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Topic Wiki
Term insurance vs Whole life
Term insurance is the cheapest and simplest. You pay a premium and if chv”sh the insured person dies, the beneficiary gets the insurance amount. The higher the risk a person is, the higher the premium. So people with worse health will pay more than healthy people for the same amount of insurance, and older people will pay more than younger people.
Level term. One popular type of term insurance has a level premium for a fixed number of years. Many people prefer this to the traditional type of term insurance where the premium each each year pays for coverage only in that year (and as a result the premiums increase every year, because you are aging). In contrast, a level premium term insurance policy has an unchanging premium amount that is guaranteed for a specific number of years. As a result of the design you are overpaying in the early years of the policy to subsidize your cost in the later years. Popular guarantee periods are 10, 20 or 30 years. As with any insurance, it pays to get one while you are healthy to lock in the lowest rate possible (in general, health only declines, you rarely hear of people getting healthier with age).
Return of Premium (ROP) Level term. Same as level term, but with a higher premium. At the end of the level period (e.g. 20 years or 30 years) you get back all of your premiums. Your premium is buying you two things: Part pays for the term insurance, and the other part pays for the cash payment you can get if you are alive at the end and didn't miss any premium payments. If you are mathematically inclined you can calculate an IRR and decide if you see a value in doing this.
The policies below combine "investing" with insurance. As they are front-loaded with large fees and commissions, they typically lose money for a few years and then break even. These rarely make sense for lower to middle class families.
Whole life has a level premium that is guaranteed not to increase for as long as you live. Because of insurance laws in the US, this type of insurance policy must always have a "cash value", which is the amount of money you get back if you cancel the policy. That makes Whole Life a much more expensive choice relative to pure insurance coverage (where you'd get nothing back if you cancel) and therefore a bad choice for most people who are not rich (this is complicated to explain in great detail, but it is an effective summary of who is most likely to see good value in buying Whole Life). One fringe benefit of having a cash value in Whole Life is that you have saved money which can be used for your retirement or any other purpose if you are still alive. For most people though, other savings vehicles will be better.
Universal life is very similar to whole life, in that it is meant to provide insurance coverage for as long as you live (as opposed to Term, which is meant to for a short to medium period of time). The most important difference is that the premium rates for Universal Life are not guaranteed, unlike Whole Life which is completely guaranteed. The concept behind Universal Life is that the insurance company tells you all the charges you are paying for and lets you pay as much or as little as you want for the coverage. Anything extra that you pay goes into an account that can earn interest, and as long as that account doesn't run out of money you stay insured.
Variable Life is an offshoot of Universal Life. The difference is that instead of the extra money going into an account that earns interest, you can choose to invest the extra money in mutual funds. Take my word as an expert in insurance that Variable Universal Life is only for the most investment oriented people (meaning that they barely care at all about the insurance part of the policy). If you are trying to decide on Term or Variable, the answer is always Term.
Choosing a company
Generally, the companies that focus on term insurance will have the best prices (i.e. rates) for term. Those companies are Banner, SBLI, AIG, etc. If you want to buy term, use a quote aggregator to get quotes from several companies at once. Here is one example of an aggregator (a good one!).
[No one here is getting a commission for this link]
http://www.term4sale.com/
https://www.accuquotelife.com/
https://www.matrixdirect.com/term-life-insurance#fv
If you are looking for Whole Life, Universal Life, or any other permanent product, you won't find quotes on aggregators- you will need to go to a company agent or an independent broker. A simple piece of advice for someone in this position is to get quotes from companies that focus on the product you want. For example, Whole Life is done best by mutual companies (e.g. New York Life, Guardian, Northwestern, Mass Mutual, Penn, Mutual of Omaha). Universal Life (and VUL) are the main products of public stock companies (e.g. Metlife, Prudential, etc.). Most big companies sell all the different types of products, but may not be competitive in price for all of them.
One ddf'er feels strongly that when choosing a company to buy Term from, a major factor is the what "conversion" rights the policy comes with. Conversion is a feature that entitles you to buy Whole Life or Universal Life at some point in the future (presumably when you have more money and can afford the higher priced plans) without being underwritten again - meaning you keep your rating no matter how your health may change. Conversion is certainly a valuable benefit if you anticipate needing permanent insurance at some point, and not all companies are created equal. When evaluating conversion features, you need to look at 1) how long does the conversion right last and 2) what product does the company let you convert to. Many companies offer liberal conversion rights but have bad permanent products, and you need to be educated enough to see through this and value it as a poor option.
Valuable tips for when you apply
Underwriting is the insurance company deciding which rating to give each applicant. They check health and driving record, but do not check credit rating. They can approve with their best rating, or pretty much offer whatever they want as each company has many rate classes.
Different companies can and do give different ratings to the exact same people. So if you don't like the rating one company offered, apply to a different company and maybe you'll be happier. Often, they can use the test results from the other company and you won't need to give blood a second time.
Do not eat for at least 12 hours before blood test. You can drink water.
Pregnant women can apply but most companies view blood work and weight as is. Translation: not wise to apply for life insurance while pregnant... do it before.
Shameless plug
After you've done your own research, you could reach out to a broker to make the purchase. Remember to take advise from a broker with a grain of salt, since he is a salesman and your decision affects his income. Best to come prepared.
Henche's Broker, via ddf recommendation
Heshy Sheldon Breier.
Worldwide Ins.
