Build your financial foundation with life insurance.

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For several years now, September has been designated as Life Insurance Awareness Month. When we change our clocks back in the fall, we also check the batteries in our smoke detectors to protect our families. What a perfect reminder to review our life insurance needs annually to help ensure our loved ones are protected.

There are many life changes that can take place in a year – marriage, children, job changes, etc. Each of these changes can make a big difference in the life insurance coverage needed for your family.

“I know I need it, but I don’t want to think about it now.” “I’ll deal with it later, it’s not a priority.” These are two of the most common responses when the topic of life insurance comes up. Despite being saddled with a reputation as a boring financial product, life insurance still remains a product that many financial professionals agree should be the foundation on which people should build their financial goals.

Why so? First, think about your loved ones. The primary benefit of life insurance is to provide for them, helping them meet daily expenses and continue the activities of daily life without any further major disruption. Familes can use life insurance proceeds to pay bills – like credit card and mortgage bills – and daily necessities such as groceries, gas, etc. Without adequate life insurance coverage, many families could be placed under great financial distress to meet the ongoing financial obligations of their new lives.

Life insurance can also protect one’s spouse against sharp reductions in future pension and Social Security payments by replacing assets cut short by premature death. For example, it is not unusual for a surviving spouse to receive less than half of his or her spouse’s projected pension because death has interrupted anticipated contributions flowing into the plan.

And it’s not just at home where life insurance can help. Life insurance can help business owners and others with significant assets to pass those assets to their loved ones in a tax-efficient manner. It also serves as a tremendous tool enabling people to support nonprofit organizations through charitable gifts.

Life insurance might not be a popular topic, but the security it offers brings a level of comfort that most people can’t do without. In addition, most people will find that life insurance coverage is a key component as they plan for their long-term financial goals. None of us can control whether we will have tomorrow, but protecting the people in our lives is something we can take control of today.

Considerations before you purchase life insurance

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Life insurance is one of those products hyped by marketers who tout low prices. Of course, cost is a huge factor in any financial decision. But are you really getting the lowest cost and the best deal for your life insurance needs?

Comparing the cost of anything needs to be done on an apples-to-apples basis. For life insurance, that means the comparison is only valid when you look at two contracts with the identical provisions and benefits.

Starting with term insurance, there are several points of differentiation. First may be the company ratings. One may expect to pay a little more for a company with higher ratings. If you are OK with lower ratings to save a few bucks, go for it.

For annual renewable term products, you want to see how long the policy will be in force and how high the premium gets in the later years. Few policies last for life – and if they did, you probably would not be willing to pay the premium when you are age 90. Other points of comparison for annual renewable term contracts would be their convertibility into permanent products at a later date. Some allow it and others do not.   Some restrict what you can convert to, and others allow conversion to any of the policies offered by the company at the time. And lastly, some companies have very good permanent products that you’d be proud to own, and others are not quite as good.

For term contracts, such as 10-, 20- or 30-year products, the same points of comparison exist – along with a few new ones. You want to evaluate what happens to the contract at the end of the guaranteed premium period. Some will simply end the contract with no more coverage, while others may offer extensions. The premiums, however, on those extensions are frequently extremely high, effectively forcing you to surrender the policy unless you knew that you were on death’s doorstep.

Permanent products such as whole life or universal life have a completely different way to compare costs in addition to the provision-by-provision comparisons. These products may be recommended for estate planning or for a client who wants to build up cash inside the contract for safety or future use.

I like to look at the internal rate of return on the internal cash surrender value and the internal rate of return on death benefits. Most permanent insurance illustrations will actually show you, year-by-year, the forecasted rates of return on your premium dollars.

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The 9 Most Useful Life Insurance Riders

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You’ve figured out how much life insurance you need, how many years you need it, how much you can spend and what type of policy best fits your situation.

But your homework isn’t finished yet. Now an array of life insurance policy add-ons, called riders, must be considered.

“Riders can give policyholders additional benefits and increase peace of mind that if something goes wrong, there’s a Plan B,” says Shelley Fiore, an agent for Detroit Financial Group, a general agency of the Massachusetts Mutual Life Insurance Co.

When you buy life insurance, available riders vary by insurance company and policy, as do the rules for how they work. Costs also vary and depend on many factors, including your age, health and type of policy. We can’t list every option available, but here are some of the most useful riders.

In case you become totally disabled

1. Waiver of premium rider

With this rider, you don’t have to pay the premium if you become totally disabled and can’t work.

Fiore says she always suggests that clients consider it so “they don’t have to choose whether to put food on the table or pay the insurance premium.”

Keep in mind the waiver expires, often at age 60 or 65.

2. Disability income rider

You collect a regular income from the insurance company if you become totally disabled and can’t work. The policy specifies the amount of the income and whether it’s paid for a certain amount of time or for the length of the disability.

