When purchasing life insurance coverage there are five critical questions to answer. They are:
- How much coverage is needed?
- Who should own the policy?
- Who should be the beneficiary of the policy?
- Where will the dollars needed to pay the premium come from?
- What kind of coverage should be purchased?
Answering the above questions is necessary in order to decide which company and what type of coverage to apply for.
How much Life Insurance Coverage is enough?
There is no simple answer to this question. There are some rules of thumb for determining how much insurance you should own, such as five or ten times your annual income plus an amount equal to total family debt. The amount should be adequate to provide your family with a life style similar to your current or projected life style. The effect of inflation should also be considered in this calculation.
This chart is a guide to help you determine what your needs may be.
|Family Situation and Living Style
||Guideline Coverage to Income Factor|
|Low mortgage or rent payments, single, no children living at home, low level of debt, may have elderly parents to care for.
||1x to 3x annual income|
|Low mortgage or rent payments, no children living at home, low level of debt, surviving spouse will work.
||3x to 5x annual income|
|Moderate mortgage payment, medium level of debt, good amount of savings, surviving spouse will work.
||5x to 7x annual income|
|Young children, new home, significant mortgage payment, other debt, surviving spouse wants choice of not working.
||7x to 9x annual income|
As you apply for life insurance, it is important that you keep any current coverage in force until the new coverage has been approved and a policy is issued. It is a mistake to let any existing coverage lapse until the medical underwriting has been completed and the company is prepared to issue a policy at a premium rate acceptable to you. Any change in health during the underwriting process will affect the rating on life insurance and therefore the amount of the premium.
If you are fortunate enough to have a large taxable estate, this calculation becomes more complicated and the ownership of the policy becomes a major issue.
Who should be the Owner?
For a young family with term insurance, this is generally not a critical issue. Whether the insured or the spouse is the owner is a function of your overall estate plan. As your estate grows in size, an irrevocable trust may be wise. Life insurance proceeds can actually help to create an estate tax problem if lifetime estate planning is not prepared properly.
Who should be the Beneficiary?
Generally, a surviving spouse will be the beneficiary of term life insurance. Again, this depends on the size of your estate. If you are divorced and have children, you should probably use some form of trust. You may also want to use a trust in the event of the simultaneous death of you and your spouse, especially if you have minor children.
Where should the Premium come from?
Unfortunately, there are no fancy methods to help pay for term life insurance. If you are an employee of a corporation, the corporation can provide you with a tax free group term life insurance benefit of up to $50,000. Coverage above this amount will require some reporting of taxable income. Because employer provided group term life insurance is not usually portable when you leave a firm, it is not prudent to rely upon it totally. It should be supplemented with personally owned coverage. The State Bar of Wisconsin plan is portable even if you leave the state or give up your State Bar of Wisconsin membership.
When structuring the purchase of cash value life insurance, some individuals may be able to use a "split dollar" plan with their employer. You may also be able to use your qualified retirement plan, but not an IRA, to pay for permanent insurance.
What kind of Coverage should be purchased?
There are two major types of life insurance policies: term and permanent.
Term insurance is the least expensive and comes in many forms, often making it difficult to compare policies. Term life insurance is generally purchased to provide pure death benefit protection. One of the most inexpensive forms of term insurance is Group Association Term Life insurance. By combining the purchasing power of a large group, the risk to the life insurance company is spread out over the entire group. There is also efficiency in underwriting and administering this type of plan. It is a great plan for young attorneys and their families because it offers a large amount of death benefit protection for a small premium. As your practice grows, this type of coverage may not be adequate on a long term basis and you should look at purchasing permanent insurance to supplement the term and begin to build cash value.
Permanent or cash value insurance is designed to give lifelong protection and comes in many forms. The most popular types are whole life and universal life. There are substantial income tax advantages to permanent life insurance, but it should be purchased only when you are ready to make a long term commitment to paying the premiums. The worst thing you can do is buy permanent insurance and then drop it after a few years. The cash surrender value after only a few years is often substantially less than the premiums paid.
The newest form of universal life insurance is Variable Universal life insurance. This type of policy offers several investment options including the stock market. While the potential return in the stock market is greater, so is the risk of loss. Only security licensed sales people can offer this product.
An alternative to group term life insurance is to purchase an individual term life policy. There are many options from which to choose when buying term life insurance. One critical issue to consider is the length of time the insurance will be needed. Factors to consider are the age of children, the ability of a spouse to earn an income, and any business or estate planning needs. (Term life insurance is seldom recommended for estate tax planning problems.)
If the need for life insurance protection is very short term, an annual renewable policy with premiums that increase slightly each year is probably suitable. However, if the need is for a period longer than five years, some form of term life insurance with a guaranteed level premium is probably better and less expensive over the term desired. The level term policy options include 5, 10, 15, 20 and even 30 year guaranteed premiums. The longer the guarantee period the higher the annual premium. Therefore, the time horizon should be given some serious consideration.
Although a policy with a slightly longer guarantee period has higher premiums, the higher premiums may be worth paying in order to have an opportunity to keep the coverage with a guaranteed premium longer. The extra money paid for a 20 year policy, over and above the cost of the 10 year policy, is used to help keep the premium low in the second 10 year period. The policy can be dropped at any time, and it may also be possible to reduce the face amount of a policy if your protection need is reduced. Because the level term market is currently very competitive, I generally recommend level term coverage for family protection.
