What are the benefits of life insurance?

Life is precious. Unfortunately, life is not in our hands. We may be here today and gone tomorrow.

Grieving already takes an emotional toll. The last thing you want is to leave your loved ones with a financial burden.

Hence, life insurances ensure that cash will be there when you pass away.

Getting life insurance now can help:

1) Protect your family's future by covering expenses such as medical bills, funeral costs, debts, mortgage payments, and tuition.

2) Replace some income for your family in the event of your death, ensuring their financial stability.

3) Provide peace of mind that your family is financially protected in case you pass away.

4) Leave a tax-free death benefit inheritance, not just the premiums accumulated.

This means that if you had a death benefit of $100,000 and you pass away tomorrow, as long as your policy is still in effect (you’ve been paying your premiums faithfully on time) your family would receive the $100,000 death benefit, and this money would not be taxed either.

There are also additional benefits for you (as the owner of the policy) while you are still alive:

5) Protect you against expenses associated with terminal, chronic, or critical illness through Term/Whole Life/IUL living benefits, where you can access a portion of the money from your coverage (death benefit) or cash value.

6) Allow you to borrow money from your life insurance cash value in case of emergencies (feasible only with IUL or Whole Life).

*Compared to a bank, you can take out a loan a lot easier than a bank (quick, NO credit check, lower interest rates, flexible repayment)

7) Supplement your income when you retire (at an additional cost; feasible only with IUL).

“Is Life Insurance that builds Cash Value” for everyone? These last 3 benefits mentioned above are tied to a life insurance that builds cash value. However, these last 3 benefits do not apply to all the types of life insurance. Therefore, you would need to determine your own financial goals based on your own family needs, and it would be wise to understand the Pros and Cons of the different types of insurances before making a final decision. (Please read to the end of this page)

When’s the best time to have life insurance?

The table and chart above are an example of how much males of different ages have to pay for their premiums (payments to sustain the life policy) if they buy a $50,000 death benefit Whole Life as of 2024. As you can see from the chart, the premiums increase substantially with age. Thus, the sooner you get life insurance, the better. Do so while you are still young and without any health issue. Because the premiums of life insurances go up with age, and you may not be able to apply for certain life insurances if you develop certain medical conditions.

Which type of life insurance fits my need? Understanding the Pros and Cons.

Here is a guide to help you understand the Pro and Cons of each type of life insurance, so you could evaluate which caters your needs. We will start with those with the cheapest premiums.

1. JUVENILE WHOLE LIFE. This is an insurance for ages 0-17, with a small death benefit (<$50,000) intended to cover the life of a minor with permanent coverage that never expires, as long as premiums are paid. It doesn’t require a medical exam, and it is easy to qualify for. Once the child reaches age 18, ownership of the policy can be transferred to the grown child.

We recommend getting Juvenile Whole Life for your children or grandchildren if:

They are between ages 0-17 AND you want to buy a coverage below $50,000.

2. TERM LIFE. This type of insurance is available for ages 18-79. It is the cheapest life insurance for adults; however, it only offers temporary coverage for a specific period of time, such as 10, 20 or 30 years. This means that if you outlive your policy, your beneficiaries won't receive any money. If you still need life insurance, you may buy a new term insurance or convert it to permanent coverage at a higher premium or buy another type of policy. However, we do not recommend opting for this kind of strategy, because in the long run you end up paying higher premiums as you age.

We recommend this product for people who are:

Seeking financial protection ONLY for certain pivotal moments in life.

Example:

You ONLY want financial protection during the child-rearing years. If you outlive the term coverage (ie. 30years) and no one receives any money, it would be perfectly fine, because:

*Your children would have already grown up and thus, are not in need of any financial protection.

*Your spouse would have entered the age where she is entitled to your retirement income.

NOTE: Plan carefully. If you plan to have more kids later in life, a 30-year term may not be the best option to cover all of your children in their child-bearing years. Also, if your spouse is under age 30, there would be an age gap for her to be entitled to your retirement income.

You ONLY want financial protection while you pay off your mortgage commitments (ie. 30-year mortgage). Once the 30-year term life has expired, it would be perfectly fine that no one receives any money, because you would have paid off the mortgage.

3. IUL. This type of insurance is available for ages 0-85. It is known for:

• Having the potential of increasing tax-deferred cash growth when the market performs well, and a guaranteed minimum crediting rate or a 0% loss when the market goes down (as it is tied to the market index). While this is a nice benefit, IULs also have a cap on the maximum returns you can earn.

• Its adjustable premiums as well as adjustable death benefits.

• Having the potential of increasing cash growth even with an outstanding loan, as long as the market is performing well. Because the return rate is more than the loan rate.

