Frequently asked questions.
What is Term life insurance?
Term life insurance is the simplest type of life insurance. It provides protection for a specified period (or term) and pays a benefit only if the insured dies during that period of time. Premiums for any renewal periods past the initial term will be higher than each subsequent period, reflecting the increased risk to the insurer. Statistically, only 1-2% of all term policies pay out a death benefit. An important feature to consider when purchasing Term life insurance is a convertibility option which allows the owner of the policy to convert to a whole life (or permanent) plan without evidence of insurability.
How much life insurance do I need?
In this prolonged low interest rate environment, we recommend more life insurance coverage than ever before to properly and safely replace lost income potential. As a general rule of thumb, one may consider 20-30 times annual income. However, the proper response to this question should actually be more questions because the amount of life insurance is in direct relation to the risk of loss which is specific for every individual, organization, or business. In addition, the amount of life insurance required changes as often as circumstances change (age, babies, marriage, debts, business valuations, etc.). There are typically two ways to determine how much life insurance death benefit is required the first is through a needs analysis which looks at a number of factors and needs to determine a specific amount. The second method is called human life value and is based around an insured’s future income potential. The human life value is easier to determine (ie: 20-30 times annual income) and recommended for personal insurance needs while the needs analysis may be better suited to specific clients, organizations, or businesses.
We recognize every situation is unique and would be happy to assist in a review of any current coverage and/or help determine new life insurance needs. Please schedule an appointment with us today.
How does life insurance work?
Life insurance utilizes the principles of risk pooling and the law of large numbers to provide beneficiaries an income tax-free death benefit upon the death of the insured. For centuries, people have pursued financial security for themselves and those who depend on them. Unfortunately, death may strike anyone at any time. When death takes the life of a family provider, business partner, or key employee, those left behind often suffer if they are left without adequate income or recompense. The true significance of life insurance is its promise to replace potential future economic uncertainty with certainty and a sense of security.
Term life insurance vs whole life insurance?
Yes! The answer is a resounding YES, both are incredibly important and serve a purpose. Most people would benefit greatly by having only whole life insurance or a mix of both whole life and convertible term insurance. The primary reason most Americans do not own insurance or are underinsured is simply a lack of knowledge. Don’t let that be your reason! Contact us or schedule an appointment today.
How much is life insurance?
It depends… There are two primary considerations. The first is the type of life insurance coverage and optional riders added. By this we mean there are various types of life insurance coverage from the most basic bare-bone policies such as term insurance to much more valuable permanent polices with living benefits, guarantees, and optional value added riders. The second consideration in the price of life insurance revolves around risk factors like age, health, preexisting conditions, and exposure to high risk activities (smoking, skydiving, scuba diving, and non-commercial pilots) together these two considerations are the primary determinants of a premium. The Life Rock is an independent business that focuses first on understanding the client’s needs and only then selecting the right products from a range of insurers for a best fit. Many insurers have different niche products, rules, or processes that can either help or hinder a client based on their particular needs and desires. Leveraging multiple insurers allows us to compare products, quotes, illustrations, processes, and underwriting from multiple carriers ultimately benefiting our clients.
What is whole life insurance?
Whole life insurance (also known as permanent or cash value insurance) is so called because it provides permanent protection from the date of issue to the date of the insured’s death (or the insured’s whole life), provided premiums are paid. Many people believe whole life insurance is more expensive than term insurance, but the reality is that insurers do not offer a level 100 or 120 year term policy they offer whole life or other permanent policies instead which can be much better. The premium on a whole life policy is guaranteed per the contract to remain the same throughout the insured’s life. In addition to an income tax-free death benefit (common with all life insurance) whole life insurance also provides unique living benefits. Through the cash value accumulation build-up in the policy, a policyowner has a ready source of funds that may be borrowed at reasonable rates of interest. These funds can be used for anything the policyowner wishes and there is no requirement that the loan be repaid. However, if a loan is outstanding at the time of the insured’s death, the loan plus any interest will be subtracted from the death benefit before it is paid out. In addition, because life insurance is considered property or an asset with a quantifiable cash value, it may be used as collateral for loans. The policyowner may also draw on the cash value to supplement or provide income tax-free retirement income.
How to build wealth with life insurance?
Most people are familiar with the income tax-free death benefit associated with life insurance policies. However, not all people are familiar with the living benefits of certain permanent policies. All permanent policies have a cash value component that can build up over time similar to a savings or investment account. Not all of these policies are created equal though some have guarantees and others put the risk on the individual. Additionally, in order to achieve maximum efficiency and effectiveness at building real wealth over time the permanent policies need to be designed correctly for each client. Life insurance is an excellent vehicle to build secure wealth over time. If designed properly and used in tandem with the right knowledge, life insurance can actually reduce or eliminate many financial risks that prevent wealth accumulation such as volatility, market risk, liquidity, taxes, fees, financing and debt servicing. In fact, whole life insurance was the preferred method for building wealth for many years, today it is still used as a financial foundation for many wealthy and wise individuals. New investment philosophies, government plans, and markets will come and go but life insurance has withstood the test of time providing capital, liquidity, dividends, income, and of course death benefits throughout the Great Depression, recessions, pandemics, and World Wars. We believe it is only a matter of time that whole life insurance will reclaim its standing as a preferred vehicle to build secure wealth. If you would like to learn more about how life insurance can compare or even improve upon alternative methods of building wealth please contact us or schedule an appointment today.
Why have I never heard of this investment before?
We get this question a lot. There are a number of reasons you may not have heard of this investment before but before we share the most common explanations, we can safely say it is NOT because it is a new asset. Whole life and term insurance have been used successfully for centuries. 401k, TSP, IRA, defined contribution plans, most places we are told to invest hard earned money today, and even certain types of permanent life insurance have a much shorter and less certain track record than whole life insurance. The first reason you may not have heard of this investment before is because it is not an investment. Due to regulations in addition to the safety and liquidity of whole life insurance it must be classified as an asset not an investment. An investment by definition involves inherent risk but regardless of the terminology used for this particular financial instrument it has the potential in some cases to perform similarly or better than the alternative “investments”. The second common reason you may not have heard of this asset before is because there is a large industry that would rather you incur the risks while they benefit greatly from managing your money for you and collecting guaranteed fees, sometimes with great success and other times ending in spectacular failure. Zig Ziglar used to say “you are where you are because that is where you want to be.” This statement in only true when you have all the facts, knowledge, and information to make an informed decision. We are here to help you with the latter.