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There’s nothing more disturbing than to see an individual using an inappropriate Life Insurance product for their needs.  For example if one wants to have maximum protection with the lowest cost possible, for a specific time period say 5-30 years ending by age 80) you should only consider Term Insurance.  An example of where this is appropriate involves the breadwinner of a young family desiring to provide maximum coverage so that his Family can continue their lifestyle in the manner they were accustomed to even if the breadwinner were no longer here to provide for their monthly living expenses and college costs.

If on the other hand you want your insurance to last beyond age 80, for example to create an inheritance for your kids or grandkids, or to be used to pay for your estate tax if you are not married, then and only then do you need universal or whole life insurance. If one is married and has a taxable estate, the best way to provide for the liquidity necessary for their family to pay those estate taxes is to purchase a Survivor Joint life {SJL| Insurance contract, as this is the least expensive option to cover ones Estate Tax Liability.

Deciding on whether to use universal or whole life insurance is a function of whether or not you want to build up cash value.  Cash Value is like an internal tax deferred savings acct within an insurance contract.   A whole life contract automatically builds cash value and as a result lasts for the rest of your life.  On the other hand a universal contract is less expensive as it allows you to custom design your contract so that your coverage which is based on your cash value, ends at a particular year.

The cash value, or accumulation acct, of a universal insurance contract can be set to one of two indexes.  Either a more conservative interest rate index known as a standard universal contract or a  more volatile stock market index known as a Variable Uuniversal Contract{VUL} Not all Insurance products provide a death benefit.  If you’re one of the 8.2 million people that have purchased a Long Tern Nursing and Home Health (LTNC) contract you know the security that comes from having your {LTNC} contract provide you with a daily benefit.  This benefit offsets the costs of paying for all forms of care needed whether you stay at home, an assisted living facility or a Nursing Home. In addition, this contract provides for a care coordinator that will perform all the steps necessary to implement a plan of care that covers everything from the moment the person leaves the hospital, moves their way through rehab, an assisted living facility and then hopefully back to their home or into a nursing facility.

Still others may want to utilize an insurance contract to act as an accumulation vehicle. This is called a Single Premium Fixed Deferred Annuity {SPDA} .  This vehicle provides an opportunity for one’s money to accumulate at an interest rate similar to or higher than a CD.  However, this money grows tax deferred within the Annuity. While the CD is FDIC insured, the tax deferred annuity has its principal guaranteed by the life Insurance Company that issues it.  Similarly to a penalty when a CD is cashed in prematurely, an annuity has a declining surrender charge which usually lasts for 5-7 years.

This is done in order to prevent someone from using this as a short term savings vehicle. For those looking for a higher and more speculative return, a product known as a Variable Annuity (VA) provides for ones return to be tied to the stock market.  If the market goes up you can shelter the profits from those returns within the confines of a tax sheltered status.  You can make a lot and lose a lot. Investors using these vehicles have the option of hedging against any potential losses by purchasing various riders. These riders however are somewhat costly. In addition these contracts  maintain a 5-7 year surrender charge to prevent short term trading.

An Equity Indexed Annuity {EIA} provide a wonderful accumulation vehicle for those that want the safety of having their principal guaranteed against any losses while providing them the opportunity to participate in the appreciation of the stock market. This is a truly timely product particularly for this uncertain financial environment. For the person that wants to provide for a significantly higher than usual income that they won’t outlive they turn to another Guaranteed Insurance product known as a Single Premium Immediate Annuity{SPIA}.  An SPIA provides an annuitant an opportunity to receive an ever increasing monthly income that can be pegged to inflation.  The catch is that in order to capture the higher rates of return, the payments often stop at the death of an annuitant. 

In order to extend the monthly payments beyond the annuitant’s life, for the benefit of a co-annuitant a lower initial payment can be accepted.

This product should also be used for any individual contemplating taking a lifetime payout from their retirement plan .  Keep in mind that there are hundreds of life Insurance Companies in the marketplace.  Therefore it is extremely important to shop around before you accept any payout from the Human Resource dept of the company that you are retiring from.

Remember comparative shopping  will assure that you are receiving the maximum available benefit to you and your Family It is clear that there are many different products other than a plain chocolate or vanilla life insurance contract available for today’s sophisticated consumers.

One of the most important pieces of advice I can share with you is that over the last 8-10 years the cost of Life Insurance has decreased by as much as 30-40% .  So if you’re healthy and you haven’t reviewed your policies over the last few years, take the time to meet with an Independent experienced Life Insurance professional to see what’s currently available. 

Doing so can and will save you a significant percentage of what you’re currently paying for life insurance.  In today’s current economic climate everyone is interested in lowering their premium costs which could instead go towards  a savings program or provide you with more coverage without any additional outlay of  cash.

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Tags: annutiy, cd, eia, estate taxes, henry montag, inheritance, insruance, insurance, life insurance, ltnc, nursing home, spda, term insurance, universal insurance, variable universal contract

About the Author: Henry Montag is an Independent Certified Financial Planner as well as a CLTC. He’s been in practice since 1976 with offices on Long Island, New York. He is a contributing writer for The Moneypaper, a national financial publication, been my sourced by Investors business Daily, Long Island Business News, Newsday, Wall St Journal, The Moneypaper,Investment News, Senior Lifestyles and has held insurance and securities licenses for over thirty years.

This entry was posted on Monday, May 4th, 2009 at 6:30 am and is filed under insurance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.