Insurance

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Insurance | term life | health | policy savings

The industry has come a long, long way from the "good ol' days" when options were limited to gambling with a big company that you die...and hoping you'd lose. It is now an investment business, in every sense of the word. And those with the right "inside" information - with access to its business "secrets" - can save big bucks and make big bucks by investing in the right policy. In this section, you'll learn some of these business secrets.

Insurance bargain-hunting

Competition in the business

Here are some tips:

• If you exercise and are a non-smoking non-drinker, shop around for a company that offers preferential rates.
• In the last decade or so, insurance rates have dropped sharply. Because of that, you could probably cash in an old life insurance policy and buy a new one for the same amount of coverage, perhaps even more, at a significantly lower cost. (A 45-year-old nonsmoking male, for example, can buy a $1-million policy today for an annual premium that's only about 25 percent of what was charged in 1980.)
• The best way to insure, if you can afford it, is to buy one of the so-called "super-policies," offering $1 million or more in coverage, and to pay the annual premium in a beginning-of-year lump sum.
• Shop around to find a back-end-load-current-interest rate (BELCIR) policy. This policy lets you put all your early premiums directly into the pyrchase of policy and investment products and holds payment of any commission or sales charges (as much as 125 percent of the first year's premium) until the policy is terminated. (Typical policies, with front-end loads, reduce the amount of money that's put into the savings portion of the policy.)
• Shop for a policy that offers so-called "vanishing" premiums. In a high-interest earning enviroment, policy earnings themselves will pay up a policy in as little as five years.

Earn income while you insure your life

Most of us don't think of insurance as an investment. This is a sad mistake since some new policies make quite a bit of investment sense, especially for higher-bracket tax payers.

One new form of life policy - (trade names include "Future Plus" and "The Money Tree") - offers a fascinating mix of investment and insurance.

With this kind of policy, a 55-year old male could:

• Buy a policy with a $25,000 payment, immediately giving him a death benefit of about $111,900 and cash surrender value of $22,500 (with no income).

A King was out hunting with his princes in a forest many miles from the castle. A sudden snowstorm fell on the party. In the confusion, the King was separated from the others. When he failed to return to the castle after four days he was given up for lost, but on the fifth day, he appeared in the warm dining room. Someone asked him how he had found strenght enough to keep going. The King replied, "I remembered all that the castle means to me."

• For each of the next four years, this insured would pay premiums of approximately $3,900. During this period, the death benefit would remain constant, but the surrender value of the policy would grow to $51,125. At this point, the policy would be fully paid.
• In the sixth year, the policyholder would receive $3,800 (an amount equal to pay-ins in each of the prior four years) in the fork of a tax-free "policy loan." These payments would continue until the end of the policyholder's life.
• The death benefit of the policy would devrease by $3,800 each year; but, the cash value of the policy would continue increasing. Assuming a 10 percent growth rate, that policy's death benefit, by the 11th year, would be down to about $83,300 while its cash surrender value would have climed to about $64,000
• In the 12th year, some of the interest accruing to the cash value account could be used to purchase more insurance, so that - by the 18th year of the policy's life - the death benefit is more than $92,000 while surrender value has reached $73,500 (again, assuming a 10 percent interest rate). All this time, meanwhile, the policyholder has been receiving those tax-free payments of $3,800 each year.
• This type of policy (you'll have to talk to your stockbroker to find out exactly what plans are available) allows the policyholder to borrow against the cash value at low rates and also allows the termination of the policy for cash.

Single-premium life, for "small" investors

One of the most exciting insurance products to be offered in many a year, single-premium life insurance offers many of the same benefits found in the more exoensive product above, only makes those benefits available to the guy or gal with significantly less money to put to work.

Here's how it work:

• You pay your entire premium up front in a lump sum. (Most companies require a minimum investment of $5,000. with no maximum.)
• Your money is then invested at a guaranteed rate for one year, possibly longer. (Most companies invest in long term bonds.)
• Your entire investment begins earning non-taxable compound interest immediately.

There are two ways you can tap yourmoney.

First, you can "borrow" the interest earned each year, starting after the first of the year. These loans are nontaxable and, in fact, do not have to be repaid. Although they are called loans, they are, in fact, withdrawals and are structured so they're repaid by interest earned (a "wash").

Second, you can borrow up to 90 percent of the principal at very low rates, with no taxes paid on the amount borrowed. (Be careful not to borrow 100 percent of the principal since that would "surrender" the policy and the IRS could then tax the entire amount, including income, all the way back to the policy's inception.)

N.B. Remember, in thinking about single-premium life, that this type of policy is more an investment than a life insurance policy. It's really "wrapped" in a life-insurance like cloak in order to qualify for favorable tax treatment.

Make sure you have enough insurance

There are some easy rules -

Here they are:

• Make sure you have enough insurance to cover, among other items, the cost of any uninsured medical costs and funeral expenses.
• Buy enough insurance to pay off aa outstanding debts including car loan and credit card maximum balances.
• You want to buy enough coverage to provide your survivors with income sufficent to maintain their lifestyles. Figure typical expenses, income (including Social Security payments, if any). then provide a bit of a cushion.
• Buy enough policy to take care of inflation, figured at about 9 percent per year.
• Make sure you have adequate liability policy. It does no good to leave lots of assets for your heirs just to have those assets wiped out in a lawsuit.
• When the time comes to get a salary increase or wage increase at your place of employment, ask instead, for an increase in disability coverage. You won't be taxed, and the expenses are a company write-off.
• Don't overlook policy purchases just because you're young. In fact, young couples, without a lot of assets, need a policy more than do older couples with large portfolios.
• Review your policy holdings and needs at least once each year.

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