Some disability income riders pay out only if you became disabled from an accident, while others pay on accident or sickness, says Al Lurty, senior vice president of ING’s U.S. insurance operations.

In case you need more insurance but your health has declined

3. Guaranteed insurability rider

This rider lets you purchase additional life insurance coverage at a later date without undergoing a medical exam or providing any evidence about your insurability.

Because you never know how your health could change, Fiore says it make sense to consider the rider (if you’re eligible) and think you might want to buy more life insurance later. The option allows you to buy additional insurance at certain intervals, such as every three years, or at certain ages, Fiore says. When the option comes up to buy more coverage, the insurance company considers your age for setting the premium, but not your health.

“I’ve seen people with severe heart conditions or cancer get additional coverage who otherwise would have been declined,” Fiore says.

In case you want to convert term life to permanent insurance

4. Term conversion rider

Term life provides coverage for a certain period of time, such as 10, 15, or 20 years. Permanent life insurance, such as whole life or universal life, provides coverage for your entire life, so your beneficiary receives a benefit no matter when you die.

This rider lets you convert term life insurance into permanent life insurance without undergoing a medical exam. Fiore says it’s especially attractive to young people starting careers and families who need life insurance but don’t have enough money yet to secure all the coverage with permanent life insurance, which has higher premiums than term life.

There will be a deadline for when you must convert, if you want to change the term policy to permanent life insurance without providing health information. Understand the convertibility features of term life before you buy.

In case you become seriously ill

5. Accelerated death benefit rider

This has become standard in the insurance industry, Lurty says, and is usually included automatically for free or offered at nominal cost. The rider lets you collect a portion of the policy’s death benefit if you become terminally ill with a short life expectancy, such as one year. The policy spells out how much of the death benefit is available before death. Usually it’s capped at $250,000 to $500,000, Lurty says.

You can use the proceeds for anything, such as paying medical bills or living expenses. Even though the insurer offers the rider free, the company may charge a fee if it is exercised.

6. Critical illness rider

The insurer pays a lump sum if you’re diagnosed with one of the critical illnesses specified in the insurance policy, such as cancer, heart attack, stroke, kidney failure and others. Instead of reimbursing you for medical expenses, the way health insurance does, the rider provides money to use for any purpose during the course of treatment.

In case the unthinkable happens

7. Child protection rider

No one wants to consider the possibility of losing a child, so all emotion must be set aside when considering a child protection rider. Although the death of a child typically would not result in income loss, as would the death of a spouse, the tragedy still would have some financial consequences, which could be an additional hardship for a bereaved family. This term life insurance rider provides coverage for final expenses in case the unthinkable happens. The coverage generally can be purchased in units – for example, $1,000 — Lurty says, at a nominal price. Basic information about the child’s health is required for underwriting.

In case you die from an accident

8. Accidental death benefit rider

If you die from an accident, this rider provides an additional benefit on top of the policy’s regular death benefit. The option is often referred to as double indemnity when the additional payout equals the original death benefit. Sometimes the rider also includes additional payment for dismemberment. You would collect money if you lost a limb or your sight. Life insurers will consider your occupation and hobbies when determining premiums, Lurty says. High-risk activities, like race-car driving, would boost the rates.

In case you outlive your term life policy

9. Return of premium rider

“If you live to the end of the term, in exchange for paying the premium, in most circumstances you get all your money back,” Lurty says. He notes that some companies use a separate rider where others, like ING, write the return of premium benefit into a base policy.

You pay a higher premium for the opportunity to get your money back. The big question to consider: How does paying the extra cost for the return of premium rider compare to investing that money and buying a basic term policy instead?

To find the answer, subtract the annual premium for a basic term policy from the annual cost of a return of premium policy. The difference is how much you would have to invest each year during the insurance term. Then calculate what annual rate of return you’d need on that money to beat the amount you’d get back from a return-of-premium policy. Remember, money from the return of premiums is tax-free, but your own investment returns are taxed. In some cases (depending on age, sex, tax bracket and other factors), you’d need to get more than a 7% rate of return on your investment to beat the return of premium policy, Lurty says.

There is no one-size-fits-all answer to whether any of these riders are right for you. You’ll need to weigh policy options to find the best package for your needs.

“My best advice is to talk to a knowledgeable life insurance agent to help make an informed decision,” Lurty says.