• Giving you the ability to OVERFUND the policy in the beginning so to boost the cash value growth.

While all this may seem very attracting at first impression, you need to know the risks it involves. Primarily, it lacks guaranteed level premiums and guaranteed death benefit. This is due to the COI (cost of insurance) that goes up with age as well as being subject to changes at the discretion of the insurance company (ie. in the case of an inflation). This means that if the market does not perform well for a long time, though you have 0% loss on interest returns, your cash value will still go down due to the COI (especially for those at an old age! The COI skyrockets around age 80!). As a result, your policy may lapse or you would need to increase your premiums substantially to sustain the policy. If your policy lapses, you would lose all your premiums paid, and any outstanding loan would be taxed.

Having said that, we do NOT recommend IULs for people who want to leave a good inheritance but will only be living on their retirement savings later on (to avoid worrying for policy lapse).

However, IULs may be beneficial for people who:

• Are ABLE to pay high premiums in the old age (if there would be a “possible” policy lapse) AND want to leave a legacy of a large sum of tax-free death benefit to their loved ones.

• Want to protect their family financially in the early years AND THEN use the IUL’s cash value to supplement their retirement account in the later years. Hence, there is no goal to leave a tax-free inheritance.

• Like the idea of adjustable premiums and adjustable death benefits AND are willing to take the risks of investments. This means that you could skip a premium payment or underpay without any penalty, because the cost of insurance and policy expenses are deducted from your cash value (but be sure you have already built up enough cash value to do that!). You may also be able to adjust the death benefit amount if your needs change. However, you may need to do a medical exam if you apply to increase your coverage.

• Have a large sum of money upfront for life insurance AND want to put the money in a tax-deferred growth vehicle, AND are willing to take the risks of investments. This is true if your available contributions surpass far above the Roth IRA contribution limit.

NOTE: Designing or structuring an IUL matters A LOT! A poorly structured IUL can be geared toward increasing an agent’s commissions while making your policy more vulnerable to lapsing. We are committed to HELPING YOU and not taking advantage of the system.

“IUL LIFE INSURANCE” IN A NUTSHELL...

Die Too Soon: Your loved ones will receive the death benefit (the coverage amount).

Become ill: You would be able to access a portion of the accumulated cash value or death benefit.

Live Too Long: You would be able to supplement your income when you retire.

4. WHOLE LIFE. This type of insurance is available for ages 0-85. Though the premium is more costly than term and IUL, it is a lifetime coverage with guaranteed fixed premiums and guaranteed death benefits (as long as premiums are paid), because the COI (cost of insurance) is constant (it does not go up with age) and the return interest rate is also constant. In addition, it also has a cash value component that grows tax-deferred at a guaranteed return rate. However, it is best to borrow against this cash value ONLY in cases of emergencies, and repay it as soon as possible; because the rate of return is always less than the loan rate. This will deplete your cash value if you don’t repay in the long run. That will cause your death benefit to decrease or even make your policy lapse.

Some Whole Life insurances offer flexible premiums, within certain limitations, which makes it quite attractive.

We recommend Whole Life for people who:

Want a guaranteed fixed premiums (with some flexibility) AND leave a guaranteed tax-free inheritance to their loved ones.

5. FINAL EXPENSE. This is an insurance for ages 45-85, with a small death benefit (<$50,000) intended to cover funeral and other final expenses, especially if you haven’t saved enough money to cover these expenses. It doesn’t require a medical exam, and it is easy to qualify for.

Since Final Expense insurance costs more than the traditional Whole Life insurance, we recommend final expense life insurance for those who are not eligible for Whole Life. These include people who:

Are between age 45-85 AND want a coverage below $50,000.
Have serious health conditions AND cannot qualify for Whole/Term insurances.

Pros and Cons in a Nutshell

The above section already depicted some Pros and Cons of each type of life insurance.

Now, in order to summarize these Pro and Cons, the following two tables illustrate the differences in premium payment according to the type of insurance (as of 2024), along with the most outstanding Pros and Cons.

Below, Table 1 illustrates a child, female age 10, with a death benefit of $50,000, while Table 2 illustrates an adult, male age 45, with the same death benefit of $50,000.

Terminologies:

Cover: This is the minimum and maximum coverage a life insurance offers.

$50K: $50,000

Age: This is the minimum and maximum age in order to qualify for the typo of insurance.

/m: Per month

/yr: Per year

DB: Initial Death Benefit

Cash value gains: This is NOT the cash value accumulated. It is the gain above the death benefit value. There comes a point where the initial death benefit will be increased when the cash value accumulated supersedes the initial death benefit.

“Red” words: The primary Pros

“Blue” words: The primary Cons