Life insurance comes in many forms and within those forms are many different options and features which vary by policy and by company.
"Permanent" life insurance is designed to last your entire life. There are two forms: Whole Life and Universal Life Insurance:
Whole Life Insurance insures you for your "whole life" as long as you continue to pay the premium. Once the premium is established, it never changes. These policies build cash value - should you ever cancel the policy, you'd receive the cash value that had been built up. Depending on the company and policy, this type of insurance can also pay dividends in addition to building cash value. This type of insurance is primarily sold as way to build cash value. It has many tax advantages over other kinds of investments and can work for you while you are alive to provide a current income or income in retirement, in addition to providing a legacy for your heirs.
Universal Life Insurance is a lot like whole life, in that it protects you for your entire life. But it's a lot more flexible, which is why these policies are often called Flexible Universal Life Polices. You can vary the premium should you need to (even skip some payments), vary the death benefit and vary other policy features based on what you can afford at the moment without losing coverage. These types of policies can also build cash value. Many of these policies come with a "no lapse" protection feature that allows you to pay a much lower premium and guarantee that the policy won't lapse.
Whole and universal life policies have benefits besides paying when you die, sometimes known as living benefits. The cash value in the policy builds tax-deferred - you would only pay taxes on the interest you earn when the money is withdrawn. And that's the second benefit - you can withdraw the money or even get a loan (often at zero net interest) from the policy to help with expenses. (If you never withdraw funds the death benefit is distributed to your beneficiaries tax-free.)
Term Insurance is purchased for a specific period of time (usually 10, 20 or 30 years). The premium can be guaranteed for the whole term or a portion of it, depending on the policy. This type of insurance is often used to protect against losing the house should the breadwinner die and is commonly called mortgage insurance. The term equals the length of the mortgage and once the mortgage is paid off, the coverage is no longer needed. Term insurance makes sense in this case. Term insurance can also make sense to provide financial protection for any purpose where the risk is of a known duration. For example, until the kids are done with college. It's also very useful to protect a college savings plan. Should you die before you can contribute enough for your child's education, the policy would make up the shortfall. Many people also prefer term insurance to whole or universal life because it costs less. And if they need large amounts of coverage, it may be all that they can afford. The disadvantage to term insurance is that once the term is up, the rate will change (usually drastically) should you choose to continue the insurance or get a new policy. Most term insurance can be converted to permanent insurance at any time. You'll pay the rate based on your age when you convert, but your health status would be locked in at the beginning of the term policy, not when you convert.
Return of Premium Term Insurance is a great product for people who need life insurance, but feel like they are not getting any value for the insurance if they are still alive when the term ends. This product costs a little more than regular term insurance, but if you are still alive at the end of the term, you get all of your money back! If you end the policy early, you get a percentage back. And of course if you should die while the policy is in force, your heirs will receive the full amount of the death benefit.
If you'd like a free, no obligation analysis of your needs and which type of insurance is right for you, click here.
You can think of annuities as the opposite of life insurance. Life insurance protects you from dying early. An annuity protects you from living too long. Life insurance pays when you die, and annuity pays while you are still living.
You put money into an annuity - either all at once or over time. When you are done putting money into the annuity, the insurance company pays you the money back with interest. Usually you'll get a check every month or once a year, but there are other options.
You may be asking what is different about this than a savings account at the bank? Good question. There are lots of differences, but the primary one is that an annuity usually pays much more interest. When your money is depleted at the bank, it's gone. If your annuity is set up to make periodic payments, those payments are made until you die and possibly beyond. (Bank accounts are federally insured while annuities are guaranteed by the financial strength of the insurance company and not the federal government.)
Another significant difference is the funds earned in an annuity are tax-deferred until they are withdrawn, while you'll pay taxes on the interest in a savings account as it is earned. (The tax deferral comes at a price: you pay IRS penalties on withdrawals before age 59 1/2 and there are surrender charges for early withdrawal.)
