Types of Pennsylvania Life Insurance Policies – Term, Whole Life, and more…

Posted on November 8, 2012 by Chris Huntley

If you’re thinking of buying life insurance in Pennsylvania and not sure what you need or what to do, you’ve come to the right place.

I’ll give you some vital tips on what you need to know about buying life insurance.

Let’s start with life insurance basics.

How to Find the Best Pennsylvania Life Insurance

Buying life insurance is a 3 step process which breaks down into the following:

Step 1 – Decide How Much Life Insurance you Need

Consider first any existing policies you might have such as a company plan, what you might receive with social security, or possibly a veteran’s pension, and take inventory of the other assets your family could live on in the event of your passing (investments, home equity, etc.)

Then, decide on how you family would need to keep them financially viable and to keep their standard of living if you were to die now. Also, include future financial considerations which your family might need such as tuition costs and other possible financial needs such as funeral expenses, existing debts and your mortgage or rent.

If you’re working, many people simply chose a multiple of their income, such as 10 or 20x annual income. Here’s a helpful calculator for more on how much you need.

This will give you a ballpark figure.

Step 2 – Decide on a Life Insurance Policy

Take a look at the different types of life insurance policies available and decide on which one suits your needs best. Your choices include Term life insurance, and Permanent Insurance which includes Whole Life, Universal Life and Variable Life. I’ll explain their differences later on in the article.

Step 3 – Compare the Costs for the Policy

To find the most affordable insurance policy, your best bet is to consult an independent agent like myself. An independent agent has access to a vast range of insurance companies so I am able to research them and find one that suits you best and at the best price.

Types of Pennsylvania Life Insurance Policies

As I said earlier, there are 2 types of life insurance which you buy being Term or Permanent Life Insurance. Let’s look at the differences.

Term Life Insurance

Term life insurance covers you for death benefits only. It is the most economical type of life insurance available. Although term life covers you for life, you buy term life insurance for a periods of time in increments such as 10, 20 or 30 years.

It’s best to buy term insurance for as long a term as you can. The reason is that the premiums become significantly higher if you re-new a policy when you become older. The premiums are fixed for the period of the term. The death benefits which are payable are also not taxable.

You also have the option of converting a term life policy into a permanent policy if you would like to factor in a permanent policy into a retirement vehicle as your income increases.

Permanent Life Insurance

Permanent life insurance has 3 basic types of policies which include whole, universal or variable life insurance. Let’s look at them in brief detail.

Whole Life Insurance

A whole life policy lasts you for your entire life, or until you decide to cancel the policy. Or, you also have the option of buying a whole life policy which only lasts until you reach age 65 or some other time period.

A whole life policy is more expensive than a term policy. The reason is that this type of policy not only covers you for death benefits but it also has a cash accumulation feature as well.

The cash accumulation feature will be paid to you if you cancel the policy. Otherwise, it will go to your beneficiary. You can borrow against the cash accumulation if have the need to do so, or use it pay for your premium for a certain period of time.

Universal Life Insurance

Universal life insurance is very similar to whole insurance except the cash accumulation earns interest that is based on the market rate of interest. Also, you can vary your premiums with this type of policy, and vary the death benefits which you can increase or decrease. You can also skip premium payments as well.

Variable Life Insurance

In this type of policy both the death benefits and the cash value accumulation will be based on the performance of the investments. These policies can only be sold by an agent who is a registered securities dealer.

Pennsylvania Insurance Tips

Always make sure the agent you select is licensed to sell policies in Pennsylvania. The reason is that policies sold by licensed agents are covered against insurer’s default and are covered under the PLHIGA (Pennsylvania Life and Health Insurance Guarantee Association) which will cover up to $100,000 in death benefits and up to $300,000 for death and annuity benefits.

I also suggest that you discuss your insurance needs with your financial advisor, lawyer and members of your own family.