Term Life Insurance Ending

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Eloise Nelson is digging through and examining some of her important papers.She now realizes it’s what she should have done years ago when she first took out a $75,000 life policy.Nelson would have discovered her monthly premiums were scheduled to jump drastically, from $64 to $220, after 20 years.”Well when I got it, I really didn’t understand how it would be or anything,” she said.So seven months ago, it came as a shock when her insurer Primerica started drafting those big $220 payments from her bank account.”I don’t have that kind of money to give nobody,” she said.Realizing she couldn’t afford it, she canceled her policy. Primerica then refunded her last payment but not the full $1,300 they’d taken in higher premiums.Nelson complained to the company, but to no avail. “I got a lot of fast talking and no satisfaction,” she said.Action 9 got in touch with Primerica. It said it sent a letter to Nelson one year ago reminding her of the scheduled premium increase, but did not hear from her.Nelson has only herself to blame for not paying attention to all of her important mail.After Action 9’s contact, Primerica refunded all of her money, $1,320, as a goodwill gesture.She tells others not to repeat her mistake. “Make sure you understand everything before you sign anything.”

Lesser Known Insurance Policies

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Life and auto insurance are not generally the sort of topics that ignite conversation. Chances are, you have never read your insurance policy from cover to cover and if you brought up your latest insurance deductible on a daily basis, you may find yourself rapidly losing friends. However, there are some lesser-known forms of auto and life insurance that are screaming to be discussed. A number of them are new to the market and others are veterans in the insurance space. Here are five of the most unusual.

Insurance on the Playa
This is not an insurance created especially for those with a penchant for beach holidays. Rather, it is a unique program, launched in June by Heffernan Insurance Brokers, that offers coverage for participants of Burning Man. From the outset it sounds like an oxymoron. Burning Man is a weeklong communal artistic experience that occurs at the end of summer each year in Nevada’s Black Rock Desert and culminates in the ceremonial torching of a giant humanoid figure.

Not surprisingly, participants have traditionally found it had to secure insurance. However, as ‘burners’ themselves, Heffernan’s Amy Vitarelli and Ben Stern spent two years developing the unique coverage that provides liability for theme camps, art cars and art installations as well as coverage for owned or rented property. There is no insurance requirement for the festival but, for those who want the extra coverage, they can a premium of $500 to $850 for Heffernan’s offering.

Food Truck Insurance
From the east coast to the west coast, mobile food vendors are more popular than ever before. There are estimated to be 8,000 to 10,000 rolling restaurants in Los Angeles County alone, and 10,000 between Dallas, Houston and Austin, Texas, according to Ron Ortega, program manager of Whorton Insurance Services in Austin. Traditional taco trucks are now vying for curbside attention against gourmet lobster rolls and grilled cheese, and the burgeoning market is ripe for a specialty insurance program. Food truck purveyors originally had to piece together their own protection to cover food borne illness, fire and auto accidents. In order to develop that into one policy, Ortega developed the nation’s first Mobile Food Vendor Insurance (MFVI). “Costs vary by state and region, but on average, premiums range from $2,500 to $3,500 for $1 million to $2 million general liability and $1 million auto liability, including physical damage on a stated amount basis,” Ortega says.

Pet Auto Insurance
Many owners cherish their pets and would not hesitate to call them part of their family. With the raising cost of medical treatments on offer, medical pet insurance has seen increased interest in recent years, and auto insurance agencies did not want to be left behind in catering to man’s best friend. Now special car insurance covers the cost of care if pets are injured in an auto accident. Progressive was the first to offer pet coverage in 2007 and companies such as Chubb and Arbella have followed suit. While Progressive and Arbella’s coverage only applies to cats and dogs, Chubb’s customers can protect everything from their pet lizard to their exotic parrot. Chubb only draws the line at animals used for income generation such as racehorses.

Body Parts Insurance
Entertainment companies, television networks and sports teams may be tempted to insure the body parts of their star to account for any job-stopping injury, Over the years, a number of celebrities have insured their own notable body parts. Singers Bruce Springsteen and Rod Stewart have insured their voices, Lloyds of London recently insured the smile of Ugly Betty star, America Ferrera for $10 million and back in 1940, Betty Grable insured her legs for $1 million. However, you don’t have to be a celebrity to qualify for this type of insurance. Anyone who is willing to pay the premium can order specialty insurance for any body part they wish.

Kidnapping and Ransom Insurance
Kidnapping and ransom insurance is one of the most complex and paradoxical insurance policies available. It is largely aimed at those companies or individuals who are working in high-risk areas that tend to have high crime rates and a history of kidnapping workers. The coverage is designed to cover anything from a crisis response team and money spent on a ransom to medical expenses and counseling. However, the coverage is paradoxical as with many policies, the employee cannot know that the coverage exists for them or the corporation and if they do find out, then the policy may be declared void. So you may have kidnap, ransom and extortion insurance, and not have any idea.

The Bottom line
This is only a small sampling of the baffling variety of unusual and specific insurance policies that cover most situations you can imagine. There are risks inherent in most, if not all, parts of our lives and we could all choose to cover ourselves entirely for every eventuality. Most people are covered comprehensively by their standard auto or life insurance, but there are always premiums that can be bought if you believe that you needs are not being met.

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