Annuities can pay a fixed interest rate or they can vary. One interesting annuity is called an "indexed annuity". The interest rate is based on the gains of an index, say the S&P 500. There also may be a guaranteed minimum interest rate. So this lets you participate in the gains of the stock market, but if the market drops, you still get the guaranteed interest. It's like being in the stock market with none of the risk. This comes at a price: you only get a percentage of the gain, usually 50 to 70%. Or you can get 100% of the gain, with a maximum cap (between 10 and 12% usually). Still, I think it's a fair trade-off if you can't afford to risk principal but want to participate in some of the gain when the market is up. (You could lose principal if you make early withdrawals.)
If you'd like to find out more about how an annuity might work for you, click here.
Long-Term Care Insurance
Long-term care insurance pays care for when you have an extended illness. Most illnesses won't be covered by your health insurance beyond initial acute care. (And some, like Alzheimer's, aren't covered at all.) If you need further care, you're on your own. If you are very wealthy, you may be able to afford the cost of care (running about $155 per day for a nursing home in our area, in-home care can be even more). If you are poor, Medi-Cal will pay. But if you are in-between and need long-term care, it can be costly!
A 1997 Nursing Home Study from the Society of Actuaries showed that 1 in 4 people will need some form of long-term care at some point in their lives. But very few people are protected. You have homeowner's insurance but your odds of having a homeowner's claim are way less than your odds of needing long-term care.
Many people believe that long-term care insurance only covers a nursing home stay. While you can buy it that way, I don't recommend it. Most policies will also pay if you choose to stay at home. And who wouldn't want to stay at home if you can? So really, long-term care insurance may help keep you out of the nursing home.
If you are young and healthy (or both), a long-term illness is probably far from your thoughts. But now is the time to get Long-Term Care Insurance. You never know what lies ahead in your medical history. Right now you can qualify and if you are healthy the rates will be reasonable. Every year you wait the rates go up and if you developed a medical problem you might no longer qualify to get coverage at all.
I'll leave you with one last thought. If you have term life insurance to cover the mortgage so that your spouse would not lose the house should you die, it shows you care a great deal for your family's well-being when you are gone. That's great and I mean it. But what if you need long-term care? Where will the money come from for that? So doesn't it make some sense to consider long-term care insurance to protect your home, family and yourself in case you need care?
There's a lot of options to consider. If you'd like to learn more about the various types of plans available and to see if Long-term Care Insurance makes sense for you, click here.
Disability Income Insurance
Disability Insurance is designed to replace your income should you become temporarily or permanently disabled and unable to work. It's not really health insurance as it doesn't pay medical bills directly. It simply pays you money each month.
Due to the high incidence of fraudulent claims, disability insurance is fairly hard to obtain in California, and can be quite costly. But it's great coverage to have if you can afford the premiums, because the odds of needing it are very high (which also drives up the price).
There are not many companies writing disability insurance in California, but I work the with the best ones remaining. If you are serious about getting this kind of insurance, I'll be glad to work with you to find a company and premium that works for you. Click here to get started.
I work with both Blue Cross and Blue Shield for individuals and groups.
Homeowners and Auto Insurance
Great policies at fantastic prices, especially if we can combine your autos and home into a package policy. Contact me for a free comparison to your existing coverage. Your would be surprised how often we see homes that are under-insured, and that can be a disaster when you have claim. If your home is under-insured, your carrier will only pay a percentage of your coverage and could cost you big! How does your home get under-insured? Two ways: Primarily, agents will lower the estimated replacement cost to get their premiums down because their policies aren't competitive. It's a despicable practice but it happens a lot. The other way is if your home's replacement cost was valued correctly, but rebuilding costs have risen in the meantime. And sometimes both of these are a factor. I'll make sure you have the proper amount of insurance and will often be able to save you money at the same time! You can't lose! Call me for a free evaluation.
Small Business Group Coverage
Many employers can't afford to pay for insurance benefits for their employees. I have plans that are voluntarily paid by the employees, so it doesn't cost the employer anything. But it still provides a valuable benefit for your employees even though they are paying for it. Why? Because many of these coverages are only available through the workplace and are not sold to individuals. So by making them available, you're providing a valuable benefit to your employees. I can also show why providing these benefits can save you money! If you own a small business and aren't providing any voluntary benefits, call me to arrange a meeting.