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Life Insurance Calculator Helps You Figure Out How Much Insurance You Need

This calculator makes life insurance a lot easier to figure out.  

This is a great discussion between two knowledgeable experts with different opinions on the value of whole life vs term life.  Dave Ramsey is on record many times as saying it is stupid to buy whole life and to only buy term life because term is 1/20th  the cost of whole life, but the caller Russ is 100% correct that each situation is different, and the job of the insurance agent isn't to sell a product that is in the insurance agent's best interest, but in the client's best interest as a fiduciary.  Dave has no fiduciary responsibility toward anyone with the advice he offers.  And while it is simpler to let money grow in a mutual fund, IRA or other growth asset, it is not without risks of loss which Dave minimizes over and over again as insignificant.  Dave is not alone, Suze Orman also says the same thing in public (that the market always returns positive returns over the long term and just buy term insurance and invest in mutual funds).  It all boils down to your comfort level and understanding of these product offerings.  I like Dave Ramsey's advice on financial peace and eliminating debt aggressively.  However his statements that the only reason cash value insurance is in existence is because agents get higher commissions to sell these product is flat out wrong as the caller points out.  It is illegal for insurance agents to sell products that are not suitable to their customers, and industry regulations and standards are very clear about that.  Dave knows better or should know better.

Where does insurance fit in your wealth building plan?

Wealth managers and smart marketers trying to educate the public on investment products do a great job educating their clients on building wealth and eliminating debt as quickly as possible.  I agree with almost everything said about eliminating debt  and wealth building through managed funds, but in a balanced position.   I see the risk vs reward for some people best balanced with insurance products that provide guaranteed protections for wealth with index universal life and increasing death benefits as illustrated in this video as a great explanation of index universal life insurance.

Why people are confused about life insurance

Between opinions from only purchase term insurance (which is the most profitable product for insurance companies), to only purchase whole cash value life insurance it is confusing to anyone listening to differing experts opinions.  Bottom line to consider is this:  Whoever offers you advice should have your best interest in mind and in heart, and fully at risk of malpractice for steering you into products that could cost you tangible losses of principal by steering you into mutual funds at risk or variable annuity products that have risk of loss of principal.  Only fixed rate annuities and cash value insurance policies guarantee you that you will not lose any principal and is like creating a bank account for it that is better on a rate of return than a checking or savings account, certificate of deposit, or other cash asset.  If you only rely on market growth and die early, your family is screwed.  You need to cover all your bases with 
portfolio diversification.

Every downturn in the market that experts cite always came back base the statement  on long term historical gains and losses and assume you would never cash out of the market (because it would be stupid to pull out of the market in their opinion).  Do they really have your best interest at heart here?   Aren't they assuming that the risk of loss of your principal is acceptable to you if you need to cash out of the market for some reason prematurely.   Everyone's risk tolerance is not the same, and the perceived risk of loss of principal can be stressful to anyone to decide.  Don't let greed or fear dictate your decision making or thinking.
Diversify and understand risk.  Talk to a professionally licensed insurance and annuity agent that is legally bound to look out for your best interest in determining suitability of risk.  The managed fund brokers/dealers will make you think that accepting some level of risk to achieve this incredibly better gain is far smarter than just leaving principal in a cash value life insurance plan or fixed rate annuity contract, or certificate of deposit.  But it is your money.  Understand the risk and your levels of risk tolerance to feel good about what you are doing with your money.  Call 301-892-0207 for assistance in selecting a life insurance or annuity agent that I would trust in your state. 

Why do you do what you do?

Has anyone ever asked you what you want out of life?  Is it to earn a living and support your family unit?  That is a noble reason to do what you do.  What if you had the peace of mind to do whatever you wanted to do for a living because you were the best at it, loved doing it and could make a living doing it?  Would you pursue it? What if you knew that life goes by fast for only a few Americans.  Only 15% of Americans die before the age of 70.  On average people live to be 84 for males and 87 for females in the US.  Would you change anything about how you see opportunities in life? If you knew the average earnings over a lifespan with an education or vocation and experience could be distilled to the following assumptions based on education:

What if you knew there was a multiplier of at least 2 that went into effect on your future earning potential when you combined skills, experience and advanced degrees with professional certifications such as CPA, CFP, PMP, CFA, with MBA, MD, JD, DMD, PE, CSDP?  Would you take on additional skill credentials and obtain certifications like certified software development professional (CSDP), professional certifications like CPA or CFP? Would you change what you're currently focused on to obtain a college education, combine skills and change the trajectory of your life's earning potential?  Would you go into business for yourself?  Would you increase the amount of life insurance coverage you had in place for yourself at different stages in your life based on your accomplishments throughout life?  Talk to a life insurance professional about affordable insurance products that would give you peace of mind to get the most out of life.

