Ideas, tips and news about life insurance and the uses of life insurance

When you analyze how much life insurance you should have, it helps to detach yourself from the emotions regarding the subject.

In the last post I talked about a simple method to figure out how much insurance you should have. You can also try a link that’s a little more scientific: Human Life Value Calculator.

Here’s an interesting analogy we’ll call the “money machine.” If you had a machine that made you $100,000 per year every year without fail, how much would you insure it for in case it broke down, got stolen etc.? Probably, all the insurance you could get…. but realistically you’d want to insure it for its replacement value just like you would with a house or any valuable.

So, how do you calculate the replacement value of that machine? Take a look at the prior post where we used an interest rate to work backwards to an amount of cash. In that example we took $100,000 of income and divided by 5% and came up with a value of $2,000,000. That would be a fair amount to insure the machine since you could invest $2,000,000 at 5% and have your $100,000.

Now turning to one’s life, financially, you’re the money machine! If you as that money machine broke or didn’t work you should have disability insurance and if you have people that depend on you financially you should have the proper amount of life insurance.

Let’s start with an analogy. Ideally, how much should you insure your house for? Enough to rebuild and replace, right?

Well, you can also look at the economic value of your life. If you die the income stops and if others depend on that income then that should be replaced. The amount of money needed to replace the income that wouldn’t be made if one dies, is called one’s human life value.

You can follow this link and learn more about that concept but here’s a summary: Take your income and use an interest rate that one could earn today.

Let’s use 5% for this example. Let’s say your income is $100,000 per year. To replace $100,000 per year at a 5% return, you take the income and divide it by the interest rate. ($100,000 divided by 5% or (.05). The answer is $2,000,000.

To prove that out, multiply 5% X $2,000,000 and youll see that you get the $100,000. So, in very rough terms that’s how you figure out your human life value and it’s a goal to shoot for in coming up with the answer to “How much life insurance?”

To review: Put your annual income in a calculator and then divide by .05 (or the interest rate of your choice) and there you go, one’s human life value.

You should definitely consider financial strength in your selection of a life insurance company. Insurance companies run the gamut from small to large and with lesser financial strength to very strong. How do you figure out if a life insurance company is financially strong?

The shortcut is to check the life insurance company financial strength ratings from the independent analysts. (Follow the link to learn about these.) How are these ratings calculated?

The key method is analysis of ratios and statistics. What does that mean? For example there’s the statistic of how much surplus a company has i.e. how much does the company have in assets more than liabilities? The ratio looked at here is: What percent is that surplus of their total assets?

Other ratios and statistics include the makeup of the life insurance company’s investments (type and quality), the diversity of their product lines and many more. There are lots of statistics and ratios involved in analyzing a life insurance company. I’ll discuss them one by one in future posts.

So, when choosing an insurance company don’t just compare pricing of the policy, look up their financial strength rating as well.

If you need help looking up the financial strength rating of a life insurance company you can call Lifeinsure.com at 866-691-0100, we’ve got access to the ratings from all the major services. We’ll also go over who the financial rating services are in an upcoming post.

Here’s an area that doesn’t get talked about as much any more. The reason why, I believe, is that there are not many mutual life insurance companies left. A mutual life insurance company is an interesting corporate idea. It’s based on one of the great human attributes – the spirit of community.

Mutual companies are called that because they are mutually owned by the policyholders. There are no stockholders. Dividends are paid to the policyholders on most policies especially long term policies like whole life insurance.

Some of the largest and well known life insurance companies are mutual companies such as New York Life, Guardian Life, Northwestern Mutual Life and Mass Mutual. A bunch of other companies used to be mutual life insurance companies but then “demutualized” and became stock life insurance companies these include Metropolitan, Prudential, Equitable (Axa) and others. When do you choose a mutual company? You should consider a good mutual company for whole life insurance.

We at lifeinsure.com can help you with choices in that area. Also, if you’re thinking of converting (changing over) your term life insurance to whole life at some point, it may make sense to go with a mutual company for your term life insurance because you can change to whole life under a conversion privilege without any new medical checkups or questions.

We get asked: What kind of term life insurance should I get? The great majority of term life insurance being bought and sold today is level premium, level benefit term life insurance that lasts from 10 to 30 years.

Years ago, the most common type of term life was annual renewable term life insurance. That’s the kind that goes up every year in price. Consumers didn’t like seeing the price go up every year so it lost market appeal and policies that stayed level in premium for five years and 10 years startd to become popular.

The next evolution was to extend the the level premium term life insurance for 15, 20 and then 30 years. What’s the best kind? — The lowest premium, from the best company (based on financial strength) that lasts the longest. Some policies only guarantee the premium for the first years of the policy and then it can go up. Try to get a policy that guarantees the premium (premium can’t be raised) during the term period.

Also, you want the policy to be convertible to whole life insurance or universal life insurance so that you have the right to change the term insurance, without any medical questions, to something that will last your whole life.

You can search a very large selection of term life insurance companies and policies for up to 30 years, with guaranteed level rates and with rights to convert without medical questions to whole life or unviersal life on the lifeinsure.com site.

I know that life insurance doesn’t hit the top of the excitement charts but if there is a controversy in the life insurance business, the topic of which kind of insurance gets to be a battle. Our view on the subject of term life insurance versus whole life insurance is that neither is 100% right every time. It depends on the person, the income, the stage of life and the situation.

What is important is that if you have people who are financially dependent on you that you have life insurance and enough. That’s what’s responsible, no matter the type of insurance chosen. Whether you get it from us or get it somewhere else, the important thing is to get it and get enough.

There are people who depend on you to do the right thing. I’ll be going over more about types of life insurance in future posts. See you soon.

We’ve been seeing an increase in return of premium life insurance quotes again. This is an interesting life insurance product.

If you’re not aware of it, it overcomes one of the objections to term life insurance which is the pure cost (no return) of term life insurance.

If you keep the return of premium policy you get all the premium you paid in back to you at the end of the term period. That’s the good news. The bad news is if you don’t keep it, you overpaid for your term life insurance. Not a bad deal – if you keep it.

The life insurance blog is here to keep people up to date and help them learn about life insurance and find out ways to get competitive life insurance quotes.