Should I buy whole life instead of term insurance??

Let’s start with definitions of whole life, term insurance and universal life. Whole Life as a product it is very rare anymore. These days it is actually more of a generic term referring to permanent, usually universal life insurance.

The definitions! Whole life insurance, if sold correctly, would offer a level premium to age 100 with a cash value accumulation that, at age 100, would equal the death benefit.

Term insurance offers a guaranteed level premium and death benefit for a specific number of years. 10, 15 , 20 and 30 year terms are the most frequently used product.

Universal life, if sold correctly, will have a no lapse guarantee and offer you a guaranteed level premium to age 100. At that time, if you’re still around, no more premiums (payments) are due, and the policy would stay in force until your death.

When I say whole life is something of a generic term these days, what has happened is that newer and better products have entered the marketplace. In most cases they offer better guarantees and better prices than a true whole life policy. So the real question is should you have term insurance or universal life insurance with a no lapse guarantee.

Two quick questions take 90% of the guesswork out of the decision.

Term question! Can you foresee a point in the future of 30 years or less when you will not need the amount of insurance you need now? A few examples….if you have a 10 year loan and want life insurance to pay it off if something happens, a 10 year term is the right product. If you have a young child you would want a long enough term to get them to the point that they are no longer financially dependent on you. For most a 20 year term would suffice, but if you were planning on having more children it might be prudent to lock in a 30 year term.

 Universal life question! Is the need permanent? Examples would be a final expense policy.  Final expenses don’t occur until you die, so permanent is more appropriate than term. Estate preservation is another good example. If your estate is large enough that you need to carry life insurance to help defray the estate taxes upon your death, you don’t want a policy that you can outlive.

Lastly, if someone suggests you buy a whole life policy, I suggest this course of action. Tell them you want them to provide illustrations of the whole life policy along with illustrations of a universal life policy with a no lapse guarantee. Then ask them to show you a commission schedule that shows what they would earn over the next 10 years on each of those options. If they actually provide the information I think you will have an eye opening education into why some people still sell whole life.

Estate taxes and life insurance??

As we close in on 2010, the year that congress is slated to do away with estate taxes, is there anyone out there that really believes estates won’t be taxed after 2010?

Personally I believe the government will take action to leave the estate tax on the books. The good news is that the spousal exemption limits that were just over $600,000 in the year 2000 will likely be much higher, probably being capped somewhere between the current $2,000,000 and the 2009 proposed level of $3,500,000.

Let’s just pretend for a minute that the Federal government decides to follow through and repeal the estate tax in 2010. That would free everyone up to dump the life insurance policies that they have in place to pay estate taxes, right? WRONG!!

States are already seizing the day with the slack in the new exemption limits. Washington state has reared the ugliest head so far by instituting up to a 19% “death tax” on estates for Washington residents. If the repeal really did go through you can bet that the states, seeing an opportunity for new revenue, will fill the void before the ink on the repeal dries.