We'll email you at these times to remind you to study
You can set up to 7 reminders per week
We'll email you at these times to remind you to study
Good evaluation of the terms.
Well that was. Ice and ckea and easy to understand
For whole life insurance if you receive the death benefits , it would be tax exempted for the person inheriting it. But what about the cash savings? if you decide to get the cash savings , will I have to pay taxes on it, and will the taxes be so great that the cash savings ends up being lessor than the death benefits?
Let’s say I’m forty years old
I have two children
and I’m the main income earner for my family
so I earn most of the income for my family
And we also have a mortgage
And I’m hoping that my kids go to college and that I will be able to pay for college
And I also want to make sure that my spouse if anything were ever happened.
Cause maybe my spouse, does not have the income generating ability or maybe
maybe you know even
If here she does ...They would have to a large degree have to take care of the children if anything were to happen to me
So because of all of these things that I want to make sure. Get paid off or get funded
In the event that I die... I think about getting a life insurance
Uhh think about getting life insurance
I think most of us understand the general idea about life insurance
You pay certain amount on regular basis
and in the event that you were to die your relations wherever you uhh whoever you put as the beneficiaries
of your life insurance policy
And those people we'll get some money
but life insurance isn't quite that simple
In one version of live insurance is ... the other one is less simple
So there's two types of life insurance
One is: term life insurance
and the other is whole life insurance....whole
I will talk about term because frankly: term life insurance is simpler.
So I go to the insurance agent and the insurance agent says
look if you pay a premium
if you pay a premium
every year of five hundred dollars of the ....
the word premium litterally just means the amount that you would pay every year
If you pay a premium of five hundred dollars every year for ten years
so the term here is ten years
if you are to die at any point over dose ten years we will give you
We will give you five hundred thousand dollars... I guess it's
more exactly we will give your family, or we will give the beneficiaries of your policy
five hundred thousand dollars.
the beneficiaries are the people who would benefit from your policy who would get the payout
If ... In the event that you were to die
over the next ten years You will pay about five thousand dollars if you were to die your family will get 500 000 dollars
and the reason why this works out for the insurance company is that
the insurance company figures it out … ok if you don’t smoke, you have good health
It’s unlikely that you’re going to die in the next ten years and so
if the average over many many thousands of people, they’re going to make money.
Some people are going to randomly die but they were gonna to get premium from everyone else.
And that’s going to more than offset the payoffs that they need to give for the people
who are just randomly ran accident or who die for whatever reason
The reason why this is called term life is that
if you don’t die after those ten years
You have to then get a new insurance policy
if you don’t get a new insurance policy
After those ten years that you didn’t die, nothing really happens
you just keep on living
All of these money that you have put it in, kind of goes away
just goes to insurance company you gave it to them
in the event that you might have died in those ten years.
You didn’t. All is fine now
What’s unfortunate, well this is probably good enough for you
because ten years you know for … forty to fifty years old.
Maybe that’s the time your kids can start go to college
but not give you enough time to save more money for retirement or
to give you time to pay off more of the mortgage and maybe save up some more money for college..
hey ten years was perfect for me
if you think when you’re forty years old and [hey] I want more time
I want more time to
uhh pay off the mortgage
uhh save money for college
save money for retirement
than you can make this a twenty-year policy
then you could make this a twenty-year policy
and if you make this 20year than .. your premium is going to be a little bit higher.
You’re gonna pay every year
but the reason why this premium is going to be a little bit higher is that you have a higher chance of dying from ages,
uhh ffifty to sixty than you did for ages forty to fifty. So the insurance company will figure out those probabilities
and charge you slightly more a larger amount
but regardless anyway you look like, anyway you look at it…
at a term policy fade fix premium for fixed term.
If you pass away over that term, your family gets the payoff, if they,
if you don’t … then the policy just expires
and you have to get another term life policy
and at some point maybe by the time that you’re seventy years old and if you haven’t...
if you haven’t passed away and hopefully you haven’t
it’s actually very hard to get term life policy when you’re 70 because
insurance companies would say that you have high probability of passing away between the age of seventy and eighty
and we don’t want to take that risk
so term life is really good if you feel that there’s a set amount in your life
where you just want to make sure im around for the next ten or twenty years to
take care of a lot of obligations if anything were to happen.
then my family can use the payoff from the policy to take care of these obligations for themselves
and this is actually what I have. I have a term life policy cause I am
I am right now thirty four years old and
I have mortgage and I have young child and I want to make sure that if anything were to happen to me over the next...
I believe my policy term is the twenty years
If … were to happen over the next twenty years
that my family will get enough money that to pay off the mortgage and have money for college and that maybe some money for my wife’s retirement
The other type of policies is whole life
and whole life is the motivation for whole life policies.
Comes from the idea that people did not like the id...
people did not like this notion
That you pay money in a term life policy year after year after year
but if you don’t die which is frankly good thing, but if you don’t die
then all that money just went, went for nothing You don’t get it back..
.. you didn’t save it in any way or anything like that
And another issue is
Is that term life is only valid for a certain term.
10 years, 20 years whatever it might be. Some people want the idea that [hey] I wanna keep gaining a premium my entire life
and when I die, and all we know all of us will die.
when I die there will be a payoff so... uhhh
if I'm forty years old, I might be paying that premium for the next forty years
but what If I’m eighty and I pass away at my eighty
then my family will still get something for all of this insurance that I paid.
So whole life can kind of appeal to all of these notions that
that you’re saving some of these premium but your family definitely will get a payoff
but the insurance company aren't silly people. They're very ughh scrutinize probabilities.
