target="_blank" rel="nofollow" href="#fb3_img_img_db279b24-b6a5-5eab-8282-69a767451577.png" alt="Warning"/> The disadvantage of a term life insurance policy with a long-term rate lock is that you pay more in the early years than you do on a policy that adjusts more frequently. Also, your life insurance needs are likely to change over time. So, you may throw money away when you dump a policy with a long-term premium guarantee before its rate is set to change.
Cash-value coverage
Cash-value coverage, also referred to as whole life insurance, combines life insurance protection with an investment account. For a given level of coverage, cash-value coverage costs substantially more than term coverage, and some of this extra money goes into a low-interest investment account for you. This coverage appeals to people who don’t like to feel that they’re wasting money on an insurance policy they hope to never use.
Agents usually sell cash-value life insurance as permanent protection. The reality is that people who buy term insurance generally hold it as long as they have people financially dependent on them (which usually isn’t a permanent situation). People who buy cash-value insurance are more likely to hold onto their coverage until they die.
Cash-value life insurance can serve a purpose if you have a substantial net worth that would cause you to be subject to estate taxes. Under current tax law (which could, of course, change), you can leave up to $11.7 million — free of federal estate taxes — to your heirs. Buying a cash-value policy and placing it in an irrevocable life insurance trust allows the policy’s death benefits to pass to your heirs free of federal estate taxes.
Choosing where to buy life insurance
If you’re going to purchase life insurance, you need to know where to go. You can look at the following two places:
Local insurance agents: Many local insurance agents sell life insurance, and you certainly can obtain quotes and a policy through them. As with any major purchase, it’s a good idea to shop around. Don’t get quotes from just one agent. Contact at least three. It costs you nothing to ask for a quote, and you’ll probably be surprised at the differences in premiums. As we discuss earlier in this chapter, many agents prefer to sell cash-value policies because of the fatter commissions on those policies. So, don’t be persuaded to purchase that type of policy if you don’t really think it’s right for you.
An insurance agency quote service: The best of these services provide proposals from the highest-rated, lowest-cost companies available. Like other agencies, the services receive a commission if you buy a policy from them, but you’re under no obligation to do so.To get a quote, these services ask you your date of birth, whether you smoke, some basic health questions, and how much coverage you want. Services that are worth considering include the following:AccuQuote: www.accuquote.com; 800-442-9899ReliaQuote: www.reliaquote.com; 800-940-3002Term4Sale: www.term4sale.com; 888-798-3488USAA: www.usaa.com; 800-531-8722 (this company sells low-cost term life insurance directly to the public; some of its other insurance products are only available to members of the military and their families)
Protecting Your Employment Income: Disability Insurance
Long-term disability (LTD) insurance replaces a portion of your lost income in the event that a disability prevents you from working either permanently or temporarily for an extended period of time. For example, you may be in an accident or develop a medical condition that keeps you from working for six months or longer. During your working years, your future income earning ability is likely your most valuable asset — far more valuable than a car or even your home. Your ability to produce income should be protected or insured.
The following sections detail why you should have disability insurance and help you determine the type of coverage you need to protect your income.
Why most people lack disability insurance and why you need it
Most folks lack long-term disability insurance. The two main reasons people don’t obtain this important type of insurance are as follows:
Their company doesn’t offer it. Just three in ten workers are offered access to an LTD plan. Only 19 percent of those working for smaller employers — those employers with fewer than 100 employees — have access to an LTD plan. And just 6 percent of part-time workers have access to LTD insurance.
They don’t enroll. Even among those in the minority who have access to LTD, many people don’t enroll. A common reason folks bypass coverage is that they believe their chances of disability are rare. Another perception is that only old people become disabled. Both of these perceptions are wrong.
Life is uncertain. You can’t know when and what type of disability you may suffer. That’s because many disabilities are caused by medical problems (arthritis, cerebral palsy, diabetes, glaucoma, multiple sclerosis, muscular dystrophy, stroke, and so on) and accidents (head injuries, spinal injury, loss of limb, and so on). Although older folks are at greater risk for more severe medical problems, plenty of younger adults suffer accidents or major medical problems leading to disability.
Many applicants for Social Security disability benefits coverage are turned down. You can receive payments only if your disability will result in death or if you aren’t able to perform any substantial, gainful activity for more than a year. Recent studies show that only about 35 percent of applicants for Social Security disability benefits are approved.
Even if you do qualify, your state’s disability plan and Social Security insurance programs probably won’t provide you with sufficient coverage, especially if you’re a higher income earner. State programs typically only pay benefits for one year or less, which isn’t going to cut it if you truly suffer a long-term disability that lasts for years. While one year of coverage is better than none, the premiums for such short-term coverage often are higher per dollar of benefit than through the best private insurer programs.Similarly, although Social Security disability benefits
