Tuesday, May 10, 2011

Life Insurance Begins at Age Fifty

If your term life insurance policy is ending but your needs continue, consider the cash value alternative of permanent life insurance. One way to continue your life insurance is to simply renew your term protection; however, if your health has changed, you may be limited on the type of policy you can buy. A permanent life insurance policy, or whole life insurance policy as some people call it, may provide a steady investment. In contrast, many people believe whole life insurance as an investment is controversial, but that is because it takes a policy many years to show value. The first year’s premium largely goes toward commission and other expenses, so your cash value will lag the amount paid in premiums in the early years. It typically takes eight to ten years for your cash value to exceed the premiums you pay. If you carry on, however, the results get better—sometimes dramatically. This is a long term proposition. Do not buy it if you cannot keep it. From 1991 through the start of 2011, according to Blase Research (a life insurance data provider in Easton, PA), annualized cash value returns for representatives policies from major companies such as Northwestern Mutual and New York Life in private range from 2.62% to 4.44%. This amount is tax deferred and includes the part of your premiums that go to pay for death protection and company expenses. But it is also a good idea to see whether you can convert your term policy to permanent insurance without changing insurers and without a new physical exam, especially if you develop medical conditions that you did not have when you purchased the life insurance originally. Clearly earnings on life insurance policies will not keep up with stocks over a lifetime and certainly not with an extended bull market. This is why just about every financial advisor, including well-trained life insurance agents, emphasize that insurance is not meant to be your primary investment. Tom Newsad, a financial advisor and life insurance agent in Middletown, Ohio, advises everyone to have a comfortable emergency reserve savings or tax deferred investment. Remember that permanent or whole life insurance has a couple of strong suits, the first of which is safety. With the exception of AIG, life insurers survived the credit crisis and the recession in excellent financial condition. Second is that falling costs, competition, and longer life expectancies are driving the cost of all life insurance policies down, including those for people aged fifty and older.
Permanent life insurance also appeals to risk adverse people who do not have time to recover investment losses in the event of another financial crash. Another form of whole life or permanent life insurance protection is a type of whole life policy called limited pay. You may pay higher premiums for fewer years, but it is an option that has become popular among pre-retirees who want to time the end of their premium obligations with the retirement date. Cost could range perhaps twice as much per year versus regular premiums paid over your lifetime, but by putting more into the pot earlier cash value also compounds quicker.
Cash value life insurance can also be a good portfolio diversifier. That is because a whole life policy is unconnected to the securities market. You can think of it as cash or bond allocation in your overall investment nest that allows you to become more aggressive with stocks, commodities, or real estate in your IRA and 401(k) or taxable brokerage accounts. Cash value life insurance is also one alternative to home equity line of credit or other sources of borrowed money. That is because the money you usually borrow from your whole life insurance policy is not taxed (remember, whole life insurance policies are the only vehicle that you can borrow money out of and not have to pay taxes on). A policy loan is instant credit. You can borrow up to your total premiums paid with no questions asked, simply by sending a fax or sending the insurance company a check or wire transfer at the Newsad Insurance Services office. A simple phone call or e-mail starts this process for you. Besides speed, there are two huge advantages to CDs and loans, and that is that nobody runs a credit check or ties the interest rate to your credit score, and that you do not have to repay the money on any schedule. There is also no penalty if you want to make a withdrawal at or before age 59 ½ because it is not a taxable event like a withdrawal from an IRA or from a 401(k). Policy loans are not a totally free ride, however. They tend to acutely accumulate interest at 5% to 8% in your unpaid principal and accrued interest is deducted from the death benefit paid to your survivors, or from the cash value taken away if you discontinue the policy.

Ultimately, what’s most important here is that the money accumulating in your policy is your money. You also will not have to beg a banker to approve a loan after you have retired and have a lower income.
Buy coverage from the best so you are entering a long-term relationship. That is why at Newsad Insurance Services we strive on building relationships, and having long-term relationships with our clients is priority number one! Tom Newsad has been selling life insurance in Middletown since 1994 and currently serves clients in Middletown, Franklin, Trenton, Liberty Township, Hamilton, and South Dayton. For more information, contact Newsad Insurance Services today at www.newsadinsurance.com or 513-424-6871

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