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You shouldn’t buy credit life insurance!

Almost anyone who you would talk about getting credit life insurance would tell you the line: you shouldn’t put money in credit life insurance. But what makes credit life insurance a bad purchase?

The other day when you have spoken to the eloquent sales person at the car lot he almost convinced you that credit life insurance is the solution to all your owes about not being able to repay the loan. He said…

The credit life insurance would restore your peace of mind since it would take care of the loan burden if you die (God forbid!) unexpectedly before repaying the loan. If you don’t have this protection then your spouse and family would be left with the duty to compensate the lender. And, you of course know how these loan sharks are, don’t you??

Now, when it sounds so good then why shouldn’t you purchase it? For that you need to know what credit life insurance is.

What exactly is credit life insurance?

Credit life insurance is typically a term life plan in which the term matches the term of the loan and the coverage level matches the loan amount. It promises to pay-off the loan if you die before repaying the it so that the lender doesn’t suffer the loss.

Now, what are the arguments against credit life policies?

If you can buy life insurance, you shouldn’t purchase credit life insurance since it would be redundant in that case. if you have enough life insurance coverage that it would take care of all the financial needs after your death, that’s sufficient.

Credit life insurance plans are greatly overpriced. If you do some research in the market and have no health issues that may prevent you from getting life coverage from the market, you don’t need protection against loans.

It’s a decreasing term life plan, i.e. the coverage level would decrease with the loan amount, but the premium rate isn’t attuned to the decreasing level of the policy. Hence, you would see very little change in the premium rate as compare to the death benefit. The credit life plan may have several other limitations too.

You AREN’T required to sign the insurance policy papers in order to receive the loan. It’s the sales people who would try to create the impression that you wouldn’t get the loan if you don’t buy the policy because it earns them great commission. If you face such situation complain against the salesperson and find another lender.

Most importantly you should know that in credit life insurance the beneficiary would be the lender and your family wouldn’t receive a dime upon your death. Hence, if you want to plan a perfect life for you children you may get a life insurance policy and not credit life insurance.

Anyway, at times a credit life plan may make a sense to people who can’t otherwise get life insurance at standard rates from the market, i.e. people with severe health issues and pre-existing conditions.

AmPmInsure Community Debated over the importance of Accidental Death Benefit

Accidental death benefit(ADB) is also known as double indemnity plan, i.e. ADB would pay double the death amount if the insured died in an accident. Now, the ADB benefit makes sense to some since they are receiving double their value of life insurance without increasing their premium amount much. But we have experienced seasoned agents debating over the usefulness of accidental death benefit. In fact their opinion was really torn on this issue, when a group would support the idea of adding accidental death benefit to avoid unwelcome situations; the other group thinks its really redundant. Recently we had a great debate over the same topic in the AmPmInsure community. You can read it in details here.

However, if you decide to add this benefit to your life policy make sure that you read the fine prints. The ADB rider would include several conditions and exclusions about paying the benefits.

Most important that you read the definition of accident as described by the insurer. It may so happen that one incident may not meet the policy definition and therefore gets disqualified for the benefits.

Some policies would also describe time limit such as- the policy holder should die within 90 days after the accident in order to receive the double benefit.

Is long term care for the rich only?

With the blessing of living long the fear of outliving the life’s saving has also increased. The statistical figure suggests that the chances are as high as 40% for all the people of 65 years and older to require nursing home care/assisted living during their lifetime. But long term care policies, especially the privately owned ones are expensive. But before delving into the details what would make ltc policies affordable for the middle income people, let us take a look whether its really worthy to buy long term care policy or not.

Should I buy long term care insurance?

Some health condition or disability may give rise to the need of elongated stay in the nursing home. Medicare wouldn’t provide for this stay. Moreover, you may need skilled or unskilled assistance to perform your daily works. In such condition you either have to pay out-of-pocket or check out with the long term care policies.

The long term care policy would cover prolonged nursing home stay along with institutional (skilled) and non-institutional care such as- personal care, adult daycare, hospice care, assisted living facility and the like.

Isn’t Medicare there to cover all these expenses?

No, Medicare wouldn’t cover most of the aforementioned services. In addition to that, though skilled nursing benefit availed at nursing home is covered under Medicare; one is required to meet certain criteria to qualify for the reimbursement.

Among the 100 days of covered nursing care, Medicare would pay 100% only for the first 20 days. For the rest of the 80 days the recipient has to bear copay of $128 per day.

Further, Medicare wouldn’t pay for the skilled nursing care received at home. It would also exclude drugs or meals served to your residence, housekeeping assistance and such other services.

What about Medicaid to pay for ltc?

Medicaid is run by state and federal government but is monitored by the state. Medicare would pay for the long term care provided the recipient would meet the criteria set for Medicaid benefits. One such condition is that the applicant should spend all his saving but $2,000 before becoming eligible for the benefits.

The partnership for long term care

The insurers, non profit organizations and government organization have joined hands to bring long term care insurance within the reach of the middle income households. The partnership program would allow the households to buy long term care plans at modest price while still remaining qualified for the Medicaid benefits.
The benefit of participating in the partnership program is that you can qualify for the Medicaid benefits without becoming impoverished by using your assets to pay for the long term care. However, the policy should contain the benefits described in the partnership program.

Should you choose variable annuity?

Variable annuity (VA) has become the topic of the season given the ongoing economic crisis.  People who have invested in the variable annuity funds with the hope of gaining more on the money on their retirements have suffered great loss with the market downturn.

Variable annuity plans help the investor’s to put their money into various investment tools like- stocks, bonds and money market. Hence, the return on a variable annuity fund is indexed to the performance of the market.

Death benefits with the variable annuity

One feature that would put the variable annuity plan ahead of the other retirement vehicles is the offer of death benefit, i.e. if the annuitant dies before the commencement of the annuity, the beneficiary would receive death benefits. Many investors get attracted towards the variable annuities because of its guaranteed offer of death benefits.

Tax advantage

One may enjoy the benefits of tax deferred growth in money with the variable annuity plans. Further, there is a limit as to how much you can invest in the 401k and IRA accounts. The VAs can solve this problem by allowing the policy holder to continue tax deferred gains on his annuity account.

Economic crisis and variable annuity

People who were close to their retirement age and have invested in the variable annuity funds were the worst sufferer of the economic crisis. Why? To understand the reason the one needs to understand how VA works.

The income that you would receive from the VA plans is tied with the trends of the market. Variable annuity plans are also known as ‘mutual funds in insurance wrapper’. Therefore, if the market index falls you may even lose the principal amount that you have put in the account if you haven’t opted for the premium protection option. But, when the marker is bullish you may earn good return on your fund.

Other disadvantages of Variable annuity

Variable annuity contracts are often irreversible, i.e. once you enter in the contract you are locked into it. Early withdrawals from the fund before the age of 591/2 would attract 10% penalty.

Secondly, the insurance company may keep the remaining of the fund if the annuitant dies within a short time after the commencement of annuity income. This is one aspect that has made variable annuity an unpopular choice for many.