How Many New Cell Phones Have You Had Since You Last Updated Your Life Insurance Policy?

All of us who are old enough to remember the days before cell phones, will probably agree that how they have evolved over that time is nothing short of miraculous.  If I showed a person from 1982 what I can now do with my phone, they would think I was a magician.  Think back to the early days of cell phones when they were huge, clunky, expensive devices that could really only accomplish one task – making a phone call.  Similarly, the lowly life insurance policy has been evolving on an equally dynamic path, however fewer people have taken notice of these changes.  And as you read on, you will see that it has been in the best interest of the life insurance industry not to tell you quite as much about these changes.   But there is no doubt about it, if you have an old life insurance policy, and if you are also healthy, then you might benefit greatly from an upgrade.

One of the biggest revolutions in the life insurance industry began in the early 1980’s, with a brand new product called Universal Life Insurance.  Universal life policies had an advantage over traditional cash value policies in that they were much more flexible.  For instance, with a universal life policy you could allow the cash value build up to take the place of the death benefit or you could even let it pay your premiums for you for a while if you had enough cash value in your policy.   The next evolution of this tool allowed for the cash value to be invested in funds that mirrored the stock market, generating huge returns in bull markets but of course creating problems for policy holders in bear markets.

If you have a cash value life insurance policy in force, whether it is fully paid up or even if you are still paying premiums each month, please read on, this article could make you a lot of money.   Let’s take a look at some of the issues that make a switch to a more modern policy an important issue for you to consider.

A good place to begin would be with mortality tables.  These are tables which attempt to predict how long the average person will live given their current age. These tables are used to develop the rate you will pay for your life insurance protection. Now, when you purchased your cash value life insurance policy, it is more than probable that your insurance company calculated the premium that they charge you each month using mortality tables that are now out of date.   People are living longer now than they were just a few years ago and longer lifespans will generate lower life insurance rates.  But if your policy is locked in to an old mortality table, then you paying rates that anticipate that you will live a shorter lifespan than now may be the case. If you were to replace that policy with one just like it that used more modern mortality tables then you should see a reduction in your cost of life insurance even though you are older now.

Administrative costs – People who own cash value life insurance policies that are 15 years old or older may be paying for clerical workers who have long since been sent home.  Let me explain.  Older life insurance policies have built in administrative costs to cover the clerical costs of maintaining those policies.   You see, back then life insurance companies, which were very slow to automate operations and embrace computer technology, had not automated a number of their clerical functions, even simple ones like adjusting the growth or interest on the cash value of your account.  Using hundreds and even thousands of clerical persons to handle this was very expensive.  With all of those clerical employees they had to rent office space and maintain premises as well as offer benefit programs to keep these employees.  Most of that is all gone now and computers have taken on these tasks.  But, if you have an older policy, those expenses are still built into your rates and you are now paying for ghost employees and empty office buildings. And these expenses are pure profit to your life insurance company.  I hope your life insurance company is sending you a nice gift each Christmas because they have to love you for hanging on to that expensive policy which has huge profits built into it for them.   A new policy will save you from this expense.

Indexing – the new way to grow your money.  Most of the older, cash value life insurance policies have very rigid investment plan that severely limit how your money can grow.  Indexing, in the context of life insurance, refers to a technique where your money is invested in very safe, low yielding investments for the most part, while the insurance company purchases options on stock market indexes with a small portion of your funds.  When the stock market goes up, they can convert these and capture a nice percentage of the stock market gains.  What this means for you in general terms is that your cash value can now earn a large percentage of any stock market gains while avoiding any losses when the market goes down. When it comes to long term investments like the cash value in your life insurance policy, avoiding losses is often more important to long term success than capturing gains.  Indexing is a powerful tool that can help you end up with a lot more money in the long term inside your life policy.

Long Term Care – some cash value life insurance policies can now allow you to use a portion or even all of your life insurance death benefit before you die to use on long term care for yourself as you age and become unable to care for yourself.  This is a powerful feature because it does not require you to move to a long term care facility to collect the funds.  You can use your life insurance death benefit before you die to help allow you to continue to live in your own home and hire care givers to help you stay there as long as you are comfortable with that.  When you need to move to a long term care facility you can use the money for that as well.  Most long term care policies are not this flexible and besides, their cost is very high.  Here you are just using your death benefit as a living benefit for yourself.

Retirement Distribution Option – this new feature is found on fewer new policies but is catching on and may soon be very much more common.  Some of these new cash value life insurance policies let you to create a bucket where you can dump in money for your retirement, either from a 401k or from non tax deferred funds, for instance if you sell your home or inherit money.  Either way, the advantage is that you will be able to create a lifetime income that you can’t outlive.  This means that as long as you are alive you will receive monthly payments no matter how much that adds up to over your life time.  And the real power of this bucket is that you will be able to generate a much higher monthly dollar amount than any other method of distribution will allow.  This could make a big difference in your retirement lifestyle.

Clinard Insurance Group, located in lovely Winston Salem NC is dedicated to helping all insurance buyers become better informed consumers.  We insure thousands of families all across North Carolina.  If you would like help with your home insurance, your auto insurance, your life insurance or even your business insurance, please call us, toll free, at 877-687-7557.