Insurance 
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Buying Your Father’s Term Life Insurance Policy

Over the holidays, Reader John emailed me a question about secondary sales of life insurance policies. He had learned that his father was going to cancel his term-life insurance policy at the end of the month and he was considering “buying” it off his father by paying the premiums and collecting the death benefit. We didn’t get into the numbers but he said that the premium was increasing over the next three years, until his father hits 65, and then the value is cut in half. He ran the numbers and believes there’s a 5% annual return if he passes within 28 years (by age 91). He wanted to know if I thought this was a good idea.

It’s always tricky when it comes to family and money and it’s especially tricky if it involves death, family and money. All of the problems I see with this plan have to do with relationships and navigating those issues are going to prove more challenging than navigating the financial aspects of this idea.

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 Insurance 
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What are Life Settlements?

A life settlement is where the owner of a life insurance policy sells it to a third party. In general, the owner will sell it for more than its cash value, which the owner can get from the insurance company, but less than its payout at death. It sounds a little creepy, to be buying life insurance policies, but it’s something that can make sense for both the buyer and the seller. In many cases, the seller may not want to continue the policy or may not be able to make the payments on those policies. They can get cash from the life insurance company or they can sell it to a third party, who would become the new owner and continue making payments on the policy. By making a life settlement with a third party, they can extract more of the value out of the life insurance policy after years of premiums.

As you’d expect, this business is loosely regulated and I only happened upon it because the SEC was considering classifying life settlements as securities, which would put them under more scrutiny. Right now there is little and inconsistent regulation of life settlements, which makes many people, both in and out of the life insurance business, uneasy.

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 Reviews 
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Review: Questions and Answers on Life Insurance by Tony Steuer

Questions and Answers on Life Insurance by Tony SteuerAfter writing about personal finance for the better part of six years, I feel like I have a decent handle on many of the major subjects. When it comes to investing, I can hold my own. Banking and credit cards? I understand them enough to write about them confidently. The one subject I know I’m weak in is life insurance. Other than knowing the four different types of life insurance (there are more when you consider permutations), I’m really clueless about how it works.

While I’ve never looked at any life insurance books, I can’t imagine there’s one out there better than Questions and Answers on Life Insurance by Tony Steuer. Steuer is a twenty-year veteran of the life insurance business. He’s one of only about thirty licensed “Individual Life and Disability Insurance Analysts” in California and has his own practice, started in 1995. In terms of credentials, I don’t think you can get much better than Steuer.
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 Insurance 
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Consider Self-Insurance Against Calamities

Burning BMWLast week, as I was research the “catch” on a return of premium life insurance policy, I wondered if it was possible for you to self-insure your life. The idea behind self insuring is that you take a lower level of insurance protection and save the difference into an account. With auto insurance, you could take away comprehensive insurance coverage, rental car coverage, or raise your deductible and put the savings into a high interest savings account.

I do this today with my auto insurance. For my Acura Integra, I didn’t carry comprehensive insurance and was able to saving hundreds of dollars a year. When it was totaled, through no fault of my own, I rolled the savings over to do the same thing with my current car, a Toyota Celica. As I’ve gotten older and the premium on excluding comprehensive insurance decreases, I’m tempted to add comprehensive again and pay for it with the fund. I’m able to because of good driving and good fortune, but I think that self-insurance is something everyone should consider.

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 Insurance 
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What is Return of Premium Life Insurance?

Life insurance policyLife insurance sucks. If you outlive your policy, you spent a lot of money for not much of anything. If you don’t outlive your policy, well shucks you didn’t waste your money on premiums… but you’re dead.

So when my insurance company sent me a package detailing one of their newest offers, a “return of premium life insurance” policy, I was intrigued. The basics of the policy are simple – you pay premiums for term life insurance and if you outlive your policy, your premiums are returned to you. If you outlive your policy, you haven’t wasted your premiums. If you don’t, then the premiums were “worth” it.

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 Insurance 
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Life Insurance Benefits Aren’t Taxed (Usually)

I was poking around on the internet the other day when I saw one of those morbid life insurance policy ads. You’ve probably seen them before too. They usually have someone kneeling at a grave or a kid wearing all black at a funeral. They ask you the pointed question of – “If you died today, who would take care of your family?” I suspect they’re trying to tap into your fear of the unknown, how your kids won’t be able to fend for themselves or how your husband or wife is going to be lost without your financial support.

