Whole life, universal life, and variable universal life are all being purchased more this year than last year.  But term life insurance did not show gains; annualized premiums for term policies dropped 11% in the second quarter of 2010.  I find this interesting, given that term life insurance tends to be the most appropriate choice for the majority of the population that needs to secure death benefits.

It’s possible that the slowly-rebounding economy is responsible for the shift from term to permanent life insurance products, and for the overall upswing in total annualized premiums.  For the last couple years, the recession has meant that most of the country has been tightening their budgets.  Term life insurance policies are a lot less expensive than permanent policies, so for people who needed to buy life insurance during the recession, term products were likely more popular.  But now that the economy is showing signs of recovering, people may be more apt to purchase higher-cost permanent life insurance policies that grow cash value or include an investment component.  It will be interesting to see how the numbers play out for the rest of 2010… will term life insurance policy sales bounce back, or will the growth of permanent policies continue?

Certified financial planner Carl Richards had a great article on the New York Times blog last month, about why life insurance shouldn’t be treated as an investment.  The napkin drawing is chuckle-worthy, but it also makes a really good point:  for most people, it’s a better idea to keep investing and life insurance as separate entities.  There are exceptions, such as people who need to generate cash upon their death to pay estate taxes on assets like real estate or a business that they would like to pass to their heirs without selling.  For situations like that, the financial obligation won’t diminish over time and the life insurance policy needs to be permanent.  But for most people, the need for life insurance does indeed diminish over time as children finish college and mortgages get paid off and net worth grows.  For many people, the need for life insurance after retirement is low, as there is no longer an earned income that would need to be replaced.

For people who still have many years of work ahead of them – and many years of financial obligations – now is a great time to look into securing life insurance.  A term life insurance policy will allow you to lock in the premium based on your current age, and is a great way to protect your family’s financial future without taking financial risks.

1.  It might be more coverage than you need… or at least coverage for longer than you need.  Because permanent life insurance is so much more expensive than term life insurance, people might get a lower face value than they really need, but end up with life insurance long after their children are grown and the house is paid off.  It usually makes more sense to purchase a less expensive, higher face value term policy, which will truly provide financial protection to your family while they need it – ie, while children are young, college still has to be funded, and payments are still being made on the house.

2.  It may not be your best investment.  The idea with permanent life insurance is that it provides a death benefit, but also builds cash value via investments.  But for most people, it makes more sense to purchase insurance separately from investments.  It’s hard to tell where your money is being invested in a permanent life insurance policy.

3.  But in rare cases, it’s just the ticket.  I would say that these are very rare cases, but they do happen.

4.  The right flavor makes all the difference.  Deciding among the three types of permanent life insurance policies (universal, variable, and whole) will likely require extensive research and/or a meeting with a financial advisor.

5.  Dumping a policy will cost you.  It takes many years for the cash value in permanent life insurance policies to build up to a significant amount of money.  If you cancel a term policy early, you’ve only paid for the life insurance protection you got during the years you had the policy.  But if you cancel a permanent policy in the first 10 or 15 years, you will likely have paid a lot of money (above and beyond what you would have paid for just having the death benefit of a term policy) and get very little in return.  A permanent policy is really only appropriate if you know that you’ll stick with the policy for the long term.

Permanent life insurance is a good option for some people.  But if you choose to purchase it, make sure that your decision is based on independent research or advice from a qualified professional who does not have a vested interest in your decision.  The premiums – and thus the commissions – are significantly higher on permanent life insurance policies; if the person advising you to opt for a permanent policy is also making a commission based on the policy you buy, you might want to get a second opinion.

If you have life insurance through your employer, be sure you know how much coverage it provides and how far that would go.  If you need to add additional life insurance coverage, a basic term policy of 20 or 30 years will probably do the trick.  Premiums are based on age at issue, so the younger you are when you get your policy, the less you’ll pay for the life of the policy.  And since life insurance policies are medically underwritten, the healthier you are, the better rate you’ll get.  The time to make sure that your family is protected is today.

As an example, if you’re a very healthy 35 year old, you’ll probably find it relatively easy and inexpensive to secure several hundred thousand dollars worth of term life insurance.  But if one of your hobbies is rock climbing, the premium on the life insurance policy can easily be tripled or quadrupled by most carriers.  The standard underwriting action in a case like this is to bump the rate from “preferred best” to “preferred” and then to add an additional annual amount ($2 – $2.50, for example) for every thousand dollars in life insurance coverage.  So a half million dollar policy can easily increase in premium by more than $1000/year if the applicant participates in “risky” activities.

However, underwriting does vary from one insurance carrier to another, and some are more lenient than others for specific activities and health conditions.  If you’ve applied for a life insurance policy in Colorado and received a rate increase because of health or lifestyle, there may be other options that would allow you to purchase the same amount of insurance for a lower premium.  We can compare options for you and help you find the best value for your insurance dollars, and there is never a charge for our services.

Determining whether return of premium life insurance is a good choice depends a lot on your own habits, goals, and tolerance for risk. Let’s consider a hypothetical situation of a 35 year old female who is looking for a $1 million, 30 year term policy. Let’s say she can purchase a traditional term policy for $650/year, or a return of premium policy for $1175/year.

If she buys the traditional term policy, she will spend $19,500 on the coverage over the course of 30 years ($650 x 30). This money is gone forever, but it has done its job of purchasing peace of mind for her and her family.

If she buys the return of premium policy, she will spend $35,250 on the coverage ($1175 x 30), but if she is alive at the end of the 30 year term, she will get the entire amount back. This option costs a total of $15,750 more than the traditional term policy, so the trade off between the two policies is what she could have done with that money if she had purchased the traditional policy instead.

