Why Consider “10 Year Term” Life Insurance?

The most affordable type of life insurance is 10 year term.

This insurance is perfect for a young family, who needs some protection, but can’t afford to pay much.  It’s also great for short term needs.

It’s amazing how much life insurance someone in their 30’s or 40’s can purchase for less than $20 bucks per month if they’re in good health, and applying for 10 year term.

10 Year Term Explanation

Most term policies actually guarantee coverage up to age 95 or longer.  However, the premiums are only guaranteed to stay level for the first ten years.  That means your premiums will stay fixed during the initial 10 years, and in most policies, will rise annually thereafter.

There are various term lengths, such as 20 or 30 year term, which means the premium stays fixed for a longer duration, and remember, the lower the term duration, the lower the premiums.  For more information on alternatives to the ten year term, see our post on Types of Life Insurance.

10 Year Term Life Insurance Quotes

Age $500,000 $1,000,000
30 Year Old Male *$14 $21
40 Year Old Male $17 $28
50 Year Old Male $43 $78
60 Year Old Male $117 $217
70 Year Old Male $339 $625

*Note: All prices are MONTHLY as of 2/17/12, based on healthy, preferred plus, non smoker, and are subject to change.

Using Term for Buy/Sell Agreement or Key Man Insurance

Many business partnership arrangements require term life insurance on each partner, in the event that if he or she dies, the remaining partner/s will have liquid cash from the life insurance benefit to buy out the decedent’s family and or heirs of his or her share in the company.

10 year term life insurance is a popular choice for buy/sell contracts, since it’s the most affordable, and most businesses figure they either won’t be working together that long, or will probably restructure the ownership agreement by the end of 10 years anyway.

Estate Planning using Term Life Insurance

With the current “Band-aid” on estate taxes and the exclusion amount, some people aren’t sure what their long term estate tax implications could be.  A 10 year term policy with a conversion to permanent insurance may be a good solution for high net worth individuals whose estate value is approaching the current taxable threshold, but now quite there.

For example, a married couple with an 8 million dollar estate, with a properly structured AB Trust or bypass trust, may not owe any estate taxes if they were to both die in 2012.  However, if the current estate tax exemption (currently 5 million per individual) were to drop to, say, 3 Million per individual, then this couple would have an estate tax problem.

Since we don’t know what the future holds for estate tax legislation, some affluent families are purchasing 10 year term as a “wait and see” type strategy.  If the exclusion amount gets permanently set at 5 million per individual, or if estate taxes are done away with completely, then these wealthy individuals may decide to drop their coverage.

On the other hand, if the exclusion amount is permanently decreased, at least the policyholder will already have a policy in place (the 10 year policy), and could decide to convert it to a permanent policy such as guaranteed universal life or whole life.

You may also want to see this article for more information on using life insurance to avoid estate taxes and life insurance trusts.

Companies Who Sell 10 Year Term

Just about every company offers a guaranteed level 10 year term policy.  In my opinion, the 3 companies who are most consistently among the list of “low price leaders” for term insurance are Banner Life Insurance, ING-Reliastar Life Insurance, and Genworth Life Insurance.

Keep in mind, however, that some companies commonly show up in the top 3 in price quotes, but aren’t quite as lenient in underwriting, so it’s harder to actually qualify for their best ratings.  Two companies that come to mind here are Savings Bank Life (SBLI) and Ohio National.  On the contrary, you have a company life Prudential, who is usually not in the top 10, but maybe top 15 or 20, but are very fair on underwriting .

Apply for Term Life Insurance

To get started, simply call us at 877-996-9383 or get an instant quote using the form on the right.

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How to Buy Life Insurance

There are a few ways to explain how to buy life insurance.  Some people prefer using their local insurance agent from State Farm, Farmers, AAA, etc.  Others needing life insurance might see an advertisement from an insurance carrier such as Met Life, and call the company directly.

How to Buy Life Insurance

The best way to buy life insurance, in my opinion, is to get multiple online life insurance quotes from a company that offers quotes from several different carriers.  For example, a company such as Select Quote or Accuquote will be able to provide quotes from multiple companies.

Selecting the Amount You Need

The two questions you need to know before purchasing life insurance are “how much do I need?” and “what type of insurance is right for me?”  We’ll first address the amount of death benefit needed.

Most people purchase life insurance to cover a specific financial need.  One of the most common is when an income producing spouse and/or parent wants to protect against his or her loss of income due to an unexpected death.  This is a wonderful reason to have life insurance in place on your life.

Say you make $60,000 per year and you’re a 38 year old male.  You might be working for another 20 to 30 years before you’re able to retire.  Just imagine how much future income is lost if something happens to you before reaching retirement age!

