New Year’s resolutions are often short lived because they require continuous effort. That fitness goal might last for a couple months until some excuse is made for skipping an exercise. Then the floodgates of excuses opens up and the goal is shattered. Luckily for life insurance, no continuous effort is required. Many life insurance policies don’t require an exam, so you’re done with the application process after the agent leaves your home. There are some items to take care of after a policy is issued, but its not a big ordeal. Who knows? Maybe your success with getting life insurance will act as a springboard for accomplishing more difficult goals. You’ll also be one of the few people who can brag about fulfilling your New Year’s resolution. If you start it after January it no longer counts as a New Year’s resolution. So the time is now to do it. I am always available if you need help figuring out the best Houston life insurance plan. Go to my contact page for ways to reach me.
Life insurance ads often take a one-size-fits-all approach, emphasizing the use of one type of life insurance over any other. Since certain age groups typically only see ads for one type of life insurance, those products become more popular within their respective age groups. For instance, people under 50 will never see ads for whole life unless they see an ad intended for an older age group.
Life insurance solutions are often more complicated than the one-size-fits-all strategy shown in advertisements. I use a two policy approach for people under 50. For final expenses I recommend whole life, and for all other expenses I recommend term life (affluent consumers should look at universal life). The problem with term life is that it terminates at a designated point in time, and some expenses, such as the cost of a burial or cremation, never go away during a person’s lifetime. Therefore, it’s inappropriate to use term life for everything.
Here is the takeaway: popular is not always better. Insurance products are only popular because ads make them that way, and ads make them that way because they only have enough time to discuss one product. Insurance agents, on the other hand, have plenty of time to discuss multiple products, and how those products compliment each other.
Congratulations if you bought Houston life insurance. However, your job isn’t done yet. There are important steps to take after a policy is purchased.
The first step is putting your agent’s business card on the refrigerator so you always know where it is and it has no chance of getting lost. If you ever need to update your payment information or make another policy change, you’ll have a tough time doing it if your agent’s business card is shoved deep in a drawer and the policy is buried in a stack of papers.
The second step involves letting your beneficiaries know about their new status as beneficiaries. Keeping them in the loop will avoid confusion later. I don’t recommend having this conversation with contingent beneficiaries though. A contingent beneficiary is only entitled to the death benefit if the insured outlives all the primary beneficiaries. Contingent beneficiaries play an important role in making sure a living beneficiary is available for benefit payments. However, they may resent being told they are second in line.
The third step is deciding where to store your Houston life insurance policy. Many people give the policy contract to their beneficiary since the beneficiary will need immediate access to it when it comes time to filing a claim. If you want to keep the policy in your home and with the beneficiary, the insurance company will charge a small fee, usually around $25, for a duplicate copy. I also recommend placing it in a fire safe.
Any reputable agent selling whole life insurance will avoid modified plans unless there is no other option. Every client dreads the bad news that only modified whole life can be offered (agents don’t enjoy giving the bad news either). To soften the blow, I’ve constructed a list of medical conditions that typically trigger an offer for modified whole life. I want to caution that every insurance company is slightly different in the medical conditions they accept, so don’t think of this list as exhaustive. Also, as a general rule, the companies with the best pricing tend to have more restrictive underwriting.
- organ transplant
- terminal illness
- congestive heart failure
- cognitive impairments such as dementia
- heart problems within the last year
- supplemental oxygen (some companies will accept this for sleep apnea)
- recent drug or alcohol abuse
- recent cancer
- assistance with daily living activities (eating, bathing, etc.)
- current dialysis
If you do get an offer for modified whole life, it isn’t totally bad. You will have full coverage after a two or three year waiting period. In the unfortunate event you pass away during the waiting period, the premiums you paid weren’t wasted because all of that money comes back to your beneficiary plus interest, and the interest is better than anything you would get at a bank. Be sure to contact us with any questions.
When I talk about disbursement options, I am talking about the different ways life insurance companies can pay out your benefit payment(s). I will discuss the following disbursement methods: lump sum, payment for a guaranteed period, payments for life, payments of a specified amount, and interest only payments. There are minimum requirements for any option other than lump sum payments, so check with your insurance company or policy contract for those requirements. Also, if you are going with any option other than lump sum payments, talk to your tax advisor about the consequences of accumulating interest.
- Lump sum is the least technical method. It also happens to be the default method if an option isn’t selected. Lump sum is going to be the desired method for the majority of people. If you fall within that group, then sit back and do nothing–you’re set. Besides the obvious advantage of getting all your money at once, there is also the tax advantage of no interest (or very little interest if the claim is contested).
- Payments for life provide equal monthly payments for a guaranteed period, and then for life. It basically annuitizes the life insurance benefit for a period certain.
- Payments of a specified amount breaks up the total benefit into monthly, quarterly, semiannual, or annual equal payments. A minimum amount of interest is applied.
- Payments for a guaranteed period provide equal monthly payments for the number of years elected.
- Interest only payments are self explanatory. The interest only payments are for a set number of years and they cannot go beyond the lifetime of a beneficiary. A minimum amount of interest is applied.
You might be wondering why anyone would select a life insurance disbursement option other than lump sum. Perhaps a beneficiary is inclined to overspend if too much money is given out at once. Another advantage is the interest rate, which is better than anything at a bank. Don’t hesitate to contact us with any questions.