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May 2016

A Millennial’s Guide to Life Insurance Part 2: What Type of Life Insurance is Best

Shutterstock_262997165We’ve gotten through why life insurance is probably more necessary than we think, but here’s where things get a little more complicated. Like everything else in life, life insurance policies come in a variety of shapes and sizes. For someone like me, who isn’t exactly financially literate, it’s hard to keep them all straight. But after reading and re-reading a host of articles on the subject, I think I can break it down for you. [1]

1.) Whole Life

Whole life insurance is one of the two permanent life insurance options I’ll be discussing. As you’ve probably guessed, a permanent life insurance policy does not expire until you do, or until you cancel your policy. You can also expect to pay a very high premium, but there’s a reason for this.

With a whole life policy, the amount you pay each month goes to two different places:

  • Part of it is used to cover the cost of your policy.
  • The other part is placed into a savings account, typically with decent interest rates.

With whole life you have the face value of your account (what your beneficiary will receive) and the cash value (the amount of money accumulated in the savings account). With a whole life policy you can take out a loan with the insurance company and use your cash savings as collateral. Since you’ve accumulated cash value, the loan is very low risk and will often offer lower interests rates than you’d find elsewhere. Also, if you decide to cancel your policy, you will receive the entire cash value of your policy.

2.) Universal Life

The basics of universal life are pretty similar to whole life, but with an additional amount of flexibility. Like whole life, it is a permanent policy and a portion of the premium increases the cash value of the policy. You may take a loan out against your cash value, and will receive it in full if you cancel.

 Some of the distinctive features of universal life include:

  1. It is possible to increase or decrease the face value (death benefit) of your policy.
  2. Your cash savings account can be a part of an investment portfolio.
  3. The amount you pay each month is very flexible.

Unlike whole life, which places a fixed amount of money in your cash value account, with universal life, you decide how much you put in your cash account after paying the cost of the policy.  This means that if you’re strapped for cash one month, you can pay a smaller premium. Conversely if you have some excess cash, you can choose to pay high premiums now, building up cash value, and eventually use the cash account to take out loans, or even pay your monthly premiums.

As for me, who couldn’t save unless tricked into it, the cash value of my policy would probably increase faster with whole life’s fixed premiums.

3.) Term Life

Term life insurance has the awesome advantage of being way cheaper than other types of life insurance. However, it does have its drawbacks as well.   To start off, it doesn’t include any of the bells and whistles other policies offer, and it’s temporary. Insurance companies offer a diversity of term lengths (10, 20, 30, 40 years), and your premium will stay the same from the moment you get the policy until the term is up. The issue with this, though, is that once your term is up you will lose all you coverage and have to take out a new policy from scratch. Of course, we age along with our policies, so when applying for a new policy you can expect to see a major hike in premium costs. Just the icing on the cake you needed, right?

But, there is an advantage to term life as well. Many term life policies include a conversion clause which will let you convert your term policy into one of the permanent policies outline below. This can be a good option, but you’ll have to be careful because many policies will not let you convert after a certain amount of time.

4.) Group Life

For those recently or even semi-recently out of college, finding a job that includes benefits can be a pretty difficult task. But if you are one of the lucky few, you’ll likely have access to a group life insurance plan. This type of policy is pretty different in that you are not the actual owner of the policy, but rather your employer or union will offer you a plan as a part of your overall benefits package. These are typically term life policies that renew every year.

A great advantage is that your employer pays for some if not all of the premium costs, so you will be paying considerably less each month. However, since your employer is the policy holder rather than you, you have less control over the plan you are given. The face value of these policies will often cover one or two times your salary. Should you leave your company, you can cancel your policy or in some case, you’ll be able to convert your policy into an individual plan.

Where Do I Go From Here?

Here’s the thing: after researching life insurance and giving you guys some insight on it, I’m still not sure if I’m actually going to take out a policy. But in the process I realized something that was pretty shocking: even at my age and in my financial situation, life insurance is an option that I should be taking seriously. One of the most liberating and terrifying things about being in my 20’s is that I am going to be in a completely different place in my life in 10-20 years. By the time I’m 33 I may have bought a house or gotten married. If I take out a 20 year term life policy out now, I’m covered for any of those life changes that seem so irrelevant now, but may be an option in the not too distant future.

Bottom line, life for us is constantly in flux, and paying an extra $20 a month to have stability in the midst of all these changes may be something to consider. I know I have. 

If you missed Part 1 of our guide, be sure to check it out. 

 

[1] Please note that this is a general overview of different types of life insurance policies and their features. Different policies will have difference features, exclusions, etc. So before purchasing a policy, carefully review the terms to make sure you are getting what you want out of it. For the record, I'm not a licensed agent. Definitely call one and discuss your specific situation with them. 


5 Vital Components to LPL Coverage

Shutterstock_281200481As many as 55,000 attorneys in the U.S. are likely to face an allegation of professional liability in any given year, and it is estimated that there is a 50 percent chance that a lawyer in private practice for 25 years will be the subject of at least one disciplinary complaint or malpractice claim. This makes lawyers professional liability (LPL) insurance an essential part of any law practice.

Some key issues to consider regarding your LPL insurance:

Terms of Coverage

Policy language may vary, but there are many common provisions and types of coverage. Some commonly covered risks include:

  • Coverage for all legal services provided by the firm.
  • Individual lawyers or non-lawyers are covered for services not performed on behalf of the firm.
  • Acts other than those on behalf of the named insured, such as pro bono activities.
  • Other business pursuits with clients of the firm.
  • Coverage for any services crucial to the firm.