Since income replacement is a very common reason to purchase life insurance, we provide an income replacement life insurance calculator on our site for free.  Just go to: How Much Life Insurance Do I Need?

If the life insurance calculator is too complex for your needs, a good rule of thumb is to carry 5 to 10 times your annual income on your life.  Of course you’ll need to take your current assets and debts into account.  The individual who has $500,000 in a personal IRA may have a decreased life insurance need in comparison to an individual with nothing in the bank and $100,000 in credit card debt, all things equal.

Other valid insurance needs are to cover debts, a mortgage, a business loan, to cover a key employee (known as key man insurance), to pay for estate taxes or death taxes, and to pay for death and funeral  expenses.

Which Type of Life Insurance is Right for Me?

Please read the section above before this section.  If you’re need is for income replacement, you almost certainly need term insurance and nothing more.  Term life insurance covers you for a specific period of time, and is typically much less expensive than whole life or universal life insurance.

On the other hand, if your need life insurance protection for the rest of your life, or if you are interested in the ability to grow cash value (from which you can borrow or withdraw funds), then you will need to consider a whole life insurance or universal life insurance quote.

If you’ve read the sections on selecting the amount you need and what type of insurance to buy and are still confused, call us at 877-966-9383 to tell us your situation and we’ll help you.

How Much Will I Pay?

This question depends on several factors.  Life insurance companies charge different rates to males and females of the same age and health status, so sex is the first variable.  They take mortality risks into account such as health problems (heart disease, cancer, diabetes, high blood pressure, etc) or other risks not related to your health such as occupational risks, hobbies and activities, and family health history.(continued on page 2)

Insurance for Billionaires

Billionaires have a lot of money and don’t need to bother with buying life insurance right?

Wrong!

There are plenty of sound economic reasons why even billionaires should include life insurance when planning an estate.

Life insurance can provide valuable and convenient financial liquidity for your estate and has value as the life insurance proceeds can be used in a variety of ways.  This includes not only for the structure of your estate, but also for your heirs.

Advantages of Including Life Insurance in Estate Planning

The first thing to consider is that a permanent life insurance policy such as whole life or universal life can be used as a valuable financial instrument because it gives you the ability to use a permanent life insurance policy as a form of tax-free investment growth.

A life insurance can be included as a segment of any portfolio which has non-registered investments for the ultra wealthy.  The life insurance proceeds can provide your heirs with non-taxable death benefits and is an excellent vehicle to transfer wealth through more than one generation such as both your children and grandchildren.
Along with the death benefits, permanent life insurance policies also include a cash value accumulation component which can be considered as an asset. Why? If the policy is owned by the insured billionaire or through their company, the cash can be accessed while the billionaire is still alive.

Life Insurance is a Stable Investment

The cash value accumulation segment is a stable investment because there is a long history of life insurance investments providing a fairly stable return which is advantageous in unstable economic times.

Life insurance policies can also be used in a variety of ways with trusts.  This is a detailed topic in itself so you should raise this issues with your financial or tax advisor to get the details.

Another interesting strategic use of a life insurance policy is to combine it with a life annuity, also called an insured annuity, which can offer even higher yields. This approach is better suited for those who older than 65 and have assets which are non-registered.

Life Insurance for Succession Planning

If a billionaire is planning to transfer shares of their business enterprise to their children, then these assets can be subject to taxable capital gains.  This requires that cash reserves may have to be accessed which might require the selling of assets or to borrow money to pay for the capital gains tax.  The proceeds from a life insurance policy allows the children to access cash liquidity through the proceeds of the policy to pay for the capital gains tax.

There is another advantage for this same scenario as some siblings may no longer be interested to be shareholders in the company, and the life insurance proceeds can be used to buy out these non-interested family members.

Other Ways Billionaires Can Defer Taxes with Life Insurance

It’s all about the two indelible truths – Death and Taxes.  When you die there will be estate and other taxes that have to be paid.  When you have this kind of money the taxes can be huge.

With a life insurance policy, the proceeds such as the death benefits also have to be paid to the beneficiaries who can use these assets as immediate liquidity to cushion the effect of the taxes that have to be paid.  This means that they may not have to use the estate’s assets to cover these taxes or can soften the bill.

Many billionaires are also benevolent and have charities which they like to support.  A charity can be named as a beneficiary on a policy and can be used as a non-taxable bequest to one or more charities.  A life insurance policy might be a preferable vehicle instead of simply transferring wealth from the estate to a charity.

Benefits of Life Insurance in Wealth Transference

There are also tax advantages if a billionaire wishes to transfer their wealth to either their children or grandchildren.  Since the proceeds are non-taxable, a life insurance policy is a convenient means to pass financial security to their children, or grandchildren…(continued on page 2)

Term Life Insurance for Men Over Age 50

Over 50 yr old man - Life InsuranceMen, if you are over the age of 50 years old and need term life insurance, that’s great.  I’ve written this post just for you!

