Insurance: A life or death matter Choose the type that meets your needs
By Stanley b. Greenfield, RHU

Insurance. It seems to be one of those words that makes most want to run and hide.

But before you do, answer this question — which one do you own — life insurance or death insurance?

DEATH INSURANCE

People buy death insurance thinking it is life insurance, because that is what they are told. Each year the premium comes due, and they pay the premium thinking, "I am going to die."

The company takes their money and looks at the actuarial tables and says, "No, you aren't!" This game continues every year with the company gladly taking their money, because it knows it will win.

As people get older and the odds change, the company charges them more. Now they pay, thinking, "I am going to die," and the company says, "You might, so we are increasing the cost."

If they continue playing (and paying), the cost will increase to a point that the company will price them right out of the game. For example: If you bought a $1,000,000 term policy and kept it from age 30 to age 100, you would pay in a total of over $8,500,000. Very simply put, you have to lose to win, and even if you do win, you really lose!

That is death insurance, commonly referred to as term insurance. As the name implies, it is designed to cover you for a specific period of time. Statistics show that the average term policy is for only two years. It seems that most people buy it for the purposes it was designed for, or they realize that it is just death insurance and convert it to life insurance.

LIFE INSURANCE

Life insurance is designed for those who feel they may live a little longer than those who buy death insurance. A few types of life insurance available include:

• Whole life or ordinary life. The basic type of life insurance is whole life or ordinary life. It has a death benefit, plus it builds equity or a cash value that you can tap into at any time without any tax penalties or income tax liabilities.

Those dollars accumulate in a tax-sheltered environment and are sheltered from anyone trying to seize them in a lawsuit or in case of bankruptcy.

• Universal life. Universal life is another type of permanent life insurance policy that came into being in the 1980s. It also has a death benefit, plus it builds equity, but the interest earned on the equity side is based on a fund that the company invests in, and the rate can vary from year to year.

The overall mortality rate is lower in these contracts compared to a whole life policy.

• Variable life or variable universal life policy. Variable life or variable universal life policy, depending on the structure, is a newer type of policy that replaces a policy's equity with a portfolio of mutual funds from which you pick and choose the funds you want.

This gives you a better chance of building a larger equity within these policies, but you take your chances by playing the market.

These plans have become very popular and can be used to not only supplement a retirement, but also to replace a retirement plan. You can access the equity at any time without any penalties or taxes if the policy is set up properly. You can also put extra money into this type of policy without increasing the charges of a normal policy and accumulate a lot of cash.

In most states, this cash is protected from creditors or in case of a law suit.

• Indexed universal life. Indexed universal life is a newer version of variable life policies. Instead of having to chose mutual funds for your portfolio, you invest in an index, such as the S&P 500, the Dow Jones, or the Russell 2000.

The index gives you a much broader base, plus you only share in the increases, not losses for the year. If your index goes up, so does the interest you earn. If the index returns a negative number, you do not go below zero — a very nice feature.

These policies can also be over-funded without increasing the death benefit or the charges, which can help the equity grow at a very nice rate.

WHAT ARE YOUR NEEDS?

How much insurance do you really need? The answer depends on many variables: Are you married? Do you have a family? Mortgages? Debts? Other obligations? What are your assets? Don't forget to include them in your calculations.

Calculate your needs, and then by simple subtraction, see if you need any additional protection.

Now is the time to review your policies. Are they still doing the job that you want them to do? Are the beneficiaries correct and up to date? Do you have any special riders that were added to the policies but have out-lived their usefulness?

Review your policies at least every two years unless you have experienced a major change in your family status or size. In that case, review the policies at the time of change. It is important to keep things current and up to date.

Remember: A bad insurance program can be like a faulty parachute. It will let you down when you need it the most.

SIDEBAR:
Retirement insurance?

Stanley B. Greenfield is a registered financial consultant and a registered professional disability and health insurance underwriter (RHU). He is president of Greenfield's Financial Power Program and offers financial and practice management to the chiropractic community. He can be reached at stan@stanleygreenfield.com or by phone at 800-585-1555.