What risk factors go into pricing insurance premiums?

Is Credit Worthiness a Significant Risk Factor?  Are insurance companies pricing it in when it comes to life and health insurance quotes?  No!  The only risk factors considered are age, occupation, gender and health, mostly determined by height and weight, medication prescriptions and treatment plans. Income or the ability to pay premiums is a factor, but not a risk factor in determining premium costs.  The main risks associated with life insurance, disability or health insurance are actual risks of loss due to premature death, accident or illness.  Individuals on medications treating hypertension, high cholesterol, diabetes, alzheimers, dementia, cancer, end stage renal failure, terminal illness, or chronic illness are eligible for insurance policies.  Talk with an insurance professional to get the best savings possible for your situation.

When is term life insurance a good idea vs whole life, universal life or index universal life?

Term life insurance is a good idea when looking to fill a temporary term of protection and at a cost effective premium rate that is affordable.  However, the value of term has to be taken into the context of compared to what else is available as a solution.
View this illustration in greater detail by clicking here for full size image.

For example this illustration shows the difference in costs and value between the different kinds of life insurance products available.  If you look at the cost of term life insurance over a life time for about the same amount of protection, it is expensive to keep as you get older.  A 24 year old male beginning a career may rather think to invest the difference between term coverage and universal or whole life insurance into money market funds or their employer's 401k managed plan or even the employer's stock plan.  Not a bad idea and that is indeed what many people automatically are conditioned to do, and managers encourage employees to do.  There is no shortage of financial planners or broker dealers or wealth managers who would love to invest your money, but the Wolf of Wall Street was not a science fiction movie, and Bernie Madoff was once the president of the board of directors of NASDAQ to give you an idea of why the air waves are filled with experts recommending the best way to invest your money.  I would advise that you talk to a licensed insurance professional and compare solutions, guaranteed returns and value.   Insurance professionals are required to act as your fiduciary in offering you a clear and unbiased analysis of what type of insurance product is best for your needs throughout life.  Life Insurance companies and their licensed, appointed agents are required by law to give written illustrations outlining what is guaranteed and to provide clarity. That should mean something when comparing risk.

Employer group term life insurance plans may look like a no brainer, but insurance professionals familiar with group term plans know how expensive to individuals and how profitable to insurance companies they really are over time (because there is only a 15% chance of Americans dying before the age of 70). If your HR department can provide you with an outline of how often and how much group term rates change as you age in the plan on a per unit basis of cents per thousand then compare it or have a professional insurance agent compare it for you for free.  Take a look at what happens to costs to federal employees on (FEGLI) over time.  I'd recommend selecting a non-contributory option that provides a benefit completely paid by the employer (usually one or two times salary at the most).  Any additional voluntary contribution from your pocket after that should be analyzed and compared.  For example most young employees with a family select up to 5 times salary as a default when signing up for benefits and never change it (just like federal employees who get out of it as soon as they realize how foolish it is to stay in something so expensive accumulating no cash value).  The topic is boring to most employees (young males especially - believe me, I know, I was once young once) and the impression often is that it is too complicated to understand, and most people are too busy to consider it carefully.

The sample illustration in the image shows paying up a whole life policy in full in 20 years at the time of starting a career at a much higher cost than term insurance.  Much like a mortgage payment that pays off a house and creates equity or value in the real estate as it grows, this product appreciates in value over a lifetime.  The "guaranteed" rate of return on life insurance through the products illustrated in the image is 3%.  Many insurance companies will offer competitive rates and terms.   The non-guaranteed part can range from 4.45% to 8% depending on insurance company and products offered including index funds based universal life insurance using the S&P 500, or a combination of global indexes including all three major indexes (Hang Seng Index, Euro Stock Exchange Index & S&P 500) to provide guaranteed growth and no risk of loss.   There are many financial experts who will claim that they can do better over a lifetime in managed funds, but none of them can provide a written guarantee of NO RISK of loss except an insurance company.  These Index Universal Life policies and Whole Life policies can't claim to return double digit returns like managed at risk funds, but that's just the rub.  They take the growth in the good years and bank them to hedge against losses in the down market years (like 2008 which can wipe away decades of growth in one down year).  Insurance is guaranteed as a no loss product and offers a better return than a bank's secured savings vehicle.  Insurance companies are also themselves insured much like banks to provide protection from insolvency.  Remember AIG and "too big to fail?" There's a reason almost everything in the world worth any considerable value is insured to protect against risk of loss, your life is probably one of those things your family and you would value at the top of the list.  Let a licensed insurance professional guide you through the options or call us at 301-259-1721.