Life insurance

Life insurance or life assurance is a contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness. In return, the policy owner agrees to pay a stipulated amount called a premium at regular intervals or in lump sums. There may be designs in some countries where bills and death expenses plus catering for after funeral expenses should be included in Policy Premium. In the United States, the predominant form simply specifies a lump sum to be paid on the insured's demise. Term life insurance is probably the best way to protect you and your family. No other financial instrument can provide the significant rewards of life insurance. Your beneficiary is guaranteed benefits on your death from the day you take out your term life insurance policy, which is why it's sometimes referred to as 'creating an immediate estate'.

Although life insurance can seem complicated, term life insurance is simple. It works similar to many of the insurance policies you might already be used to, such as auto or homeowners insurance. It's also incredibly flexible, you can buy 10, 20, and 30-year level term life insurance policies, to suit you. At Advantage One Insurance, we only represent financially robust companies. Our state-of-the-art insurance quote engine delivers an accurate rating for each of the insurance companies that we represent. Our agents are fully trained in every aspect of life assurance planning, so give us a call today and find out if your life insurance needs are being met.

Life insurance premiums are beginning to rise for the first time in years as the business faces many of the constraints dogging the rest of the financial services industry -- poor investment results, increased costs of capital, and downgrades that drive away future customers. At the same time, it may make sense for consumers to consider a boost in coverage now, before premiums rise further, given the havoc the recession has wreaked on household assets.

Last month the Treasury announced it may extend billions of dollars in funds from the Troubled Asset Relief Program (TARP) to at least a dozen firms, including Hartford Financial Services Group, Lincoln National, and Prudential Financial. Criteria for determining who gets aid are expected to be released before the end of the month.

Rates Are Jumping

Banner Insurance announced an initial premium increase of 2% to 6% earlier this year; ING's higher rates go into effect on April 24, and Prudential's rates jump on May 1. Collectively, the three companies underwrite about 20 percent of life insurance premiums, according to Byron Udell, CEO of the online insurance brokerage Accuquote. He expects competitors to follow suit.

Premiums are rocketing 20% to 25% in certain rate classifications, depending on age, smoking status, and health, Udell says. For example, Banner's premiums for a 40-year-old male seeking a $500,000, 20-year level term policy just rose to $425 annually from $350, up 21 percent.

While a few life insurers are experiencing trouble with the core products, others, such as AIG, have suffered because ancillary lines of business have gone south. "Hartford clearly had issues with some of the products in their core business, guaranteeing [annuity] rates higher than they are able to earn," says Udell. "At Genworth, it didn't have to do with their core business; they owned a private mortgage insurance company, culminating in claims they hadn't anticipated because people aren't paying their mortgages." (Genworth announced last week it did not meet the deadline required to receive TARP funds.)

But despite the industry grab for government handouts, "No one is suggesting consumers have anything to worry about when it comes to death claims being paid," says Udell. In past failures, state insurance commissioners have put troubled firms into receivership and married them to a healthy carrier to ensure life insurance policy obligations are met, with state reserve funds to back them up.

Claims Will Be Paid

"The healthy companies in the industry have a vested interest in saving policy owners of companies that screw up," Udell adds. "Nobody wants consumers to think that, when you buy life insurance, you never know if your claim will get paid."

Despite the recent increases, life insurance premiums have fallen significantly in recent decades. In 1994, it cost a non-smoking, 40-year-old male $995 a year for $500,000 of 20-year level term coverage; today it's around $400. The average policy holder has 2.7 times their income in an individually purchased policy, says Udell.

A household's coverage may be inadequate amid declining net worth, Udell argues: "You may have a couple who bought their home six years ago for $350,000 and put down $30,000. In 2005, maybe their home was worth $500,000 and between the two of them they had $170,000 in a 401(k) -- so their net worth was several hundred thousand dollars. Now the house is worth $300,000, they're underwater in the mortgage, their 401(k) is down. If the main breadwinner were to die, the surviving spouse doesn't have same level of assets."

As a safety net, it may be worthwhile to consider a 10-year policy to give those assets time to recover some of their value. For instance, a 40-year-old male could purchase a 10-year level term life policy for as little as $20 a month.