Always carefully read all the information contained in your insurance application to ensure its accuracy. A simple typo could end up causing you an endless amount of unwanted headaches. Also, never lie on your application form. Insurance companies have the right to fully investigate your application should you die within the first two years of signing a policy, and could void or cancel any policy which is inaccurate.

Also, remember that you have a ‘free look’ or ‘right to examine period of 10 days or more to determine if you want to change your mind and cancel the policy. Pennsylvania law warrants you must be given a full refund if you cancel within this period.

Always take the time shop around and compare premium prices. I also highly suggest that you use the services of an independent agent to get the best quotes and the most suitable policies.

Special Considerations for PA

One of the whacky things about Pennsylvania is that their department of insurance makes consumers and life insurance agents jump through hoops sometimes to get a policy.

Here’s an example. Our main office is in California, but we are licensed in over 35 states. We’re also contracted with a couple dozen life insurance carriers. Let’s use Banner Life Insurance, for example.

If a client calls me up from out-of-state like Texas, I can go ahead and sell him a Texas policy. Contracting with insurance companies is a bit weird as you can’t just be contracted with the insurance company in general, but you have to be contracted with them in every state where you want to do business.

This is usually no problem in most states. Usually, you can take the application, and then get contracted with the carrier in that state. But in Pennsylvania, I can’t just sell a PA policy, even if I’m contracted with the carrier already in other states. I have to be contracted with that carrier IN PA in order to be able to take the application.

Sometimes this causes delays, and there are a few other examples like this that PA is a bit of a pain to do business in, but it’s nothing compared to New York, and we love all our PA clients.

Get a Term Life Quote

We are an independent agency, licensed with over 30 life insurance companies, so when you come to us for help, you’ll know the quotes we provide you are the absolute lowest prices available. For more information or to get started with an application for Pennsylvania life insurance, sign up for some quotes using our instant quote form on the right or call us at 877-996-9383.

What are the Different Types of Life Insurance

Posted on February 9, 2012 by Chris Huntley

There are two main types of life insurance policies, which are term and permanent life insurance.

Within the two main types, there are sub-types as well.

Which is best for you?

Here’s a general explanation for each different type of life insurance policy we offer, and who is best suited for each type.

Term Life Insurance

90% of our clients purchase term life insurance. Most term life insurance policies provide guaranteed coverage to age 95, with an affordable initial premium for a period of years (the term), such as 10, 20, or 30 years.

It is the most affordable type of life insurance because of the low cost premiums during the initial term. Generally speaking, the shorter the term, the lower the premium, so 10 year term is the cheapest and 30 year term costs the most.

After the initial term, the policy moves to an “annual renewable rate”, which will be determined by the insuring company at the end of the term. I typically see renewal rates at 4 to 8 times the premium during the initial term, so be sure to lock in as long of a term policy as you can afford, because you DO NOT want to pay those renewal rates.

A lot of people never anticipate paying the renewal rates. They may only need coverage for a short period of time, perhaps to cover a loan, a business agreement, or to replace employment income. In this case, term is the perfect solution, since its initial premiums are so low. Why pay whole life pricing if you only need the coverage for a short duration?

Note: Life insurance is not to be confused with Medicare Supplement Plans, which covers gaps in medicare coverage for insureds age 65 and older, as well as drug prescription plans and advantage plans.

For more information about Term Life Insurance, see our articles on 20 Year Term Life Insurance and 30 Year Term Life Insurance.

Permanent Types of Coverage – Whole Life and Universal Life Insurance

Whole Life Insurance

This policy is designed to cover you for your “whole life”. The premiums are higher than in term or universal life, but that’s because it has superior benefits. It actually builds some very nice cash value, and pays dividends, so the benefits are much better.

Two important benefits of whole life are:
1. Cash value is available for loan or withdraw
2. Dividends can be paid to you in case, used to reduce your premium, or to buy additional insurance, known as “paid up additions”.

Whole life illustrations usually show two columns with for guaranteed cash values and death benefit, as well as “projected” or “assumed” cash value, dividends, and death benefit. The premium is much higher than term or universal life, but you have a lot more benefits with this policy.

