Whole Life Insurance and the Waiver of Premium Rider

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Whole life insurance provides financial security for you and your family. Once you purchase a policy, you don’t want to lose the coverage. But if you become injured and are unable to work, and as a result cannot pay your premiums, your whole life insurance policy may be put in jeopardy. Adding a waiver of premium rider to your policy may safeguard your life insurance coverage.

A rider is an attachment to your insurance policy that changes the terms or coverage of your policy. There are many different types of riders, which can be added to your policy for an additional fee. The waiver of premium rider stipulates that while the policyholder is disabled, according to the rider or policy’s definition of disabled, the insurance company shall give up the right to collect premiums.

Understand the Insurer’s Definition of Disabled

A key to understanding the waiver of premium rider is understanding your insurer’s definition of disabled. Insurance companies typically use two different definitions:

  1. Established Profession Disability. You are disabled if you cannot perform the duties required to accomplish tasks in your established profession
  2. Any Profession Disability. You are disabled if you cannot perform the duties of any profession

A rider that defines disability as the inability to perform the duties of your established profession has its advantages. For example, if you are a trained mechanic and suffer back injuries that prevent you from participating in the physical labor of your job, you are disabled under the “established profession” definition. You may be able to find work that is not as physically demanding, but it’s not the occupation in which you were educated and trained–nor is it the occupation you were employed in when the injury occurred.

You should always carefully read the terms of any life insurance policy you are considering, and you should also be sure to check which disability definition your insurer uses for the waiver of premium rider.

How the Rider Works

In order for this rider to go into effect, you must be disabled for a consecutive number of months (outlined within the terms of the rider). Some insurers set this minimum at three or four months, but most set it at six months.

Once you meet the minimum time length, your life insurance company waives your premium as long as you are disabled–whether it’s a year, several years, or the rest of your life. Typically, any payments made during the waiting period are refunded.

If you do overcome your disability and are able to return to the job in which you are educated and trained, you are typically required to begin paying your premiums again. However, you should not be responsible for any past payments.

If you are interested in including the waiver of premium rider in your new whole life insurance policy, you can obtain life insurance information, advice, and competing quotes from a qualified life insurance agent.

How to Use the Rating Agencies as a Guide When Buying Life Insurance

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Buying a life insurance policy is a long-term commitment, for both you and the insurance company that issues your policy.

On your part, you agree to pay your premiums for the duration of the policy, however long that may be. On its part, the insurance company agrees to pay any eligible claims during that time period.

Both parties sign a contract consenting to uphold their side of the agreement, most of which extend for many years.

Check the Insurance Carrier’s Financial Stability

 

As a client purchasing a significant product for you and your family, you should spend a good deal of time reviewing the financial stability of any insurance company before trusting or committing money to them.

Insurance is under the jurisdiction of each individual state, not the federal government, and often rules and regulations vary from state to state. While some states have funds set aside for companies that encounter financial difficulties, keep in mind that unstable organizations may not honor their commitments to clients who file claims, even if the clients have been paying premiums for several years.

Size Does Not Always Matter

Do not simply assume that any large or well-known company is financially stable. There are some highly dependable small insurance companies who are known to pay their claims in a timely and honest manner.

Rating Agencies

To help guide your decision about which company to use, check the ratings assigned by five independent agencies:

  • A.M. Best
  • Fitch
  • Moody’s
  • Standard and Poor’s
  • TheStreet.com.

These five organizations review numerous companies’ claim-paying histories and abilities. They then make a judgment, based on their own standards, and assign each carrier a rating. The ratings are in the form grading letters (A, B, C, D, F).

Not only does each agency have its own way of arriving at a rating, but the value of the letter ratings differ from one organization to another. An “A” may be the highest rating from one agency, but another agency may use “AA” or “AAA” as their highest level ratings.

Comparing Companies

To best interpret each rating agency’s grades, examine each grade and its accompanying description. For example, “A” and “AAA” may both be described as “excellent” by separate rating agencies. If your insurance company’s grades meet that description at all five agencies, it is likely a dependable choice.