The primary reasons men purchase life insurance in their fifties are:

1.  Family Protection

2. Business Protection

3. Estate Planning

Let’s cover each of these below in terms of how much protection you need, and which type of policy suits you the best.  Please note if you are unfamiliar with the various options available to you, you may want to visit our article about Types of Life Insurance, and you can also use our handy calculator to help determine How Much Life Insurance You Need.

Term Life Insurance for Family Protection

Most of our clients over 50 years old who need coverage are purchasing it because they are still working, and need to protect their wife or children from financial ruin in the event of their demise.  If we take the example of a 51 year old man who makes $70,000 per year and has a $500,000 mortgage, here’s what I would recommend.

This man will probably work another 15 to 20 years before retiring.  That’s over 1 Million dollars his wife would miss out on if he were to die unexpectedly.  In his case, I don’t normally add in the balance of the mortgage, but recommend replacing his income for at least 15 years.  This way, his wife will be able to continue paying the mortgage and other bills if he dies.

If we assume a 3% inflation, and 6% earnings on the funds, our handy life insurance calculator shows he needs approximately $865,000 to provide an annual income to his wife of $70,000 for 15 years.  So in his case, we would probably look at quotes in the $750,000 to $1 Million range.

Business Life Insurance Over 50 years Old

Another popular reason men purchase life insurance in their fifties is for business insurance needs.  The most common business insurance policies are sold for:

  • Key Man Insurance – If you own a business with a key executive, board member, or salesperson who your business just could not survive without, your business should consider taking out a policy on that individual.
  • Buy-Sell Agreement – Many partnership agreements mandate life insurance be taken out on each partner for a quick and easy buyout in the case of one of the partner’s passing.
  • Non Qualified Deferred Compensation – Many owners set up cash value policies for themselves (executive bonus plans) and for their employees, since they are so simple to administer and to comply with ERISA.  Plus the plans can discriminate between which employees will receive the benefits.

You won’t use the life insurance calculator to determine the amount of coverage needed in the above situations.  For partnerships, the amount is typically already pre-determined in the buy-sell agreement.  In the case of key man insurance, the value of the employee or executive may be measurable, in which case 5-10X annual production is appropriate.  But in the case of a founder, director, key board member, etc., their value may be more intangible, and will depend if your company has planned for an unexpected death, has a succession plan in place, etc.

For company deferred comp plans, the level of death benefit is usually irrelevant.  Instead, a policy is usually chosen for its cash accumulation features and outlook.

If you own a business and have any of the needs above, call us at 877-996-9383 or you can get started by filling out the quote form to the right.

Estate Planning

When I refer to estate planning, I’m speaking specifically of advanced planning you may do with your attorney to provide for liquidity upon death, as well as putting a life insurance policy in place in preparation for estate taxes.

We don’t typically deal with this level of planning for individuals who are in their 30’s or 40’s, as under current estate tax law, and estate is not taxable at the federal level until it is valued at over $5 million dollars, and you can imagine that very few individuals in their 30’s and 40’s have accumulated that sort of money.  But we do get quite a lot of estate planning type cases from people over 50 years old, many of whom have done well in business or real estate.

Let’s take an example of a wealthy, 55 year old single man, who will enjoy a estate tax exclusion amount of $5 million dollars upon his death, per C. Tucker Cheadle, a renowned California trust attorney, and how life insurance can help him.  If we assume he has a net worth of $6 Million dollars, the excess $1 million above the estate exclusion amount would be taxed at a federal rate of 35%, according to Cheadle, if this man were to die.  That sort of estate would generate a $350,000 tax bill.

So our 55 year old gentleman has two choices now.  Will he allow his estate to be reduced by $350,000 upon his death?  That’s his first choice.  Or alternatively, if he is a healthy non smoker, he could purchase a guaranteed universal life insurance policy with a $350,000 death benefit for as little as $3,708 per year, which would generate an tax free, cash benefit of $350,000 upon his death.  (Please note most people use some sort of permanent policy for estate planning needs, rather than term life insurance).

With proper planning, even the $350,000 death benefit would be separate from his estate, effectively solving his estate tax problem.  Even if our 55 year old lives to age 85, he will have only paid $111,240 in premiums (thereby reducing his estate value by the same amount), and paying his estate tax bill for pennies on the dollar.

Questions for Men Age 50 and Older

Please feel free to contact us with your questions at 877-996-9383.  You might also see C. Tucker Cheadle’s article on gifting, trusts, and avoiding estate taxes here.