Alright, second in a series on life insurance. We are going to go a bit more in depth on the different kinds of term insurance. I wish I could say that there was only one kind, but sadly, there are a great number of different kinds. On the plus side, the break down into 2 main types. Annually Renewable Term and Decreasing Term.
Annually Renewable Term
This one is by far the most common. Every renewal, the price goes up. You don’t have to prove insurability (traditionally) so long as you are willing to pay the premiums. The premiums can get quite high, to the tune of $20k/month in the MUCH later years (80+). No, that is not a typo. As with all life insurance, it is meant to cover loss of income during your income producing years. Not to cover you during retirement.
Decreasing Term
This one is common for elderly to slowly reduce the face amount as well as being used as mortgage insurance. It’s purpose is to slowly drop to 0 over a given set of time, thus why it is used as mortgage insurance.
It should be noted that EVERY kind of life insurance out there, is a variety of one of these two. These are also the purest form of life insurance, just cover. Before you leave though, there is more.
Level Term
This is ART from above, but the premiums are averaged over a set amount of time. The shorter the term, the lower the cost. You have to be careful with who you buy this from though. Many companies lower their prices just to attract customers and may be unable to pay claims. Is it better to have lower premiums, of course, but not at the expense of the company not paying claims.
After the set time is up (typically from 10 to 35 years), the policy reverts back to ART with the premiums practically sky-rocketing afterwards. In addition, most policies, at renewal, will give you 4 options.
- Drop Coverage
- Re-qualify Medically for another Term
- Leave alone and pay the higher premiums
- Convert to a form of cash value/permanent insurance (will go over this later).
If you have medical issues, #2 probably isn’t possible, #1 and #3 aren’t desirable, and #4 would probably cut your coverage down so that it barely covers even half of what it did before or your current expenses. That being said, if you have serious medical issues, having a whole life/permanent policy may be the only way to pass on/reduce final expenses if you don’t have a sizable estate.
Return Of Premium
This is generally a rider added onto a policy. It does cost more. How this works is, as you pay your policy, the extra premium goes into a separate account to earn some interest. At the end of the policy, you will get up to 100% of your premiums paid back. However, if you cancel the policy at any time, you will NOT get all your premiums back. It works off of a graduated chart. Typically, the first 5 years, you will get nothing back. In addition, in some states, even if you go till the end of term, you will only get 95% of your premiums back.
When dealing with these policies, you must run the numbers. Thus far, 9 times out of 10, ROP is a waste of money. You can generally do better by taking the difference and putting it into a conservative fund or a tin can in your backyard.
With ROP though, you do have one additional option at the end of term (besides getting some of your money back), and that is taking out a paid-up insurance policy.
Credit Life
This is a rip off. You are basically paying for term insurance for the balance of your credit card and that is it. When you die, the credit company gets their money. That is it. Your family doesn’t get anything, and the money that could be better served helping your surviving family members, is gone.
Mortgage Life
This is also a rip off and is sometimes financed into your mortgage. This is pure decreasing term insurance. The face amount drops with the balance of the note. Same as credit life, you die, it pays the mortgage company. It generally costs more than just getting level term by it self. If you have this, replace it. Your surviving family will think better of you when they can actually pay the bills with the proceeds instead of giving it to the mortgage company.
Accidental Death & Dismemberment
This one, is more of a rip off than the last 2 combined. Lets break this up into it’s 2 parts shall we.
Accidental Death – If you death is caused by accident, it pays. What does this mean? Well, you get into a wreck, you die at the scene. Death by accident. Same scenario but the paramedics arrive while you have a pulse. You die en-route or at the hospital. Death due to complications as a result of an accident. Doesn’t pay. But wait? Your died because of an accident and it wont pay? It’s splitting hairs, but basically yes. It all depends on what is on the death certificate. One wrong word and it wont pay.
Accidental Dismemberment – This has so many crazy restrictions, it’s actually funny. It changes based on the policy itself. In some cases, you have to loose 2 appendages (1 leg and 1 arm; 2 legs; 2 arms; 1 eye and a foot). And in some, you have to actually have to have it in one piece so they can verify that it is yours and you really did loose it. IE, you can’t show up with your arm chopped off and not have your arm.
I have even heard of cases where they didn’t pay unless you were fully disabled as a result, although, these are rare.
For both of these policies, just get rid of them. They are dirt cheap because they pay out even LESS than a pure term policy.
Conclusion
Now, many cash value agents like barging that term only pays out 2% of the time in order to sell a permanent/cash value policy that, so long as you live long enough, pays out regardless. Although this is true, lets put it into perspective shall we. That 2% also counts all the policies that have lapsed, been replaced, canceled, etc. It is not an accurate figure to say the least. Of all policies that are in force at the time of the policy holders death, I’d say (my guess) 95% pay out regardless of which kind of life insurance it is. Why not 100%? Well, you have a 2 year contestability clause that gets activated sometimes.
Death my suicide, mis-statement of information on the policy, etc can cause that clause to activate and the insurance company to not pay. There was a recent article about a women whose house was in foreclosure. She was given a sub-prime loan and the mortgage company refused to help. She took out a life insurance policy equal to the balance of the note so her family could pay it off and keep the house. Within a few weeks of it being issued, she committed suicide so the policy would pay out. She even left a note to that effect. Upon reading that, my heart went out to the family. Not only did they loose a loved one, but they also lost the house because the insurance company wouldn’t pay. They didn’t report that, but I know it happened.
Keep an eye out for upcoming articles on the other types of life insurance as well as more examples of debt killing and various other products to help you better navigate this crazy world.
), I started noticing things around me. Not items things, but spiritual things. Yes, actual ghosts and demons. I found that if I meditated a bit and concentrated, I could sense what they were saying. How do I know I wasn’t crazy? Well, I’ve described what people look like to other. Not people I’ve met, but people that passed many years before. Even passed on a few personal messages. There was even a time when I was dropping off my friend Elric, and while talking to him about it, sensed hundreds of sprits who have died various ways. Shootings, old age, fires, collapses, diseases, etc. Some were hundreds of years old begging just to be recognized. That same night, I also quoted Revelations completely in graphic detail…with never having read it even once.