Layoff Insurance

While life insurance premiums rise, so does layoff insurance -- but this is good news. Back in January, I wrote a column noting key trends to watch for in the year ahead. I discussed a new program from Hyundai that promised to make payments for buyers who lost their jobs after the purchase, and suggested such offers would spread quickly amid the economic malaise. And they have.

In March, GM and Ford followed suit with their own protection programs. Several major homebuilders, including Lennar, Ryland, and Toll, as well as some realtors, are offering to pay mortgages for a period of time, up to certain limits, if the homebuyer loses his or her job. One West Coast property manager is offering a plan to California renters.

Meanwhile, Walgreens is providing free health care for certain ailments at its 342 in-store clinics to patients who are laid off after March 31 (and their families) and have no health insurance, although wellness visits aren't covered. Last week Virgin Mobile unveiled its $49.99 unlimited pre-paid calling plan with "Pink Slip Protection," waiving up to three months of monthly charges if the consumer gets the ax.

In the travel arena, Jet Blue launched a "Promise Program" that will refund tickets to passengers if they get a pink slip. Effective May 1, Norwegian Cruise Line's "BookSafe Travel Protection Plan" offers a full refund on a trip if the traveler is laid off and cancels -- but you have to pay $29 for the deal and work at the same company for at least a year. For those who want to take a break before diving back into the job hunt, an adventure travel firm named Intrepid Travel is offering 15 percent discounts on new bookings for people who've been laid off.

Use Deals As Leverage

Maybe these marketing programs are a gimmick, but it can't hurt to steer your business to such companies if your job or company is shaky. Just make sure you read the fine print of each deal. Another possibility: Use them as leverage (especially in the case of travel) to negotiate an upfront discount from competitors.

Finally, there's a whole category of formal insurance policies that a consumer can purchase that will make full or partial mortgage payments in the event of a layoff. But it's a lot smarter -- and cheaper -- to stash away six months of living expenses in an emergency fund to manage that risk.

Types of Life Insurance

There are four main types of Life Insurance available and choosing the right one can be a confusing task. You need to decide which type of cover best fits your needs.

Term Life - This is probably the most common form of Life Insurance, and is also the easiest to understand. You purchase a policy for a set period, and at a set premium. For example you may decide to purchase a ten year policy to cover yourself until your children finish college. If you die during the course of the policy, then your named beneficiary will receive the value of the policy as a lump sum. Once the policy has expired you will receive no payment of any kind, even if you die shortly afterwards. This policy carries no cash account unlike the rest of the policies we will look at.

The other types of Life Insurance policies all pay a benefit upon your death and also include a cash account. The premiums for these policies are always larger because of this. These policies sometimes allow you to withdraw money against the cash account, or take a loan from it. You should be very careful before doing this as it almost always results in a reduction of your policy benefit. The benefit is always paid to your named beneficiary upon your death.

Whole Life – This policy covers you for your whole life and is not for a specified time period. The premiums are normally fixed throughout for as long as you continue to pay the agreed amount. There is also the option to receive dividends from your policy as cash payments. Alternatively you can use these dividends to reduce future premium payments. These polices offer no flexibility to invest in separate funds, or to have separate accounts. There is also no option of changing your premium payments.

Universal Life – These policies have greater account flexibility than Whole Life, but carry more of a risk from an investment standpoint. It is possible to earn interest at market rates for the cash account. As the policyholder you can, depending on your policy agreement, choose to change your premium payments, miss payments or pay in a lump sum amount.

Variable Universal Life – These policies are the most flexible you can get and so carry the greatest investment risk. The final benefit can vary depending on how the cash account performs during the course of the policy. These policies allow you to invest in separate accounts, but the policyholder is responsible for managing the investments and thus the success of your accounts depends on your investment choices. Some of these policies carry a cash value penalty for terminating the contract early.

Different companies may implement these policies in slightly different ways, so it is always best to check with the individual companies first.

On a final note, always remember to consult a financial advisor before making any big decisions about life insurance. They specialize in this type of consultation and will ensure that you get a policy that best suits your circumstances.






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