their pluses and minuses and all the other characteristics they feature.
There are various types of insurance used by individuals. Each was created to satisfy specific needs.
In general, the goal of insurance is to take a risk that a single person can’t afford and spread that risk among as large a group as possible, therefore sharing that risk and making it affordable for the individuals benefiting from it. As the risk of dying is 100%, and most of us want to live as long as possible, we, as insurance agents need to make sure that end of life plans are funded with the type of insurance that our customer can afford now, and will be able to keep in place until that day comes.
At Advanced Senior Advisors, we exclusively recommend traditional whole life insurance cover because it offers strong guarantees. With the whole life insurance policy, the contract guarantees that the insurance company can never increase payments or decrease benefits.
First, I want to point out a type of whole life insurance that is many times misunderstood by the people who buy it. It is quite like a traditional whole life plan except that instead of a straight guarantee that rates will never go up, the contract guarantees that rates will never go up individually. In reality that means that if premiums are raised on all policies in your class i.e. same age and state, your premium will be increased also. In my experience, I have not seen one of these plans not raise premiums regularly, so watch out or give us a call if you need advice. See our contact page here...
Next, we look at term insurance. Term insurance is designed to cover a risk that will disappear during your lifetime. Protecting your family’s home, and children’s education in case of your premature death is the most common usage of this type of insurance. Depending on your age, you can get various guarantee periods to protect from premium increases. But even with guarantee periods, the insurance companies have minimal risk that their average client (who needs to be in good health to qualify for larger guarantee periods and affordable cost) will pass away during the duration of the guarantee period. Simply put, it is the most economical way to insure big risks that will not need insuring past a certain point. That point of course is not calculated to be your death, which is why the premiums are so much lower per dollar of benefit than a traditional whole life policy.
"Whole life insurance guarantees that the company can never increase payments or decrease benefits."
The last major category of insurance is called universal life insurance. It is really a mix of whole life, term life, and an interest-sensitive life element. The contracts can have many applications. They are used as forced savings systems, and for some, a financially safe and sound system for investing. Like all the other systems that we could use, I would ask the question: what happens if the investment portion of the contract doesn’t perform as expected, and you only get the gain from the small guaranteed floor rate? The answer is that when there isn’t enough cash value to support the death benefit, you will either have to take whatever cash is left after loan repays and surrender charges, increase your payments, or reduce your death benefits. Again, in my opinion, not the proper vehicle for guaranteeing that the benefits will be there for your family at the end of your life.
I tried to simplify the general differences between common types of insurance. Unfortunately, I realize that in reality it is a very complicated subject.
So we are here to help and would be delighted to guide you or your loved ones through the choices that exist for planning and funding your end of life plan.
President of ASA Agents and creator of My Parting Gift