Named Insured

The policy will name who falls within the definition of “Insured” for the purposes of the LPL coverage. For example, does it include former members of the firm, or contract lawyers hired only to work on specific matters? Or does the definition limit coverage to services rendered on behalf of the firm, excluding outside activities or work with a former firm?

Exclusions

There has likely never been an insurance policy of any kind that does not contain exclusions or exceptions to coverage, making it extremely important to review the entire policy, not just the “Exclusions” section. There may be terms, conditions, requirements, and endorsements included throughout the policy that limit or void coverage. Some common exclusions include criminal acts, intentional or malicious acts, and claims for injunctive or declaratory relief.

Deductibles

Almost all policies have deductibles, and the higher the deductible, the lower the premium. But you should pick a deductible that you can afford to pay, not just one that lowers your premium to a level you prefer. Payment of the deductible is a precondition to the carrier being obligated to paying its limits.

Prior Acts Coverage

Prior acts, also known as “tail coverage,” is coverage for claims that are made after a claims-made policy is terminated, extending the reporting or discovery period. Any lawyer who retires or goes into public service should consider prior acts coverage, and those changing firms need to make certain they will be covered under their old firm’s policy for any errors or omissions that may have occurred while they worked there, and under their new firm’s policy for any accrue after they start at their new firm.


A Millennial’s Guide to Life Insurance Part 1: Do we even need it?

By: John Kreitzberg & Chaitanya Bala

Shutterstock_345938891Before either of us sat down and really reflected on this question, the idea of buying life insurance had never even crossed our minds. As 23-year-olds just recently out of college, it simply was not on our radar. Financially, our focus has been on maintaining our living situations: making rent, buying groceries, paying for internet and having enough left over for happy hour, a concert ticket, and some takeout when we don’t feel like cooking. Even if we did have money left over after all these expenditures, we would much rather spend it on takeout or leisure than on an insurance policy, where benefits would only show up after we’re gone. But we still see information all over the internet, and articles that keep pushing us millennials to be more serious about life insurance and consider purchasing it. And that’s got us thinking:

What really is the point?

So we’ve finally come to the bottom line. Maybe we millennials could benefit from life insurance right now, but do we really need it? Often these policies are used to protect those financially dependent on us, but honestly, most of us are barely financially independent on our own. We’re probably not expecting to pass away within the next couple decades either. So we don’t really need it, right?

Well…that’s not exactly true. And here’s why:

It Pays off Student Loans

We’re young, we’re in our 20’s, and in typical millennial fashion, we do sometimes think we’re invincible. Because of this, we never really consider what will happen to the mounds of student loans a lot of us are sitting on right now if we were to pass away. If something were to happen to us, it is entirely possible our parents/guardians would be required to take care of any remaining debt left behind if our loan isn’t covered by the death clause, which clears any debt in the event of a death. Although the death clause does protect some from needing to continue paying their loans posthumously, this isn’t the case for all types of loans, and an estimated 67% of that debt may still need to be paid off by your parents/guardians. By purchasing life insurance, we can feel more secure that we’re taking this burden off of our parents/guardians.

It Eases Financial Burdens

While some of us are in a place where covering our expenses wouldn’t be a huge financial burden to our parents/guardians, this isn’t the case for many families. As many as 50 million Americans fall below the poverty line, many of whom belong to a family of four. They struggle financially to support themselves, let alone the entire household. Losing a child for any family is tough enough, but imagine how it would impact a family that really counted on the child to make ends meet. We’re not only talking about emotional distress for families that just lost their child, but probably a huge financial burden for them as well. If something were to happen to you, you’d want to be able to provide my family with something, to give them one less thing to worry about and to allow them to focus on what really matters in such times. After the both of us started absorbing this information, we kind of started having second thoughts. After all the support our parents have given us throughout our lives, we would would want to make sure we can give them something back, and life insurance would allow each of us to do that.

You Might Want a Decent Funeral

Wait what? Why the heck are we even talking about funerals? Again, we’ve just got to reiterate – we millennials are not invincible. No matter how young, healthy, and tough we might be, we’re just as susceptible to death as anyone else. Maybe we might not have as many health problems to worry about as some of our older counterparts, but we’ve got a host of other things to worry about that still make us a high risk generation of individuals. For example – car accidents. There’s a reason our car insurance monthly premiums are way higher than other age groups: because a lot of us text and drive, and end up in (fatal) accidents. With funeral costs ranging from $7,000 to $10,000, assuring your family is able to provide you a decent funeral in case you were to end up in a fatal car crash is no cakewalk. It’s going to take a decent bite out of your savings. While we would never encourage any of you to text and drive, we still need to acknowledge it’s a thing, unfortunately. So let’s not be naïve and pretend it will never happen to us. Let’s be prepared instead.    

It’s More Affordable than You Think

As we were scoping out life insurance policies online, what we found was that a life insurance policy would cost us less monthly than even the cheapest of Chinese takeout, surprisingly. A recent study found that consumers under the age of 25 estimate a life insurance policy to cost $600. In actuality, that number will likely be around $160. That’s less than $15 a month. Of course, the price of any insurance policy depends on many factors, but the point is, even after our typical monthly expenses, holding a life insurance policy doesn’t present nearly as much a financial burden as we had originally thought. And to think that dishing out less than a couple hundred dollars a month can provide someone a lifetime of peace by helping them pay off their loans, support their family, and actually have a decent funeral service seems like a pretty decent tradeoff.

In our next blog, we’re going to talk about the different types of life insurance we found. Before we got this assignment, we thought there was only one kind. Who knew?

Want to read more? Part 2 of this blog is here