Brian Gruss Licensed Insurance Planner

Keep an Eye on Your Term Life Conversion Period

Term life insurance is a valuable financial tool for young families. The coverage guarantees a fixed benefit if the policyholder dies within a certain period of time. This protection can make all the difference if the family wage earner dies at an early age and the stay-at-home spouse has to continue to care for the family. It is a cost-effective means for wage earners to ensure their family is protected even after they are gone.

However, if the insured outlives the term, the policy expires and the insurance company keeps the premiums. In most cases, the policy owner does outlive the term. That’s why this coverage costs far less than permanent insurance. The insurance company assumes there is very little risk that they will ever have to pay the stated death benefit.

Much of the appeal of term insurance for young families is its low cost. They typically have significant other debt like mortgages and student loans, so there isn’t a lot of money available to pay insurance premiums. Term life insurance provides an affordable coverage option. When these families purchase the insurance, they aren’t overly concerned about the conversion clause. This is the ability to convert the term insurance to permanent insurance for additional premiums, but without having to undergo a medical examination. This lack of concern is where the problem occurs. As the family matures and the wage owners age, the policy gets closer to expiration and it should be converted to permanent insurance.  If the policyholder isn’t mindful of the situation, the policy could expire and the family would be without coverage. It is especially important if the wage earner has developed a medical condition. By converting within the conversion period, the policyholder can obtain permanent insurance at a much lower rate than if they had to complete a medical examination first.

Some term policies don’t have conversion clauses. Those that do, come with higher premiums. The extra cost is money well spent because no one knows what physical shape they will be in 10 or 20 years into the future. It is best to prepare for the eventualities of a medical condition than to be faced with it and have difficulty finding insurance.

The safest way to prevent yourself from missing your conversion window is to review your policy with your insurance agent each year. Brian Gruss can help you convert your term insurance into a permanent policy that will best suit your family’s current financial needs.

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Finding the Middle Ground with Return of Premium Term Insurance

Anyone who has ever shopped for life insurance has faced the difficult task of choosing between a term and permanent policy. The choice isn’t as clear-cut as it may seem: while term insurance may be less costly in the short run, permanent insurance features an attractive cash benefit. Not surprisingly, having to choose between these two types of coverages intimidates many prospective policyholders. In fact, some consumers are so baffled by this decision that they don’t purchase any coverage.

Fortunately, there is a new type of coverage for those consumers who just can’t decide what policy to buy. Return of premium term insurance (ROP) is a hybrid product that provides term coverage with a twist: policyholders get all of their paid premiums back if they are still alive at the end of the term.

To understand how ROP combines the best traits of term and permanent insurance, lets compare them side-by-side. If you purchase term insurance, you pay a set premium for a fixed term, usually between ten and thirty years. Term rates are low, especially if you are young and healthy. However, your money only buys you a death benefit: if you are still alive at the end of the term, you receive nothing.

Permanent insurance, on the other hand, provides the same death benefit protection, but also allows you to build cash value within your policy. This balance is handy if you need money for emergencies, college tuition, etc. The downside is that you can expect to pay for this benefit through significantly higher premiums.

ROP gives the consumer the best of both worlds by providing the protection of insurance along with the savings component. With such a policy, if you die, your beneficiary receives a lump sum death benefit. But if you live through the term, the insurance company returns all of your premiums. While ROP is an appealing choice for all kinds of individuals, it is especially useful for purchasers who need to fill a temporary need, such as:

-Insurance coverage for a key employee

-Individuals who are planning to refinance their homes

-Divorcees who are required to purchase insurance as part of their divorce decree

While ROP has many advantages, consumers should keep in mind that the cost of this coverage is somewhat higher than a typical term policy. And if you need to extend your policy past the initial term period, expect to pay significantly higher rates. The best strategy is to examine all options, carefully weigh the costs and benefits of each, and pick the one that can do the most for you.

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The Life Insurance Balancing Act: How Much and What Type?

Calculating the right amount of life insurance takes a lot of research, and can be quite a balancing act. You want to make sure that you have enough life insurance to adequately protect your family if something happens to you. On the other hand, if you buy too much life insurance, you’ll feel financially strained-which means you’ll be more likely to cancel your policy in a crunch.

The goal is to have enough life insurance to safeguard your family without breaking your budget. If you’re trying to figure out how much life insurance you need, here are a few things to keep in mind:

Find the right policy

There are two basic types of insurance policies: term insurance and cash-value insurance. Term life insurance covers you for a specified amount of time, anywhere from one to 30 years. These policies are less expensive because they are designed solely for protection. Many people choose term insurance because they figure their need for life insurance will decrease as they get older. Term insurance is also good option for those who want to protect their children until a certain age.

Cash-value life insurance covers you for your entire life and includes whole life, universal life and variable life policies. These policies act as both an insurance plan and a savings tool, which makes them more expensive. Because the insurance company actually invests some of your premium, this type of policy increases in value over time. You can borrow money from the policy, although outstanding loans will be subtracted from the ultimate death benefit. In most cases, both the premiums and death benefit remain the same throughout the life of cash-value policies.

Figuring the right amount

There are a few different ways to calculate the amount of life insurance you need to adequately protect your family. Some experts say that you should simply multiply your annual income by three times while others say you need at least eight times your annual salary.

However, many professionals say this “income multiplication” method is not accurate enough. Because each family faces a unique set of circumstances and needs, you may want to consider some factors other than annual income. Figuring out the right amount life insurance requires a comprehensive evaluation of your financial goals, debts, investments, lifestyle and habits.

Expenses to consider

As you try to determine how much life insurance you need, you should think about the expenses your family would face if something happened to you. Start by making a list of short-term expenses, such as medical and hospital expenses, funeral arrangements, attorney fees and outstanding debts, taxes and loans. Then add that amount to all the long-term expenses your family would face, such as your home mortgage, college tuition for your children and living expenses.

You should also factor in other sources of income, such as your spouse’s salary, Social Security survivor’s benefits and investments. And don’t forget to consider the cost of inflation. Once you take all of these expenses and sources of income into account, you’ll probably arrive at a much more realistic amount than simply “four times your income.”

What can you afford?

Although you may know how much life insurance you’d like to offer your family, you have to be realistic about how much you can actually afford. The primary objective of life insurance is to protect your family. Therefore, you should choose a policy that you can comfortably fit into your budget so you won’t be tempted to cancel it.

Research shows that half of all people who buy a whole life policy end up cancelling it within the first 10 years-most likely because these policies are expensive, and it can be difficult to keep up with the premium payments. Because term insurance is relatively inexpensive and easy to understand, it may be the perfect solution for families on a budget.

Figuring out how much and what type of life insurance you need is a complex process that involves a lot of research and thought. You should meet with a financial advisor or insurance expert, who can help you determine how much insurance you need and what you can realistically afford.

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