There is one sentence that sums up all insurance: The big print giveth and the little print taketh away.
If you work for a large company, there is a good chance you have group life insurance. The question is, do you really understand what you have? After all, you didn’t choose that particular policy. Consequently, it is no wonder why our first two issues surround group life insurance.
- Do you have life insurance or accidental death and dismemberment insurance? There is a BIG difference! Accidental death and dismemberment pays you only for that—accidental death and dismemberment. If you are not in an accident, like a car crash, resulting in death or severe injury, such as losing a limb, it does not pay. If you die from cancer or a heart attack, your family is out of luck. Even worse, if you were in a car wreck and made it the hospital and later died of heart failure, your “accidental” death policy may not pay. Although these policies are very inexpensive, the old saying that you get what you pay for may apply. Consider this: only around 5% of all deaths in the U.S. are the result of an accident.1
- You may not be able to take the policy with you and/or keep it forever. This can be devastating. Your youth and health are your greatest assets. As we get older, the ability to obtain insurance can become more difficult. Health issues pop up out of nowhere and can change how insurance companies look at you forever. Several sources claim that the average American changes jobs 10-15 times in his/her career. Can you imagine turning down your dream job because you had no other way to protect your family? Or not being able to leave a job you hate for the same reason? You don’t have to imagine it. We have seen it.
- You get what you pay for could be said many times over with insurance. There is always the question of quality of carrier and product, but there are many other facets that are critical to consider. For example, your term policy…cheap is not what you want to go for. Imagine you had a 20-year term policy for the last 19 years and you find out you are terminal with cancer. The doctor has given you a life expectancy of less than 5 years. Would you want to keep your policy in place? I would think so. But this goes a little deeper than this. You could solve this issue with two riders on a term policy—renewable or convertible. Renewable is the cheaper of the two riders and means you would have the ability to keep the term in-force at an outrageous premium, but you could keep it. But then let’s assume 3 years into your diagnosis, they find a cure. You just spent an outrageous amount of money on something your family will never receive any benefit from. So let’s look at a conversion rider: This solves the latter problem. You don’t lose everything, but you still have some questions when choosing this rider. How long do you have the ability to convert—the entire life of the policy or a certain age? And what type of permanent policy can you convert to? Would it be suitable for you?
- Will your tax free death benefit be taxable? One of the best aspects of life insurance is that the death benefit is supposed to be tax-free. “Supposed to be” is the key phrase. We can’t tell you how many times we see insurance written that negates the tax benefit. There are too many errors to go through them all, but let us mention to two most common. The first is the unholy trinity. This happens when the owner, insured and beneficiary are three different people. When the insured dies, the death benefit is considered a gift from the owner to the beneficiary and could result in the owner owing gift taxes at a current federal tax rate of 40%. The second most common error happens with business owned life insurance. Much like the example above when the owner is the business and beneficiary is the surviving spouse of the employee or even the owner of the business themselves, the result could mean that the death benefit is considered compensation, a dividend or a distributions and will be subject to income tax. It doesn’t take long to reach the top tax bracket of 39.6% when you are talking life insurance proceeds. And while we are on the subject of business owned life insurance—there could be a chance your policy would be subject to DOUBLE taxation if it was written in 2006 or later. It is critical to the well-being of your business and your family that these policies are reviewed.
- Who said there is no value in a term insurance policy? The fine print will sometimes giveth, but that is why it’s in fine print. A fellow member of the Forum 400, the most renowned group of life insurance producers in the country, just shared a story of an elderly couple who was able to turn their term insurance into $260,000 of cash. Bottom line: it is just as important to have your term insurance reviewed as it is your permanent insurance.
- Will you outlive your life insurance? On July 20, 2017, the Wall Street Journal did a story on Gary Lebbin, who will outlive $3.2 million of death benefits if he doesn’t ride off into the sunset this month. Of course, Mr. Lebbin is turning 100, but turning 100 isn’t your only risk. Over the past 5 years or so, most of the life insurance policies we have reviewed by taking off the hood and looking inside will not make it the life expectancy of the client under their current assumptions. Why? There are two main components to this epidemic—the unexpected increases in life expectancy and 30 plus years of declining interest rates. Bottom line: Your life insurance needs to be monitored like your investments.
Dad is always reflecting that insurance was simple when he started the business. There were only two types of policies—whole life and term. Today there are thousands of insurance carriers, tens of thousands of products and even more bells and whistles on top of that. How do you know what you truly have and if it will be there when your family really needs it? We have built a slogan as a result of all the chaos in this much needed industry—No policy left behind. During LIAM (Life Insurance Awareness Month) only, we are conducting policy reviews for $50. Don’t miss this opportunity as it is very rare we do any stand-alone service in lieu of comprehensive planning.