Remember, these grades are not ironclad guarantees. They are based only on what the agency knows at the time the ratings are assigned. Companies do get upgraded and downgraded over time.

Go Online To Compare Life Insurance Quotes

To shop around for the best life insurance policy that can effectively protect you and your family, check online and compare quotes from multiple insurance companies. Make sure you get the most appropriate and affordable policy for your needs.

Whole Life or Term Life Insurance? Considering the Benefits of Both

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There are two basic differences between term life insurance and whole life insurance. Termlife insurance is pure life insurance coverage, with premiums paid in exchange for death benefits over a specified period of time or term. When making life insurance comparisons, this is the most affordable form of insurance.

Whole life insurance, on the other hand, combines a policy with an investment component. For that reason, whole life insurance is also known as permanent or cash-value insurance. The investments can include, but are not limited to CDs and Treasury bills.

Whole life premiums tend to be expensive because you pay for insurance coverage, as well as the investment portion of the policy. With the excess premiums (the funds that exceed the cost of life insurance) the insurance company establishes an investment known as an accumulation or cash value account. A whole life insurance policy builds value that can be borrowed against; however, any outstanding loans are deducted from the money that beneficiaries receive upon the insured’s death.

Whole Life Insurance As an Investment: Pros and Cons

Because of the investment component, many people use permanent life insurance as an investment vehicle for retirement planning. There are benefits to this type of financial plan–mainly in the tax treatment of the cash value account. The funds that accumulate in the account grow tax deferred, so that capital gains and income taxes are postponed till a later date.

However, due to the higher premiums associated with whole life insurance policies, debate swirls over whether it’s better to buy term life insurance and invest the funds saved on what a whole life policy would have cost. Money gurus often frown on whole life policies and say it’s better to purchase affordable life insurance while you are young and premiums are inexpensive, and invest the difference on your own.

Factors to Consider: Whole Life or Term Life Insurance

  1. How much insurance do you need, and can you afford the higher premiums? Determine the amount of life insurance coverage you need, then compare premium costs between term and whole life policies. Buy the policy that most closely meets your needs and that you can afford
  2. What are your state and federal tax brackets? Examine your tax brackets–the benefits of the deferral on the accumulation account are only as much as the amount of taxes deferred
  3. Can you still buy affordable term life insurance as you age? As you age, you are categorized differently by insurance underwriters and pay higher premiums. Compare the costs of a guaranteed term life policy versus the cost of whole life

If you have a higher tax bracket and have a long time to wait until retirement, a whole life insurance policy may be a good bet for you. Consider your choices carefully when shopping for an affordable life insurance policy.

Even Your Business May Need Life Insurance

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You know you need life insurance to provide your family with financial security, but did you know that you might need life insurance for the financial security of your business?

Why Small Businesses Should Consider Life Insurance

Two or three individuals jointly own many businesses–particularly small, family run businesses. If one of the owners should pass away, the heirs may either be unprepared or unwilling to take over the responsibilities of running their share of the company.

It’s also possible that most of an owner’s net worth is connected to the company. In such a situation, even if the heirs want to keep their share of the business, they may be forced to sell the shares to settle estate taxes or to divide the inheritance among several heirs.

Another possibility to consider–when one business owner passes away, the remaining owners may be faced with the less than ideal prospect of having to share control of the business with new owners.

Buy-Sell Agreements

A buy-sell agreement can provide a solution to these possibilities. An agreement is reached between all of the owners, which stipulates that should any one of them die, the remaining owner or owners have the first right to purchase the others’ shares at a preset price.

Fund the Buy-Sell Agreement with Whole Life Insurance

In order to have the funds to do this, whole life insurance policies might be purchased on the life of each owner. The other owners are named as beneficiaries.

When one owner dies, the other partners collect the policy proceeds. The insurance benefit is then used to buy the heirs’ share of the business. The heirs get their inheritance and the other owners get to keep control of the small business.

Whole Life Is the Best Way to Fund an Agreement

Because it is not known how long any one of the owners may stay with the business, you should consider a whole life policy, which is meant to provide insurance coverage for a lifetime. A term policy may be the most affordable insurance choice now, but if the term expires and the owners are still active in the business, new policies that are likely to have higher rates would then have to be purchased.