Take note that not all whole life policies pay dividends. If they do, they will be illustrated in the “non guaranteed assumptions” column as “Projected Dividends”. They are not guaranteed.

One benefit of the dividends, if available, is you could take them in cash, thereby reducing your total outlay. Or dividends could be taken as cash in your pocket, or for other purposes as I mentioned above.

For more information, see our article on The Cost of Whole Life Insurance.

Universal Life Insurance

This type of policy is similar to whole life, as it may provide coverage for life, but the coverage and premiums are much more flexible. Like whole life, there must be sufficient premiums or cash value to pay the policy costs and keep the universal life policy in force. But since the costs of insurance and rate of interest the cash value may earn are both variable, universal life is usually purchased and premiums are determined by “illustrating” these variables to see how the policy will perform. In other words, we guess. Then every year or two, a new illustration with “current” policy costs and interest rates is usually requested to see how the policy is performing.

The benefit to universal life is you may be able to pay far lower premiums to keep the policy in force for life than in whole life. For example, if you buy a UL policy in times of high interest rates, your cash values may accelerate rapidly, outperforming your original expectations, and allowing you to pay less in premiums in future years. But it can also work in reverse. If the cash values don’t grow as originally expected, you’ll have to pay higher premiums than initially illustrated to keep your coverage in force.

Two popular types of UL’s are Guaranteed UL’s, which I will cover below, and indexed universal life policies.

“Guaranteed” Universal Life Insurance

This type of policy is built on a universal life base, but acts more like a term policy to age 100 or 120.

Most companies offer their UL policies with an optional “No Lapse Guarantee” feature, which essentially cancels out the “adjustable” features of a universal life policy and the need for cash value to sustain the policy. So you may have a no lapse guarantee to age 100 on your policy. In this case, you will pay the minimum premium necessary to keep your policy in force through age 100, and you will probably accumulate little to no cash, but with the “no lapse guarantee”, that’s okay. You don’t need it.

The problem with guaranteed universal life is that since you have no cash value to sustain the policy, you’re in trouble if you miss a premium. With regular universal life, no big deal if you skip a premium, but with guaranteed, you must stay on schedule or your “guarantee” could be in jeopardy.

Variations of Term Life Insurance

Hybrid Policies

Term/Universal Life Hybrids – A few companies have come out with a form of guaranteed universal life with options for very short “no lapse guarantee” riders. The “no lapse guarantee” portion of the policy may only last for a duration such as 10, 20, or 30 years. Just like guaranteed universal life policies do to age 100 or 120, these riders mandate that even if the policy has no cash value, the death benefit and premium are still guaranteed to stay fixed during the initial term selected. After the initial term, the policy reverts back to a plain universal life policy where higher premiums and cash value will be needed to sustain the policy.

Return of Premium Term Life Insurance

These policies charge you an additional premium so that at the end of your term, 100% of all premiums pay (for the base policy as well as the return of premium rider) are paid back to you if death has not occurred.

See our article on Return of Premium life insurance.

“Odd” Term Durations

While almost every company offers 10, 15, 20, and 30 year term, some companies offer other term lengths, but this is not the norm. Some offer 5 year term, but I have yet to find a 5 year term policy any cheaper than my 10 year term options, so I don’t sell them.

American General offers almost any term length you can imagine with their Select-A-Term product line, such as 16 year term, or 24 year term, etc.

Prudential (Pruco Life) has a term policy that offer insurance to age 65, regardless of your age, with the intention of providing coverage through your working career. This can lead to odd term durations. For example, if you’re 38 and purchase their Workforce 65 policy, it is essentially a 27 year term policy.

What’s the Difference? Which one is right for me?

If you only need life insurance for a short period of time such as 10 to 30 years, term is the way to go. If you want coverage in place for the rest of your life at the lowest premium available, you want guaranteed universal life.

If you want the flexibility of paying your premiums when you want, and are okay with constantly monitoring your policy values, then a vanilla universal life may be appropriate for you. And if you want coverage for life with guaranteed cash accumulation, then you should consider whole life insurance.

