Learning More About Life Insurance Dividends

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Financial advice is hard to follow, mostly because one little investing mistake means spending old age feeling like your hands are tied behind your back. It can be a series of terrifying decisions. All in all, if you have some money to set aside, it should empower you, not steal your joy for life.

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One product that provides a huge array of potential stability and security is an age-old standard.

You may even think it is passe, but in uncertain economic times, it seems a wiser of the investment vehicles. Enter something called life insurance.

Term life is a commonly purchased product. It is just one way many offset the uncertainties of life, especially for parents who have dependent children.

It carries a specific time period in which it is valid, and then expires. The term can be anywhere from 10 to 30 years.

In some cases, the term policy may be transferred into a permanent life insurance product either during or at the end of the policy period. It depends entirely upon the policy verbiage how the policy is treated.

Permanent life insurance is a life-long, or whole life insurance. It lasts either to the end of life, or until age 100, usually. It depends upon the policy that you sign whether the policy is true whole life, or if it has a late-age end date, say 100.

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Features of Life Insurance

Term life is cut and dry. It offers benefits to your designated beneficiaries if you pass during the term period. Whole life insurance provides some benefits that most people do not know exist.

Let’s say you are like most people, and you have kids who you need to send to college. You also want to have the money to retire one day. You might want to buy your own home one day, and need 20 percent down. Of course, add to it that you might need a loan to pay for the new roof for your home.

You may be concerned about the costs of long-term care for yourself when you are older.

People are living longer, and the care is expensive. There is long-term care insurance, but it is costly unless you secure it while you are young. You are probably foregoing this product because of the laundry list of financial needs that come before this in your priorities.

If you have a whole life insurance policy you may want to use it in the following ways:

  1. To retire off the cash benefit whenever you want (not at 70)
  2. Enjoy the option to tap the whole life for long-term care funds
  3. The ability to borrow or withdraw cash for your kids’ education
  4. Borrow to pay for the new roof.

The insurance policies of today provide a huge degree of flexibility. If you compare investing 5,000 dollars per year away in a retirement account through work compared to buying a whole life insurance policy, you may find yourself taking too high of a risk, while causing a cash flow problem.

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Here is why. With a workplace retirement plan, such as a 401(k):

  1. You are restricted, penalized, and fined if you make early withdrawals of your money before the government and trading laws allow you to take retirement funds
  2. Most people keep a job less than five years. Many jobs require at least five years of service for employees to be vested in retirement accounts. That means if they lose their job, they lose the company match.
  3. Your money that you need is locked away only for retirement.

In addition to allow you the flexibility to access your funds the way you need, you enjoy having multiple benefits in one place, while you are still living your life. The way long-term care coverage is offered up is through a rider. Look for life insurance products that provide the option for a long-term care rider.

To be even more thorough, you may also seek a life insurance rider that allows you an option that pays you benefits while you are alive if you have a terminal illness. Such benefits pay out for medical expenses, hospice care, and even for funeral benefits still.

Another Feature: Insurance Dividends

Life insurance is just like other insurance in one way. Insurance carriers come in two types. They may be publicly traded companies or private.

Publicly traded companies answer to shareholders, who own much of a company.

Among the private companies there is something called a mutual insurance carrier. Some private companies have hired on board members to run the company. Others are owned entirely by policyholders. That is where the mutual insurance company comes into play. As such, some years, mutual carriers, have surpluses.

Maybe the insured did not need as many claims payouts as the mutual company predicted. The mutual insurance company distributes the excess funds as life insurance dividends.

The traditionally setup companies, on the other hand, would keep the excess as a profit for themselves. Beyond the insurance dividends, the insurers actually invest the money for customers when they have a life insurance policy that has an arm that builds cash value.

Finding Value You Seek

When you are buying life insurance, it pays to start by reading up on all the bells and whistles that are available this year. There are new ones being added, or changed all the time. There is importance to having a solid insurance agent or independent insurance broker who can introduce you to the products they offer.

Start out with the basics when you are shopping.

  1. Know what you want the insurance policy to pay for and estimate the cost of those expenses to decide on a death benefit.
  2. If you want to have retirement paid, then determine how much you need to retire.
  3. Make a decision about how much you want available in cash, or for loans.
  4. If you would like a long term care or terminal illness rider, be sure to ask for it.

Underwriting Process

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Once you have put in for the parameters you want, evaluate the insurance companies.

Check whether they will have the money to pay for your insurance benefits by evaluating the creditworthiness of insurers.

You will be asked about your medical history, including genetic predisposition for illnesses as well.

The insurer will send a medic to additionally take blood to check for high cholesterol, nicotine, or drugs (illicit or legal) in your system.

If you have pre-existing conditions, dangerous hobbies, risky jobs, are a reckless driver, you may pay higher rates or may be denied a policy. Some insurers are more welcoming of conditions as long as you can prove you have been taking your medication as prescribed and managing your illness.

Finding life insurance is more involved than buying other policy types. The investment of time and care may make a huge difference in your quality of life, throughout your lifespan. In addition, it may also provide well for your family if you are taken from their lives prematurely.

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