They want to make sure
that it’s a profitable thing for them
so really what they do is a whole life policy... is it that they charge you more so that you get a lot of what’s kind of in the term life policy.
a lot of the insurance aspects of it
and you also get at saving part but they charge you a lot for that
for that ... so it comes out to be a good deal for them.
so the whole life policy for the same forty-years old.
and I'm just making up the same numbers, you should contact it in insurance agents if you want more accurate numbers.
your premium let’s say … it’s also for five hundred thousand dollar pay off.
Your premium in the situation could be a lot higher than in the term life policy
so it could be maybe it is five thousand dollars. Five thousand dollars per year
and the term is your whole life
the term .... so there’s no term.
I shouldn’t even write term cause is no term, it’s your whole life
That’s the name of the policy, and if you were to die.
At any points we’ll just keep paying this policy until you die and then your family will get the pay off
will get the five. so upon death...
the beneficiares are the people, who will benefit from you policy. Will get $500 000
so you might be say where this is a complete rip off. I'm paying ten times more
but the same it’s the same death benefit
and there is a couple things to think about why it’s not quite that much of a rip off.
Being always a little bit more less financially savvy than the term life is that…
this is going to this
as long as you continue to pay this premium this is guarantee,
cause you will die one day unless you know something the rest of us don’t know.
You will die some day so
In the term life case once you become sixty or seventy
and insurance companies charge you a lot higher of premium to insure you for this amount,
because they think there is a high probability that they would have to pay it off.
In the whole live
You pay the same.. I would call it very high premium your entire life and so earlier on in your life
when you’re thirty or forty or fifty. This premium is definitely going to be higher than a term life premium
But maybe when you become seventy
if you were seventy years old and you were asked for term life policy what you might not even be able to get one or
if you if you were able to get one their will charge you huge premium. Maybe it would be 6 000 dollars a year or
maybe it will be 10 000 dollars a year and at that point here this would be a little bit cheaper
the other thing that the whole life policy does for you is that the insurance companies implicitly setting aside some of this money to just purely insure you life,
but they’re also setting aside some of this money
so there’s some kind of putting it aside as cash
and that cash does build up over time not all of your premium goes into this cash,
but some of your premium does.
Early on the first year premium using of that kind of just goes to the insurance company
And that every year a fraction of your premium does go into a kind of savings account within the insurance company
and you get so let me call it: cash savings
where you can get interest.. get interest while… it is with the insurance company is getting interest on a tax- deferred basis
So someone try to sell you whole life and say hey this is a good deal
you pay a premium, you’re guaranteed this premium, you’re whole life you will and you family will eventually get the death benefit as long as you continue to pay the premium and
rebuildling up this cash savings for you
at some point you decide.. hey look all of these risks are there for my family anymore
I don’t wanna pay this premium anymore
Maybe you’re sixty five years old.
You’ve paid off your mortgage. You’ve saved up bunch of money and you say…. look I'm going to stop paying this
when I’m sixty five so this will kind of go out of the picture but then you can get the cash payout
so all of this extra cash in interest you will be able to get that for yourself what
they won’t tell you until you feel good about it, it’s like a lot like life insurance it’s like savings at the same time
what they might not clarify as much is that they’re taking huge fees on this cash savings
So you probably would have been back definitely would have been better off
and if this was your point if you wanted to save some
and stil have life insurance for a fixed amount of time. Until you were able to take care of these obligations,
you probably would have been better off, paying by a term life policy and paying this lower premium
And then taking the difference if this really is the difference, I just made up these numbers for simplicity,
but taking the difference maybe the difference is forty five hundred dollars each year and
putting this into a savings account or investing it Or putting it in a mutual fund whatever you do.
It’s overtime, over the terms party, that you will probably save more money and get more interest doing this
Because you won't be implicitly paying all of these fees to the insurance company.
I just realized that I didn’t answer a question that might be burning in your brain
because in whole life we talk about the scenario
Where you can pay this premium your whole entire life and in the event and
you can just all the way until the day you die,
so that when you die your family will definitely get the pay off.
They will get $500k upon your death.
And we also talked about the scenario where any time before that you decide that I don’t need life insurance anymore,
you can stop paying your premium.
You’re family wont get the death benefit in the event that you die
but you would get cash payout or whatever is left after the insurance company has taken their fees
and set side for the insurance component of what they’re selling you,
but the question you might ask –
is what happens to the cash amount?
Because before you die you can cash it out,
if you die, you definitely get the payoff, but what happens to the cash amount.
And the answer is you don’t get it.
you don't get it!
It's kind of viewed as what’s backing up your death benefit and
what’s kind of unfortunate if for whatever reason this cash amount is even larger than the death benefit.
Maybe you know, you live unusually long amount of time, you live fifty years and you’re paying or you live to 90s
so you live fifty years from the day that you start the policy.
So you pay two hundred fifty thousand dollars but you have to remember compound interest, you’re getting returnes on that year after year.
Maybe this cash payout becomes six hundred thousand dollars when you accrue
all the interests and everything else in it.
Regardless of that fact, although this would be kind of silly thing for you to do.
Regardless of that fact if you were to die your family would only get the five houndred thousand dollars.
Which really makes you ask the question,
if you know your cash payout is larger than the amount of that is going to be paid off when you die.
Then the best thing to do is just stop paying premium and get the cash payout and give that to your family.
While rather than waiting around to die.
This is worse in two ways.
One you die and in the second way you’re actually getting less money.
But just answer your question, in the event of your death your family does not see the savings portion,
they only get this payout right over here.
Log in to save your progress and obtain a certificate in Alison’s free Introduction to Life Insurance and Retirement Savings online course
Sign up to save your progress and obtain a certificate in Alison’s free Introduction to Life Insurance and Retirement Savings online course
Please enter you email address and we will mail you a link to reset your password.