Key Person Insurance

Small businesses are also likely to have one or two individuals who are the driving force behind the company’s success. Should that key individual die, life insurance on that person can provide the funds needed to keep the business running until a replacement is found.

Just as with a buy-sell agreement, a whole life policy might be best to ensure that the business always has the funds needed to sustain it. A term policy, unlike a whole life policy, may expire before the needs of the business are met.

Going Online to Get Whole Life Insurance

If you feel your business is vulnerable to either of these situations, speak with a knowledgeable agent. You can get competing whole life insurance quotes and find the best life insurance policy that meets your needs.

What is Whole Life Insurance & How Does it Work?

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whole life insurance is a type of insurance that remains in place for the lifetime of the insured individual. It does not expire, never needs to be renewed, and cannot be revoked. It features a level premium, which provides both cash value and a death benefit as long as the policy remains in force.

Another important feature of whole life insurance, which term insurancelacks, is cash value. Each time you pay your premium a portion of the proceeds are used to provide you with life insurance coverage; however, the rest of your premium payment is set aside and allowed to accumulate in what is called cash value.

The cash value can remain in your policy, where it continues to grow at a guaranteed minimum interest rate. You can also take a loan against the cash value, or it can be returned to you if you must surrender your policy. But if a loan against cash value is outstanding when the insured dies, the amount of the loan is deducted from the death benefit.

When the cash value grows to a certain level, your policy may be considered “paid up” because you can use the cash value to make your premiums payments. Your whole life insurance is also considered paid up when the cash value equals the policy’s face value. Once your policy is paid up, you no longer have to make premium payments and you still maintain life insurance coverage.

Whole Life Insurance May Pay Dividends

Dividends are another benefit of whole life insurance. If your life insurance company has higher returns than anticipated or lower expenses, a portion of this money is returned to policyholders. If your policy is eligible for dividends, you can use them to purchase additional coverage, pay a portion of your premiums, or you can receive the dividends as a cash payment.

Whole Life Insurance Comes With Guarantees

Once your policy is issued, whole life insurance premiums remain level. They should not increase as you get older or if you develop medical conditions–no matter how serious.

The cash value of your policy is also guaranteed. Your policy states how much your cash value may increase over time, as well as the minimum interest that it may earn each year.

Finally, your death benefit is guaranteed to be the face value of the policy, no matter how long you live. The only exception is that the guaranteed death benefit is reduced if there are any outstanding cash value loans.

How Whole Life Differs from Other Types of Permanent Insurance

Whole life insurance is one of many types of permanent life insurance, including universal life, variable life, and variable universal life. All permanent life insurance policies share a common feature: As long as you pay your premiums your heirs are guaranteed to receive a death benefit.

Other forms of permanent life insurance may give you greater flexibility in premium payments and death benefits; however, other types of permanent insurance do not provide the assurances of a set premium, guaranteed death benefit, and guaranteed cash value.

The following are other types of permanent insurance and their features:

  • Universal Life: Universal life insurance, unlike whole life, allows a range of premium payments. There is a minimum premium that must be paid, as well as a maximum allowed amount. The death benefit of a whole life policy never varies, while the death benefit of a universal life policy can decrease, or in some circumstances, increase. Universal life insurance also provides a choice of two death benefits: face value, or face value plus the accumulated cash value
  • Variable Life Insurance: The difference between variable life and whole life is that variable life allows you to choose how your cash value is invested. Choices include fixed-income investments, stocks, and mutual funds. Death benefits and cash value are linked to the performance of these investments, so you bear the investment risk of the death benefit and cash value. A minimum cash value is never guaranteed, and although there is a minimum death benefit, you must pay extra premiums to fund it
  • Variable Universal Life Insurance: This is the most flexible kind of permanent insurance, but it comes with the most risk. It allows you to vary your premium payments and select how you invest your premiums and cash value. Adding to its flexibility is the choice of two types of death benefits: a fixed death benefit and a variable death benefit. The variable death benefit is equal to the cash value at time of death plus face value (the death benefit stated in the policy)

Whole Life Insurance Is for Almost Anyone

A whole life policy can help provide peace of mind for you and your loved ones. While many may think whole life insurance is for parents with young children, life insurance can be useful at any age–whether you’re married or single, have children, earn a living, stay home, or even own a small business.