Here’s where an investment calculator comes in handy. The return of premium policy will cost $525 more per year than the traditional term policy. We can use an investment calculator to determine what sort of return she would have to get on that money if she invested it on her own, in order to end up with at least a total of $35,250 at the end of 30 years (since that’s the amount she will end up with if she buys the return of premium policy).

There are numerous online investment calculators that you can use. Each person’s situation will be different in terms of taxes (ie, one person might choose to invest the difference between the premiums in a traditional IRA, with tax-deferred growth, while another person might put the money into a taxable brokerage account) so I’m focusing solely on the growth of the money without taking taxes into consideration. Here is an example of a simple calculator that you can use to determine the effective rate of return that the return of premium policy is giving you.  For our hypothetical lady, we can input 30 years, an initial principal of zero dollars, and an annual investment of $525.  We can reduce the tax rate to 0%, but if she is investing her money in a taxable account, that amount will have to be increased.  Then we can move the little blue arrow on the rate of return line until the investment total (in blue at the top of the calculator) gets to at least $35,250.  For our lady, this happens at 4.8%, at which point, her investment would be worth $35,324 after 30 years (if she invested her money in a taxable account, her rate of return would have to be higher to offset the loss to taxes).

So if this lady were to get average returns of more than 4.8% in another investment vehicle, she would be better off getting the traditional term policy.  But if she likes the idea of a guaranteed rate of return and forced savings, she might be better off with the return of premium policy.  The final decision will be up to you, but understanding the numbers behind the premiums will likely make the decision easier.

We are independent life insurance brokers, with no allegiance to any particular company. This gives us the freedom to help our customers choose the life insurance that truly fits their financial situation and risk tolerance. We can look at a wide variety of Colorado life insurance companies and get quotes on many types of insurance and different risk classes. By letting us know your health, driving, and family history up front, we can let you know what life underwriting class you will be classified into and get you the right quotes the first time.

We have a relationship with each of the life insurance companies that we represent. This allows us to serve as advocates for our clients, and help them get in touch with the right person when they have a question about their policy.

We have a very good working knowledge of the companies we represent:

• benefit options
• stability of the life insurance companies
• underwriting and health class guidelines for each company in Colorado . Each company has a different set of underwriting guidelines to determine what classification you will be. From preferred plus, ultra preferred, preferred, standard, and many different smoking classes, we will know what company will benefit you the most based on your health history. This can save you a lot of time and frustration getting this figured out before actually applying and jumping through the hoops for each company.

We’re free. We get paid commissions by the insurance companies so the quotes are the same if you use a broker or go directly through the insurance company. Most life insurance in Colorado is done with the help of brokers because there is no disadvantage and there are many advantages to using a knowledgeable broker to guide you in the right direction. You will always get the lowest premium for the same coverage by purchasing your Colorado life insurance through us because we can shop for the life insurance plan that fits your financial situation and tolerance for risk using our expert knowledge of how each company grids pricing, underwriting guidelines, and takes risks with their money. We will also give you more personalized attention, and a balanced perspective about the advantages of choosing one policy over another. We can also act as a liaison between you and the insurance company if you ever have any questions or problems.
The Colorado Division of Insurance polices the pricing of life insurance, so no insurance company or agency is allowed to sell at a price that is any different from the price set by the commission. So we can find the best plan for you at no cost. For years, we have been highly recommended in Colorado as a no hassle agency able to find the best life insurance for your financial plan.

We continue to be there for our customers after their policy is in force. We can always analyze different options as your financial needs change and keep you current. This will always help you know that you are getting the best deal available and that you have the best coverage you can get for your family.

We have designed this interactive web site where our customers can compare prices, get details on various Colorado life insurance policies, download applications on their own, and even apply online. We shop over 75 companies such as American General (AIG), Zurich/Chase, Banner Life, Empire General, First Colony, Transamerica, Lincoln Benefit Life, MONY, Protective, Prudential, Transamerica, Travelers, West Coast Life, United of Omaha, Fidelity & Guaranty, and many more. Get as far as you like by yourself until you would like our assistance. We will always be there to answer questions or help with applications if needed. but we have the web site in order to provide a no-pressure setting for clients to compare options that are available for them. Colorado Life Insurance disclaimer

A term life policy pays out its face value only if you die during the selected term. Normally, if you have not used the death benefit when the term runs out, the policy expires. However, return of premium policies are becoming very popular as an alternative to typical term life insurance and even whole life and universal life policies. Building cash value with a permanent policy means paying high premiums (2 to 3 times as much for the same coverage). While an unused term policy can feel like a waste. Return of Premium (ROP) term is an easy and effective new solution that splits the problem down the middle. It starts out like term life insurance with one extra promise from the carrier: If you pay your premiums and you live, we’ll give you your money back. On a normal 20 year level term Colorado life insurance policy the ROP benefit may cost about 30% more, but that extra premium will effectively earn you a 6-7% return over the 20 years — just enough to earn you back everything you’ve invested. What’s in it for the life insurance company? Your loyalty. Colorado life insurance companies spend a lot of money to get your business, and only start making a profit if you stick around more than five years or so. ROP gives an incentive for their customers to stay for the full term. And, for those that don’t, the carrier made an extra 30% on those guys — and used some of it to pay you a solid return on your money for sticking around and living. So if you know that you are going to be insured for the entire term, then think about paying a little more for the ROP benefit and getting it all back in the end. We would be happy to give you the price of a term life policy and compare it with the same amount of ROP term and do the math to see if ROP term would be a good investment.