Monday, August 01, 2011

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What I recommend: Term life insurance.
Any life insurance that builds cash value are ripoffs.

Friday, July 08, 2011

Globe Life and Accident Insurance Co. ad

Look at this ripoff advertisement that was in my mail box:

From an average person, this looks like a great deal. Ok, lets break it down:

Lets start with the $3.49/month you see. As anyone know, rates is heavily dependent on your age among other factors such as health, height, weight, coverage amount, etc. Its says "$1 pays for the first month. Then the rates are based on your current age and are guarantee for the life of the policy." That means after the first month, expect your premiums to increase dramatically. So the $3.49/month is really the policy fee with $0 coverage.

"Death benefits are paid free of federal income tax." Life insurance death benefits are never taxable. It is taxable when it is put into an estate.

"Coverage is also available for your spouse and other family members." Instead of covering you and your spouse in one policy, they want to sell everyone an individual life insurance policy. Do you know that each policy has annual fees of around $50 or more (depends on the company)?

"Benefits will NEVER be canceled or reduce for the life of the policy if premiums are paid on time." Well duh. If you pay your premiums on time, you keep the benefits. Its when you are late or miss your payments in which this company can cancel your policy or lower your benefits.

"Give your children a financial head start right now. Your policy also builds CASH VALUE and you can use the cash for your family's needs." This should a red flag to anyone who thinks life insurance will build a financial future for your child. If your child ever wants to take money out from the cash value, he or she would have to borrow it and the insurance company will charge 8% interest. The cash value will grow at a very low rate of return. If you bought $50,000 coverage on the child, it will take until your child reaches the age of nearly 100 years old (which is when the policy will expire) in order to have $50,000 in cash value. If your child dies, the insurance company keeps the cash value, but they pay the death benefit to the beneficiary (which is most likely to be you, the parent). Your child is never going to see that $50,000 until he or she is about 100 years old. What financial head start is the child getting? Absolutely none! If you really want to build a financial future for your child, open an investment account such as UGMA/UTMA and invest in mutual funds. If you want to send your child to college, open a 529 plan. If you really want to put coverage on your child, add a child rider to your life insurance policy.

In case you are wondering, this advertisement is for a whole life policy. As any financial expert knows, whole life insurance is a total ripoff. True financial professionals with moral ethics will tell you to buy term and invest the difference. Get the right amount of coverage you really need that covers any debts you have such as a mortgage, your children, and so on. At the same time, invest your money in equities. As times goes on, your savings goes up, your financial obligations goes down, and your children will become adults. In 20 to 30 years, what need would you have for life insurance if there's no one dependent on your income?

Thursday, May 26, 2011

An ideal life insurance policy

Here are characteristics of an ideal life insurance policy

1) It does not build cash value.
2) You are able to exchange or convert it into another term policy
3) It includes terminal illness death benefit. If you are diagnosed to be terminally ill, you can use some of the face amount for whatever purpose and when you die, the remaining balance of face amount is paid to your beneficiary.
4) It does not contain "no war" clause in it. If you died by war or terrorist attack, the insurance company can deny paying death claim. I strongly believe this no war clause should be banned. It serves an injustice to all the men and women who are serving in the military.
5) Family banding coverage. Similar to where you can cover all your cars in one auto policy, you can cover your whole family, or at least you and your spouse, in one single life insurance policy. Every policy has annual fees included in your premium and it makes no sense to have multiple life insurance policies. You only need one life insurance policy.
6) Option of adding Disability Waiver of Premium rider to it. In case you do become disabled, the insurance company can pay your life insurance policy for the rest of your life.
7) Option of adding Child insurance rider to it. If you want to cover your kids, add this rider. You only want coverage that is just enough to cover funeral expense.
8) Option of increasing your coverage every year for 10 years or longer and that rates are based on issued age, not the age you increase your coverage.
9) It comes with a financial needs analysis that is able to tell you exactly how much coverage you really need and for how long.
10) The insurance company has a strong financial rating of A+ or better.
11) If its term, it must be guaranteed renewable. As you get older, your health is not as great as you were 25 years old. With guaranteed renewable, you can renew the term without having to go through medical testing or physical exam. If you renew, rates should go up every 5 years or longer. It should not go up every time you renew.
12) It guarantees coverage until you are 95 or 100 years old.

Of hundreds of life insurance companies in America, I find that only one company meets all twelve criteria. That is Primerica.

Friday, March 25, 2011

Suze Orman on Life Insurance


Cash value life insurance vs Term Insurance
PART 1: A husband (age 36) and wife both own whole life insurance with $50k coverage on each. They claim to have 3 years left to pay off the whole life insurance. They been paying $270 every 3 months for the past 12 years (a total of $1080/year). The cash value amount is unknown, but it should be around $9000 to $10000. If they invested $270 every 3 months and got 8% return, in 12 years they would have about $21,000 today. If they invest it for the next 50 years, they would have about $638,000.

He also has 2 kids ages 6 and 9 bought whole life insurance on them. Both policies have $25,000 coverage and pay $150/year on each (a total of $300/year).

What I recommend: If he and his wife both get a 20 year level term policy with $500,000 coverage on each, it would cost about $800/year, saving them about $500/year. If they invest the difference of $500/year, with 8% return they would have around $25,500 in 20 years.

PART 2: Husband and wife both age 29. Husband have $500k whole life policy and pays $350/month for it. With a 20 year level term, it would cost about $30/month. If they invest the difference of $320/month, with 8% return, they would have about $190,000 in savings.

Be Aware of Your Friend recommending Whole Life Insurance as "Investment"
A 31 yr old man buys $500,000 coverage for $14000/year from his friend and thought it was an investment. His friend got a nice paycheck of over $10,000. With 20 year level term, it would cost $25/year to $30/month or $300/year to $360/year. If he invested the difference of $13600/year in equity mutual funds for the next 20 years, with a 10% return he would have over $900,000 in savings. Even if the fund performed at 5%, he would have about $480,000 in savings.

Be Aware of Financial Advisor recommending Variable Life Insurance
A wife with 2 kids has a husband that own a variable life insurance for 6 years. They pay $650/month with death benefit of $750,000. A 30 year old can buy 20 year level term for about $50/month. If they invest the difference of $600/month for the next 20 years, with a 10% return they would have about $460k.