T:(718)253-9500
F:(718)252-3426
E:Sheldon@ww-ins.com
Term insurance is the cheapest and simplest. You pay a premium and if chv”sh the insured person dies, the beneficiary gets the insurance amount. The higher the risk a person is, the higher the premium. So people with worse health will pay more than healthy people for the same amount of insurance, and older people will pay more than younger people.
Level term. One popular type of term insurance has a level premium for a fixed number of years. Many people prefer this to the traditional type of term insurance where the premium each each year pays for coverage only in that year (and as a result the premiums increase every year, because you are aging). In contrast, a level premium term insurance policy has an unchanging premium amount that is guaranteed for a specific number of years. As a result of the design you are overpaying in the early years of the policy to subsidize your cost in the later years. Popular guarantee periods are 10, 20 or 30 years. As with any insurance, it pays to get one while you are healthy to lock in the lowest rate possible (in general, health only declines, you rarely hear of people getting healthier with age).
Return of Premium (ROP) Level term. Same as level term, but with a higher premium. At the end of the level period (e.g. 20 years or 30 years) you get back all of your premiums. Your premium is buying you two things: Part pays for the term insurance, and the other part pays for the cash payment you can get if you are alive at the end and didn't miss any premium payments. If you are mathematically inclined you can calculate an IRR and decide if you see a value in doing this.
The policies below combine "investing" with insurance. As they are front-loaded with large fees and commissions, they typically lose money for a few years and then break even. These rarely make sense for lower to middle class families.
Whole life has a level premium that is guaranteed not to increase for as long as you live. Because of insurance laws in the US, this type of insurance policy must always have a "cash value", which is the amount of money you get back if you cancel the policy. That makes Whole Life a much more expensive choice relative to pure insurance coverage (where you'd get nothing back if you cancel) and therefore a bad choice for most people who are not rich (this is complicated to explain in great detail, but it is an effective summary of who is most likely to see good value in buying Whole Life). One fringe benefit of having a cash value in Whole Life is that you have saved money which can be used for your retirement or any other purpose if you are still alive. For most people though, other savings vehicles will be better.
Universal life is very similar to whole life, in that it is meant to provide insurance coverage for as long as you live (as opposed to Term, which is meant to for a short to medium period of time). The most important difference is that the premium rates for Universal Life are not guaranteed, unlike Whole Life which is completely guaranteed. The concept behind Universal Life is that the insurance company tells you all the charges you are paying for and lets you pay as much or as little as you want for the coverage. Anything extra that you pay goes into an account that can earn interest, and as long as that account doesn't run out of money you stay insured.
Variable Life is an offshoot of Universal Life. The difference is that instead of the extra money going into an account that earns interest, you can choose to invest the extra money in mutual funds. Take my word as an expert in insurance that Variable Universal Life is only for the most investment oriented people (meaning that they barely care at all about the insurance part of the policy). If you are trying to decide on Term or Variable, the answer is always Term.
Choosing a company
Generally, the companies that focus on term insurance will have the best prices (i.e. rates) for term. Those companies are Banner, SBLI, AIG, etc. If you want to buy term, use a quote aggregator to get quotes from several companies at once. Here is one example of an aggregator (a good one!).
[No one here is getting a commission for this link]
http://www.term4sale.com/
https://www.accuquotelife.com/
https://www.matrixdirect.com/term-life-insurance#fv
If you are looking for Whole Life, Universal Life, or any other permanent product, you won't find quotes on aggregators- you will need to go to a company agent or an independent broker. A simple piece of advice for someone in this position is to get quotes from companies that focus on the product you want. For example, Whole Life is done best by mutual companies (e.g. New York Life, Guardian, Northwestern, Mass Mutual, Penn, Mutual of Omaha). Universal Life (and VUL) are the main products of public stock companies (e.g. Metlife, Prudential, etc.). Most big companies sell all the different types of products, but may not be competitive in price for all of them.
One ddf'er feels strongly that when choosing a company to buy Term from, a major factor is the what "conversion" rights the policy comes with. Conversion is a feature that entitles you to buy Whole Life or Universal Life at some point in the future (presumably when you have more money and can afford the higher priced plans) without being underwritten again - meaning you keep your rating no matter how your health may change. Conversion is certainly a valuable benefit if you anticipate needing permanent insurance at some point, and not all companies are created equal. When evaluating conversion features, you need to look at 1) how long does the conversion right last and 2) what product does the company let you convert to. Many companies offer liberal conversion rights but have bad permanent products, and you need to be educated enough to see through this and value it as a poor option.
Valuable tips for when you apply
Underwriting is the insurance company deciding which rating to give each applicant. They check health and driving record, but do not check credit rating. They can approve with their best rating, or pretty much offer whatever they want as each company has many rate classes.
Different companies can and do give different ratings to the exact same people. So if you don't like the rating one company offered, apply to a different company and maybe you'll be happier. Often, they can use the test results from the other company and you won't need to give blood a second time.
Do not eat for at least 12 hours before blood test. You can drink water.
Pregnant women can apply but most companies view blood work and weight as is. Translation: not wise to apply for life insurance while pregnant... do it before.
Shameless plug
After you've done your own research, you could reach out to a broker to make the purchase. Remember to take advise from a broker with a grain of salt, since he is a salesman and your decision affects his income. Best to come prepared.
Henche's Broker, via ddf recommendation
Heshy Sheldon Breier.
Worldwide Ins.
T:(718)253-9500
F:(718)252-3426
E:Sheldon@ww-ins.com
« Last edited by knowitall on December 05, 2023, 11:23:32 PM »