Replace Lost Income

A whole life insurance policy can provide beneficiaries with the cash they need to replace the income of the family breadwinner and pay off outstanding debts. While the need for coverage might be greatest when children are young, before a family has had time to accumulate savings, education expenses for children can continue far longer than you anticipate.

You should also account for the value of a stay at home parent. While caretaking parents might not earn an income, think about how costly it would be to hire someone, such as a full time nanny or housekeeper, to take over those responsibilities.

Lastly, don’t think life insurance isn’t for you if you’re single. You might want to have a whole life policy if you support your parents or other family members.

Paying Estate Taxes

You worked hard all your life, but your heirs may be faced with the prospect of having a substantial amount of their inheritance diminished by estate taxes. One solution is to have a whole life policy, which can provide cash proceeds to pay taxes and other death expenses, thereby leaving your heirs’ inheritance intact.

Leaving a Legacy

Your children may be grown, but the proceeds of a whole life insurance policy can help them, your grandchildren, or other family members get a head start in life. You might also want to leave behind enough money to help a family member with special needs. Alternately, if you have supported a favorite charity or your alma mater for many years, bequeathing the proceeds of a whole life policy can provide a lasting legacy and assist those who are less fortunate.

Small Businesses Can Also Benefit from Whole Life Insurance

Frequently small businesses depend on one or two “key” people. If a key person should suddenly die, the business might suffer greatly until a suitable replacement is found. Key person insurance, funded by a whole life policy, can be used to provide the money needed to keep a business going while a search is conducted.

Many small businesses are owned by two or three individuals. Should one business partner pass away, the others may have to share control of the business with the deceased owner’s heirs, who may not want to be in the business. A buy-sell agreement, funded by a whole life insurance policy may solve that problem.

Whole Life Insurance for Peace of Mind

To find out how to secure your family’s financial future with whole life insurance, compare whole life insurance rates from a variety of life insurance companies. Then select the policy that best suits your needs.

Whole life insurance is a type of insurance that remains in place for the lifetime of the insured individual. It does not expire, never needs to be renewed, and cannot be revoked. It features a level premium, which provides both cash value and a death benefit as long as the policy remains in force.

Joint Life and Survivorship Life Insurance Policies May Be the Best Bet for Couples and Business Associates

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Joint and survivor term and whole life insurance policies are excellent estate-planning tools. These insurance policies typically cover the lives of two people–most often a married couple or business partners.

A well-structured joint or survivor life insurance policy can protect your net worth for your heirs, or guarantee payment of debt for business partners. Additionally, these insurance policies are usually less expensive than having two or more individual life insurance policies.

Joint Life Insurance Basics

In a joint, or first-to-die term or whole life insurance policy, coverage usually includes spouses or two or more business partners. This type of insurance policy pays the benefit when the first person dies, providing the surviving policyholder with funds to pay the mortgage, care for children, or to pay any outstanding business loans. Comparing insurance quotes for joint life insurance policies is as easy as following the link and entering your zip code.

Survivorship Life Insurance Basics

In a survivorship life insurance policy, benefits are not paid until the the survivor, or second-to-die, be it a spouse or business associate, passes away.

This type of life insurance policy often works best for couples with sizable assets. Survivorship insurance can ensure that the largest part of an estate is left to heirs by helping to pay for estate taxes, or to pay off business debt.

