Help with Buying Life Insurance

Do you need life insurance to cover a loan, a buy-sell agreement between business partners or to protect your family? Whatever the reason, we have access to a wide variety of life insurance products to suit your needs.

Complete and submit the following preliminary information, and we’ll get back with you about life insurance that matches up with your particular concerns. No pushy salesman to worry about! We respect our customer’s ability to make decisions without all that old-school life insurance nonsense.

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Learn More About Life Insurance

Life insurance in its purest terms is a contract between an insured and an insurer that, in exchange for valuable consideration (premiums), the insurer agrees to pay a specified amount to an insured’s beneficiary in the event the insured dies while the contact is in force. Life insurance rates are based on:

  • the expenses necessary to run a life insurance company and market life insurance policies,
  • the amount of claims paid by an insurer,
  • funding required to meet responsible reserves as stipulated by insurance law,
  • investment returns of an insurer.

Each insurer will experience different operational expenses and different investment returns that can make insurers more or less competitive over time. An insurer with particularly low expenses today may have higher expenses in the future. Evaluating the underlying financial stability of an insurer in broad terms is a good way to establish a comfort level with an insurer for the long haul. In situations with large death benefit requirements ($5,000,000 or more), using multiple insurers to meet funding requirements can be a way to help diversify risk.

Types of Life Insurance

Ultimately there are two basic types of life insurance. One is called “term” life insurance, the other “permanent” life insurance.

Term Life Insurance

Term life insurance is more temporary in nature. There are two common types of term insurance, “Annual Renewable Term Life Insurance” and “Level Premium Term Life Insurance.”

Annual Renewable Term Life Insurance

Annual renewable term life insurance policies cover an insured for an agreed to premium for one year. After each year, the contract renews with a new rate. Over time, annual term life insurance premiums begin to escalate substantially. This type of life insurance is typically referred to as “ART” (annual renewable term) or “YRT” (yearly renewable term). Both of these types of life insurance policies set rates to insure an individual on a yearly basis. As long as premiums are paid as stated in the life insurance contract, the coverage remains in force. ART and YRT policies tend to have very low initial premiums, but premiums escalate in the future. At later ages premiums increase rapidly and most policies of this type become discontinued. ART and YRT policies are a straight “premium in exchange for coverage” kind of life insurance and therefore have no cash value element.

Level Term Life Insurance

Level Term Life Insurance is one the most popular kinds of individual life insurance purchased today. Level term life insurance is also a “premium in exchange for coverage” contract, and policies build no cash value. Level term life insurance policies set a specific time period in which premiums will remain level such as 5, 10, 15 or 20 years. During this time period, insured’s pay a flat premium for coverage with no increases. After the set period is over, premiums escalate rapidly, but coverage is available and stays in force as long as premiums are paid.

Permanent Life Insurance

Permanent life insurance is the second major category of types of life insurance policy. Permanent life insurance policies use various funding arrangements to build policy reserves over time that enable the policies to remain in force for the entire lifetime of an insured. Various investment options are available for the cash value portion of a permanent life insurance policy. Some of these are:

  • A “portfolio rate” is basically a rate of return based on the average rate of return of an insurance companies entire portfolio of investments. Traditional “whole life insurance policies” commonly set returns on cash values based on portfolio rates. Because of the diversification in investments, portfolio rate based policies tend to be viewed as lower risk.
  • An “indexed rate” policy is a policy that invests cash values in some type of index in order to sustain the policy in the future. Different indexes relate to various types of financial instruments, as an example treasury bills. Universal life policies typically place cash values in index based investments. Universal life policies are more flexible than whole life policies because premiums and death benefits can vary according to contract. However, universal life policies put more risk on the insured and, depending on expenses and investment factors may require extra premiums in the future in order to maintain stated death benefit amounts.
  • A “variable rate” life insurance policy is a policy that invests cash values in investment grade securities or equities. Variable life insurance policies are highly sensitive to investment risk. Our agency does not market variable rate policies.

Life Insurance “Riders”

Life insurance policy “riders” are add-on elements to life insurance policies that provide ancillary insurance benefits in exchange for premium. Two examples of life insurance policy riders are;

Disability waiver of premium. Disability waiver of premium on a life insurance policy is a provision that, for an agreed to additional premium, the insurer agrees to pay the life insurance premiums of an insured in the event that insured becomes disabled and can no longer pay policy premiums. Various contractual stipulations apply defining disability and when premiums will begin to be paid.

Policy indexing or “purchase of paid-up-additions.” These riders allow the face value of a policy to increase over time as a hedge against inflation. There is generally no future medical underwriting required relating to these indexed death benefit increases. Usually this rider is available on permanent types of life insurance policies.

Which type of life insurance is right for you?

Life insurance should cover a specific need. If your need is temporary, to cover a 10 year loan, for example, then a ten year term policy is probably the right option. If your need is more permanent; such as, to cover the transfer of a business from one generation to the next upon the death of a business owner, then permanent insurance may be the best option. We can work with you to find the right type of insurance based on your individual situation. In the majority of cases, some type of level term insurance policy generally suffices and is a very cost effective way of managing life insurance risk.

How much life insurance do you need?

As stated above, life insurance should cover a specific need. If you are purchasing life insurance to cover a $1,000,000 loan, then $1,000,000 is probably the right policy amount. If you are funding a buy-sell arrangement in a business valued at $500,000 that has two partners, then $250,000 is probably the right amount. In the case of an individual family, elaborate analysis can be done to determine a proper amount of life insurance. Most of these studies identify debts that must be retired, future income needs, future education expenses, etc. In our experience, these surveys generally lead to a recommendation of a death benefit in the range of seven to ten times an individual’s annual income. Each case has variables, and we can help guide you in the right direction.

If you haven’t done so yet, please complete and submit a request for information about life insurance using the online form above, or you are welcome to call our office at 513-891-9888 with any questions.

Thank you for considering McCarthy Stevenot Agency, Inc. for help with your life insurance needs!

Filed under: Life Insurance Buyer's Guides

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