Accidental death insurance is a type of limited life insurance that is designed to cover the insured should they die as the result of an accident. "Accidents" run the gamut from abrasions to catastrophes but normally do not include deaths resulting from non-accident-related health problems or suicide. Because they only cover accidents, these policies are much less expensive than other life insurance policies.
2Partial withdrawals and surrenders from life policies are generally taxed as ordinary income to the extent the withdrawal exceeds your investment in the contract, which is also called the "basis." In some situations, partial withdrawals during the first 15 policy years may result in taxable income prior to recovery of the investment in the contract. Loans are generally not taxable if taken from a life insurance policy that is not a modified endowment contract. However, when cash values are used to repay a loan, the transaction is treated like a withdrawal and taxed accordingly. If a policy is a modified endowment contract, loans are treated as a taxable distribution to the extent of policy gain. On a modified endowment contract, loans, withdrawals and surrenders are treated first as distributions of the policy gain subject to ordinary income taxation, and may be subject to an additional 10% federal tax penalty if made prior to age 59½. Loans, if not repaid, and withdrawals reduce the policy's death benefit and cash value.
If you need life insurance (which in order to find out , you must ask yourself one question : am I going to die ?) a Whole Life Insurance policy is a non-risky , non-volitile way of earning a high rate of return with a very conservative risk portfolio. A whole life policy is part of a healthy financial portfolio. It grows with preferential tax treatment and pays tax free to your beneficiary or estate. In nearly every case of par Whole life if you are under 50 you will have a cash surrender value equal to 100% and up to 800% of the premiums paid.
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3 The above example is based on a scenario for 20‐year term life insurance (domicile state) that includes the following benefit conditions: $50,000 death benefit, $50,000 accidental death benefit, and $12,500 seatbelt benefit. Benefits may vary by state, benefit option, and level of coverage selected. Review your state‐specific brochure below for a “How It Works” scenario customized for your state.
Regarding insuring the pensioner in a spousal benefit enabled pension: Sure, this is a popular strategy. For an identical monthly benefit, you can compare the cost of a Joint-Last-to-Die annuity (basically a pension) vs an individual annuity on the pensioner. Let’s say the difference is $400/month. Well, if you can buy enough life insurance benefit to support the spouse for life (insured is still the pensioner in this case) and the cost is less than $400/month (or whatever the cost differential is between the two scenarios), you may just do an individual annuity for the pensioner and then if he dies first, the insurance proceeds can support the spouse. If the cost of life insurance is greater than $400/month (or whatever the cost differential is between the two scenarios), then do a joint-last annuity and you’re covered for life.
Mortgage life insurance insures a loan secured by real property and usually features a level premium amount for a declining policy face value because what is insured is the principal and interest outstanding on a mortgage that is constantly being reduced by mortgage payments. The face amount of the policy is always the amount of the principal and interest outstanding that are paid should the applicant die before the final installment is paid.
Special exclusions may apply, such as suicide clauses, whereby the policy becomes null and void if the insured commits suicide within a specified time (usually two years after the purchase date; some states provide a statutory one-year suicide clause). Any misrepresentations by the insured on the application may also be grounds for nullification. Most US states specify a maximum contestability period, often no more than two years. Only if the insured dies within this period will the insurer have a legal right to contest the claim on the basis of misrepresentation and request additional information before deciding whether to pay or deny the claim.
I’ll be up front that I am not an expert on life insurance and long term care for people in your situation and therefore don’t have a great answer for you. I have heard good things about certain hybrid policies like you’re describing, but I would be very careful about who you’re buying it from and how exactly the policy works. If you would like a referral to a fee-only financial planner who specializes in this kind of decision, just let me know and I would be happy to help.
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I have only read the comments so far as Feb 2014 (tho i will read them all), but i have to say thank you for the article, but more so for the objectiveness and courteous mannerism in all your responses. While there may sometimes be cause for snarkiness or sarcasm on your part, I have yet to see it in your responses. And the fact that you actually respond to everyone (as far as I have read) deserves a huge KUDOS as well. You have certainly given me much more insight to my family’s planning goals.
Thanks for the insightful article. I agree with the general statement that, in a vacuum, it is better to “buy term and invest the difference.” However, I’m interested to hear your thoughts on using whole life insurance as an investment vehicle in the context of the infinite banking model (assuming you are familiar with the concept). From what I understand, it sounds like a good way to achieve predictable and guarenteed growth on a compounded basis while allowing you to borrow money from your own policy and pay yourself the interest, all while always having access to the funds. I think it might be wise for people, like myself, are looking for guaranteed growth with little risk.
5The monthly rate shown is for Preferred Elite based on a Male, age 37. Whole Life Advantage® is a whole life insurance policy issued by Allstate Life Insurance Company, 3075 Sanders Rd, Northbrook IL 60062. Whole Life Advantage is available in most states with series LU11040 or form ICC12A1. In New York, issued by Allstate Life Insurance Company of New York, Hauppauge, NY, and is available with contract NYLU796.
Add to this, when a younger person owns whole life (or cash value fixed universal life) they have the life insurance coverage they need, are building a tax free bond portfolio for the future (which as most people realize is what older investors shift into as the age) but also have a accumulation vehicle that can “self complete” if they become disabled. 401k’s can’t provide this…they don’t even match the long term return of the do nothing stock markets because of the fee’s they charge. That is to say…there is no “alpha”
It depends on the type of policy and the agent’s contract level with the insurance company. A Medicare insurance broker may have different commission levels with different insurance companies as well. A large Medicare insurance broker who has been in the market for a number of years is not likely to care about small differences. Here at Boomer Benefits, we enroll our clients in the insurance plan that is right for them regardless.
Now, it turns out that we have higher, broader family obligations than I anticipated 20-27 years ago. My wife and I plan to possibly keep working past 65 (which I hadn’t anticipated) and would like to be able to fund these obligations even if we were to die before our now planned time to stop working (that goes past the periods anticipated by the terms of our term policies). Our term policies and term coverage are beginning to expire and due to certain issues, at best, we would have to pay very high premiums for anything I would try to purchase now, if we would qualify at all.
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On your questions about your specific offer, I would both say that most of the points from this post apply and that without knowing the specifics of the policy you’re being offered I can’t really give any concrete feedback. One thing I will say is that you wouldn’t simply be able to withdraw the $550k you mention tax-free. You would have to borrow from the policy, which would come with interest and potentially other fees and conditions. If you chose to surrender the policy and withdraw the money, the amount above what you have put in would be considered taxable income.
My argument is based on the fact that whole life insurance is often sold as an investment, and therefore many people buy it as an investment. I am well aware that there are other reasons people buy it, and those are explicitly acknowledged in the article. The rest of your questions have already been addressed in both the article and other comments.