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Old 06-09-2004, 03:28 PM   #1
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Default Who can explain life insurance policies to me??

Well, Doreen and I have reached the point in our lives when we need to asses our future financial needs. A buddy of ours has recently sat down with us and explained some different ways to achieve some security. We are considering a term life insurance policy but are uncertain if this is the thing to do. At the end of the insurance tutorial, it reminded me of Charlie Brown'* school teacher as what he was saying wasn't making much sense. An audible blurr.

I'd like to get some more clarity on the different policy types, especially whole life with cash value. She currently has one that has been in place for many years. I think it'* more the cash value part that I don't understand. Can't say if I can even read the statements correctly. We considered canceling this if we were going to buy the term policy but were advised against it by another person.

Can someone translate from insurancese to english for me?
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Old 06-09-2004, 04:47 PM   #2
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A term policy is something that you pay into on a monthly basis for a lower rate than a permanent policy. Primary difference is that at a given age the term policy will give you no more benefit and you (your survivor if it works out that way) walks away with nothing to show for those premiums that you paid on for a long time (typically expire at the age of 65).

Permanent insurance is usually a more wise choice, but more costly. Premiums can get quite high but at a given age the cash that'* been built up (similar to a high growth savings account) can be liquidated from the provider and into your personal savings account.

If you're young, you should consider going with a term policy (to take advantage of the lower rates for a lot of coverage) and then convert to a permanent policy down the road. Typically it'* unpractical that a young couple can jump right into a 250,000 permanent plan because the monthly premiums could easily be in excess of $200 per person, per month! The cash value that you were talking about is most likely in reference to the permanent life insurance plan.
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Old 06-09-2004, 08:52 PM   #3
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just gott married and ur are already suggesting for some to make a hit on her J/k LOL
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Old 06-09-2004, 09:21 PM   #4
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Quote:
Originally Posted by GAMEOVER
just gott married and ur are already suggesting for some to make a hit on her J/k LOL
That'* a good one. No. Just gettin' a little older with more resopnsibilities. It'* strange. 10 years ago my only finacial planning was figuring out how to divive the cost of a keg by 7 thirsty dudes. You'll be there some day, my firend.

Vital49,
I now have a pretty firm grasp on the term. Thanks for the detail. Still foggy on the permanent policy though. I think we need to get a copy of the existing policy to fing out exactly what it is. The monthly premium of our policy seems rather small compared to your example although it'* not even close to $250k coverage.
This is a little difficult to discuss in a public forum as I don't necessarily want to divulge my financial status publicly. So forgive me if my questions are vague.
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Old 06-09-2004, 09:43 PM   #5
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Quote:
Originally Posted by randman1

Vital49,
I now have a pretty firm grasp on the term. Thanks for the detail. Still foggy on the permanent policy though. I think we need to get a copy of the existing policy to fing out exactly what it is. The monthly premium of our policy seems rather small compared to your example although it'* not even close to $250k coverage.
Just think of a permanent policy as a high growth savings account! In the event that you don't need the insurance, you liquidate it! And if you pass, your surviovor will get the money up to the amount that you purchased (say $250,000 to keep things simple here). If you don't need it and at the age of 65 (going with the same example again) it will most likely be worth about $325,000 because of the compound interest. The insurance company will invest that money on your behalf (typically in the stock market) and that'* how you end up with so much in the end if you don't die. It'* very unlikely that you will ever only get back the $250,000 if you don't use the insurance because of the interest earned. I hope this is making more sense!
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Old 06-09-2004, 09:49 PM   #6
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If she has a cash value whole life policy do not replace it. It should be making enough in dividends and cash value to pay the premiums. I would probably recommend a universal life policy because it has the cash build up of a whole life policy yet the affordability of a term policy. I have a whole life policy on myself with a term rider. In 10 years I will cancel the term part of it and keep the whole life. Whole life policies are the best to get if you can afford it because you lock in the rates and it builds the cash value that can be borrowed against in case of emergency or whatever. I have a universal life and a whole life on my son and a whole life with term rider on myself. Term policies don't build up cash value or earn dividends and the premium increases every term renewal. I look at the policies like an investment into my future. The UL is guaranteed to earn 4%. It is confusing but I have seen to many times where people don't think they need this and then their family regrets they didn't put something in force.
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Old 06-09-2004, 10:14 PM   #7
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* smoke begins to clear *
Good stuff! I think this is where I'm the most confused though:

Quote:
Originally Posted by vital49
...it will most likely be worth about $325,000...
...and that'* how you end up with so much in the end if you don't die
I'd like to think of myself as imortal. Obviously though, this is not the case. I'm guessing that the benefit to the suvivor is going to be the $250k using the above example. So what happens to the $75k difference from the "value"?

Quote:
Originally Posted by SSE14U24ME
...that can be borrowed against in case of emergency or whatever...
If the whole life is that much more expensive then term, why not bank/invest the difference? This way, you would be essentially be borrowing from yourself. No?
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Old 06-09-2004, 10:42 PM   #8
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Quote:
Originally Posted by randman1
* smoke begins to clear *
Good stuff! I think this is where I'm the most confused though:

Quote:
Originally Posted by vital49
...it will most likely be worth about $325,000...
...and that'* how you end up with so much in the end if you don't die
I'd like to think of myself as imortal. Obviously though, this is not the case. I'm guessing that the benefit to the suvivor is going to be the $250k using the above example. So what happens to the $75k difference from the "value"?
[/quote]

Ahh grasshopper....now you see how insurance companies make their money!!! It pays for those beautiful buildings and thousands of employees!!
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Old 06-10-2004, 03:09 PM   #9
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term is going to keep increasing in cost. For instance, you have a 5 year term - every 5 years your policy will renew and the rate will increase based on your age at that time. A whole life policy is locked in and the rates will never increase and will start building cash value. I would recommend a universal life policy because that is the most affordable policy that will build cash values. Also, If you have a whole life policy and you die your beneficiary will get the face amount plus any dividends earned.
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Old 06-10-2004, 05:22 PM   #10
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I work for a life insurance company (as a PC tech) and I can tell you that there are a ton of different types of policies available, mostly depending on age and what you want out of it. As stated you can get term life for cheaper but eventually the benifits expire and nothing to show for it, but it akes good short term coverage. If you plan on retiring with this money there is a huge new boom in available policies that allow withdralwable funds for expenses like nursing hoes, assisted living, and medical conditions. These policies offer an additional security blanket durring the elderely years. There are also alot of other annuity type products available that act ore like an investment with some personal benifit coverage attached to it. These are good for people who want soething to show for their money later on but don't need a lot of heavy coverage during it.

If you are truely interested in finding out more I can ask around a work and possibly get some resources you can call or lookup to get more details.
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