First of all, my lovely wife is quite capable and she can take care of herself. I bet she’d miss my sparkling personality but after a while she’d probably be OK with it. :)

Second, our dog Tobey is the fiercest beagle in all the land. He’d do fine finding his own rawhide cow ears and kibble. Just the other day we left some food on the table and he managed to to jury-rig a Rube Goldberg-contraption just to get at it.

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 Insurance 
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Researching Life Insurance

We dont have accident insurance.I’m 28 and I don’t have any life insurance. For many people, they don’t begin thinking about life insurance until they start a family and I’ll be no different. While we don’t plan on starting a family in another year or so, it’s important to learn things before you need it (before emotion and time pressure begin affecting judgment) and today I spent some time looking at life insurance.

I’m not an insurance professional and everything I wrote in this article is simply my opinion. I understand that I may have made some mistakes or misunderstood some things, so take what I write with a grain of salt. Insurance can sometimes be a confusing topic and I, like many of you, am learning it as I go along. If you do see anything inaccurate, please let me know so I can fix it!

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 Insurance 
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4 Types of Life Insurance: Term, Whole, Universal, Variable

Who wouldn’t want to insure their life? It’s quite possibly one of the most valuable things I own and I would certainly like to be protected in the event I lose or misplace it right? Well, if you’ve gotten over the morbidity of the idea of buying life insurance and “shopped” around, you probably did exactly what I did – gotten thoroughly confused. What the heck is term life insurance and whole life insurance? What’s the difference between variable and universal? The worst part is that none of them are named in a way that makes it clear what exactly you’re getting. So, since one of my goals for 2008 was to figure out all these insurances and makes sure I’m covered, I’m forced to research it and try to decipher this complicated and likely very lucrative business.

Term Life Insurance

Term life insurance is claimed to be the easiest of the life insurances to understand and is named “term” because you are protected for a certain period of time – a term. The idea behind this insurance is that you can cover a small period of time with a lot of coverage and little cost. The idea is that you could use this insurance to protect yourself if you take on a large debt, such as a mortgage. For example, let’s say you just signed up for a 30 year mortgage and you are the sole source of income for your family. You could use term life insurance to cover the balance of the loan for a set period of time so that your family wouldn’t be in trouble if something were to happen to you.

Whole Life Insurance

Whole life insurance means coverage for your entire life, as long as you continue to pay the premiums on time. Sometimes you can convert a term life insurance policy into a whole life insurance policy, so that’s always an option if you want to. As for the premiums, this is where the companies try to get you in early so that the payments stay pretty level as you grow older. Since you are less riskier when you’re young, the earlier payments essentially offset your later payments as you become older and riskier. The other main difference is that there is a guaranteed cash value for the policy that you can actually borrow from. As you pay premiums, a portion of that goes into the guaranteed cash value bucket that is available to you if you decide to surrender the policy later. How much and how quickly that accrues depends on the type of policy you have and other factors.

Universal Life Insurance

Another name for this is Flexible Premium Adjustable Life Insurance (universal life just sounds better). This is a flexible version of whole life insurance where you get the savings element of whole life. The insurance company will invest your savings, offer a guaranteed minimum, and you get those funds tax deferred. What’s flexible is that there are two death benefit options. The first is that they pay out the policy’s cash value. The second option is that they pay out the face amount of the contract plus any cash value you accumulated. The first option is cheaper because the company pays out less insurance and the second is more expensive because they pay out more. I’ll be entirely honest, I don’t fully understand this and this article is designed as a brief overview.

Variable Life Insurance

This is also called Variable Appreciable Life Insurance and it is basically part life insurance and part investment account. The variable refers to the idea that you can specify a percentage of your premium to go towards a separate investment account that can appreciate (or depreciate). While some places will claim there’s a minimum, since it is partly an investment, it is governed by the SEC and you get a prospectus with the policy. What’s nice about it is that you can get tax-free appreciation, until you end the policy, and the appreciation can go towards your premiums. The risk is that there is always a risk when it comes to investing (as you probably are feeling if you’re currently in the market, this month has been brutal).

There are a ton more types of insurances out there but these are the big four categories and I believe I’ve gotten their basics correct. If any of you have any expertise in this, please add clarification or corrections in the comments.


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