Advantages and Disadvantages of Joint and Survivorship Life Insurance Policies

Joint and survivor policies have several advantages:

  • A joint or survivor term or whole life insurance policy typically has a lower premium than two separate policies
  • Underwriting requirements are usually less stringent, especially if one party has a record of good health. This may make it easier to insure a spouse or business associate who might have poor health
  • Joint life or survivor life insurance can be written as a term policy or as a whole life policy, the latter builds cash value like any other whole life policy

Although joint and survivor policies have several beneficial qualities, these life insurance policies also have a few drawbacks:

  • Once written, joint and survivor life insurance policies are not very flexible. Premiums and the face value of the policy typically can’t be changed
  • Oftentimes, the younger person in the policy pays more than he or she would for an individual life insurance policy because premiums are calculated on the average age of both insured parties

Which Policy Is Best for You?

Financial planners often recommend a joint life insurance policy in business settings. These policies can be cheaper than two separate policies. Also, should the principal in the business pass away, the partner or associate is assured funds to continue operating the business.

For estate planning purposes, if the funds from the estate aren’t needed immediately by the heirs, a survivorship policy may be a sound choice.

To compare insurance quotes from a wide range of insurance companies and find the policy that works best for your needs, simply follow the highlighted link and enter your zip code.

What to Do with a Lapsed Whole Life Insurance Policy

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Sometimes policyholders of whole life insurance are forced to make hard financial decisions when it comes to making premium payments on their policies. In hard financial times, you might be forced to choose between a premium payment or groceries.

Others stop paying premiums because they no longer need the insurance. In cases where you stop making payments on a life insurance policy, the policy lapses.

Whatever your reason is for allowing whole life insurance to lapse, the policy may still hold value for you.

Lapsed Whole Life Insurance Policy Options

Here are some options to consider if your whole life insurance policy lapses:

  • Make a late payment: In most cases, you have a 30 or 31 day grace period to make up for a missed payment, so even if you are late, you can keep the policy in force by catching up. According to the American Council of Life Insurers (ACLI), if a policyholder dies within the grace period, beneficiaries still receive the benefits left after the overdue payment is deducted. But if the insured person dies after the grace period, beneficiaries do not receive the death benefit.
  • Reinstate the lapsed policy: ACLI says that most policies can be reinstated within five years of lapsing, as long as past premiums are paid up and any loans you have against the policy have been satisfied. However, you may have to prove your insurability again. ACLI says the process of reinstatement is usually cheaper than purchasing a new policy.

Alternatives to Lapsing

Before giving up on your policy and walking away, ask your life insurance company about the “surrender value” of your policy. The longer you’ve held it, the higher the cash surrender value will be. In some cases there is a surrender charge that is deducted from the value. Still, it’s better to get something rather than nothing.

If you’ve built up enough cash value, you can ask your insurer to consider the policy “paid up” at a level supported by your cash value (which will be smaller than the original face value). You then no longer have to make premium payments and you’ll have a death benefit to pass on.

You can also sell your whole life insurance policy in a transaction known as a life settlement. Instead of allowing a policy to lapse or withdrawing the cash value, an increasing number of policyholders are selling their unwanted life insurance policies to investors. Investors take over the payments, are named the beneficiaries, and collect death benefits when policyholders pass away. Life settlements are typically conducted by institutional investors that want a higher return than can be found in the bond market.

What to Know About Selling Your Policy

If you are thinking about selling your whole life insurance policy as a life settlement, here are some things you should be aware of:

  • This option is typically available to policyholders who are at least 65 and have life expectancies of 12 years or less.
  • The amount you can get for your whole life insurance policy depends on your life expectancy, the face value of the policy, and how much investors will have to pay to keep the policy in force. Most policies acquired by investors are worth at least $250,000, although some are worth less.
  • The broker’s commission comes out of your proceeds, so shop around to investigate rates.
  • Although life insurance proceeds are tax-free to beneficiaries, you may have to pay taxes on any life settlement that exceeds the amount you’ve paid in premiums.
  • How much is your policy worth to an investor? It varies, but a rule of thumb is that it is worth three times the amount you’d get from cashing in the policy.

Before allowing your whole life insurance policy to lapse, or deciding to sell it or cash it in, consider your initial reasons for obtaining the policy. Are your beneficiaries financially protected in the event of your death?

Also, keep in mind that insurance companies pay attention to your habits, so if you have a history of lapsing life insurance policies, you’ll generally have trouble buying a new policy in the future.