For more information, please visit our category about Types of Life Insurance or call us at 877-996-9383.

Should I Buy Single Premium Life Insurance

Posted on September 28, 2011 by Chris Huntley

If you’ve ever gotten a quote from a life insurance agent, you’ve probably been quoted monthly or annual rates.

For example a 45 year old might expect to pay $50 to $100 per month for $100,000 policy with level premiums for life.

But what if your agent came back to you and said… “OK, that will just cost $12,257.”

You, my friend, may have been quoted a single premium life insurance rate!

What is Single Premium Life Insurance?

It is just what it sounds like. You pay one single premium, and your policy is guaranteed to offer a level death benefit for as long as you live without having to pay another premium.

It can only be used to purchase permanent policies such as guaranteed universal life or whole life.

Buying a single premium policy can offer you fantastic savings over paying premiums for the rest of your life, so if you think you’ll live a long time and can foot the bill, it could make sense for you.

The downside is that if you pay your single premium, and get hit by a truck tomorrow, you will have grossly overpaid for your life insurance, since the death benefit does not change regardless of premium mode.

Due to its high cost and the fact that you can’t get a “single premium term” policy, it’s not very commonly used, except in estate planning.

When Does a Single Premium Policy Make Sense?

Let’s compare two quotes:

Male, Age 40, Best Health Class Non Tobacco – For a $500,000 Policy with Guaranteed Level Premiums for Life – $2,493 per Year
Male, Age 40, Best Health Class Non Tobacco – For a $500,000 Policy with a Single Premium – $45,402 Single Premium

In this instance, I would say the single premium policy makes a lot of sense. A 40 year old in great health will live on average 45 years.

So rather than paying $2,493 for 45 years, which would be over $110K, our 40 year old pays a single premium of $45,402.

Using a Single Premium Policy in Estate Planning

Ok, here comes the fun part.

If you’re an affluent individual, you’re probably aware of the estate tax laws.

Let’s assume you’re, 50 years old, in good health, married and have a net worth of $11 million dollars. With proper estate planning, you should only have to pay estate taxes on $1 million dollars, by using both your and your spouse’s unified tax credit.

But that $1 Million is going to cost your estate $350,000! So that last million becomes $650,000 after taxes.

Here’s an idea for you. You won’t believe this. Life insurance is such an incredible leveraging tool.

If you have the liquid cash to pull this off, here’s what you could do:

Purchase a $1 million dollar guaranteed universal life insurance policy with a single premium of $133,114.
You could have the policy owned by a life insurance trust, therefore separating the $1 million death benefit proceeds from your estate.

The results:

Your taxable estate would be reduced by the amount of premium you spent on life insurance, so your new taxable estate would be $866,886 and estate tax due would be $303,410. So your estate tax is almost reduced by $50K!
Then your family takes your $1 million death benefit to pay the estate tax, which leaves them with $696,590.
Now your family inherits both your estate of $866,886 and the life insurance proceeds (after paying the taxes) of $696,590. Add them together and that’s $1,563,476.

So the question is whether your family would prefer to have $1.5 Million or $650,000.

Of course, you could buy other amounts than $1 million of life insurance. You could take the entire $1 million that is taxable and put that into a life insurance policy.

A $1 million premium would buy you the following amounts at the following ages:

40 years old -approx. $12 Million
50 years old – approx. $8.5 Million
60 years old – approximately $5 Million
70 years old – approximately $3 Million

To sum it up, single pay life insurance is a way to quickly reduce your taxable estate, and leverage that money into a life insurance policy whose death benefits may be estate tax free.

Alternatives to Single Pay

Since some people don’t like the idea of the single pay, but might also not like the idea of paying life insurance premiums the rest of their lives, you could look at a 10 pay policy or 20 pay policy. These are excellent alternatives.

For a single premium life insurance quote, please call us at 877-996-9383 or get started with a quote request using our form on the right.