When comparing level term life insurance policies, it is important to compare policies with similar guarantee periods. Some companies have level term life insurance policies with premiums that are guaranteed for only five years even though they illustrate projected level premiums for twenty years. If a company does not guarantee the price for a 20 year term policy for a full 20 years, it means that the company can raise the premium at any time after the guaranteed period. Make sure you know whether the policy you purchase has absolutely guaranteed premiums or projected premiums.
Another feature I recommend is that term life policies be convertible to some form of cash value policy during the guaranteed period. This will provide an opportunity to convert the coverage to a more permanent form of life insurance in the event of a change in the insured's health. Keep in mind that if the insured's health remains excellent, there will probably be ample opportunity to purchase new life insurance when needed. Your client should not wait until the last year of the guarantee period to check on alternatives.
If you own term life insurance purchased over five years ago, you owe it to yourself to review this coverage. Term life rates have dropped substantially during the last several years, and there are many new products available.
When comparing level term life insurance, always screen out poorly rated life insurance companies. I recommend an AM Best rating of at least A or preferably A+. Even the higher quality companies offer rates that are very competitive. If an applicant has significant health issues, they may be forced to include some companies with lower ratings in the search.
The role of the life insurance agent after helping you determine the proper amount of coverage and selecting a company, is to secure the best possible underwriting class. This will, of course, depend on the applicant's individual health history. Many factors are considered in the underwriting process including family history (i.e. cancer or heart disease), driving record, height/weight ratio, blood pressure and cholesterol levels.
The best underwriting class is reserved for the best risks as determined by the insurance company's underwriters. Underwriting guidelines vary from company to company. This is why an agent representing several companies can help "shop" for the best possible premium rating. Recent medical changes have enabled some medical underwriting problems to be less of a concern than in the past. (Because of health care advances, many heart patients are much more insurable than they were just a few years ago.) Smokers or nicotine users, however, pay substantially higher premiums when purchasing level term life insurance. Generally, the best rates are made available only to insureds that have not smoked for 3 or more years.
It is important to keep in mind that the guaranteed level term rates are a one way commitment. The insured can always "shop" their life insurance coverage to attempt to get lower rates. (One would want to do this if there has been an improvement in health, or changes in a company's underwriting guidelines.) The company, however, has guaranteed the level term rates for the term of years selected when the policy is issued.
Buying life insurance is not as simple as we would like. However, the need for this protection is critical. Few people would not think of having their home or autos underinsured, and yet they do not have adequate life or disability insurance.
For more information on the SBW Group Term Life Plan email Bultman Financial Services Inc., or call (262) 782-9949 or fax (262) 782-1454.
Peace of mind for your family—protection for their future
No one wants to think about death, but if you avoid planning for the future, you could be forcing your family to abandon the lifestyle they are accustomed to.
The State Bar of Wisconsin Group Term Life Insurance Plan— with coverage issued by The Prudential Insurance Company of America (Prudential)—was designed for a simple purpose: to provide money to help keep your family’s hopes and dreams for the future on track following an untimely death. It’s money to help pay the mortgage, so they can continue to live in the family home; or to help with college expenses, so your children can get the education they deserve. It’s money to help ensure your family’s financial future is protected. Download the brochure (pdf).
Eligibility for This Plan
All association members under the age of 65 are eligible to apply for the Term Life Insurance Plan. Term Life Insurance is available to you in amounts up to $1,000,000 in $50,000 increments. Covered members may also apply to insure their spouses under age 65. Spouse coverage may not exceed 100% of the member’s coverage amount. Eligible dependent children under age 26 can be insured for $10,000 or $20,000 per child. All coverage is subject to Prudential’s approval of satisfactory evidence of insurability.
Coverage designed with you in mind
- With coverage amounts up to $1,000,000, you can select the amount that best protects your loved ones. And, as your needs increase, you can simply apply for more coverage.
- Among other things, the insurance benefit can be used to help:
- Provide for your family’s expenses (mortgage, bills, car payments, etc.)
- Safeguard your children’s future (child care, college expenses, weddings, etc.)
- Secure retirement income for your spouse
- Help settle your estate, pay estate taxes, and satisfy other final expenses so your family won’t be burdened.
Coverage that you can take with you
- The Plan has a portability feature that allows you to keep your coverage even if you change jobs, as long as you remain a State Bar member.
How much does it cost?
- Rates for the State Bar of Wisconsin Term Life Insurance Plan are competitive, helping to make the decision to apply an easier one.
- Rates are based on your attained age and will increase as you enter higher age brackets, as shown in the rate chart.
- Like most insurance, rates are subject to change, but only on a class-wide basis—you can never be singled out for an increase.
- Depending on your needs, additional options are available under the Plan.
- Optional Accidental Death (AD) Coverage:
The State Bar of Wisconsin Term Life Insurance Plan includes optional Accidental Death coverage, which provides an additional benefit if you die by accident. The AD insurance proceeds are payable in addition to any other life insurance benefit payable under the Plan.
- Accelerated Benefit Option
If you become terminally ill with a life expectancy of six months or less, the Accelerated Benefit Option lets you receive 75% of your coverage amount (not to exceed $250,000) while still living.
Use the proceeds as you wish—for travel, medical bills, or family expenses. The amount payable at death is then reduced by the accelerated benefit amount paid. Please consult with your tax advisor to review any tax implications.
- Optional Dependent Coverage
Dependent Child Coverage— For $12 a year, you can insure your eligible dependent children with $10,000 of term life insurance or for $24 a year you can insure them with $20,000 of coverage. The cost is added to your Member Term Life premium.
Spouse Coverage—Covered members may also request coverage for their eligible spouses under age 65. Spouse coverage may not exceed 100% of the member’s coverage amount.
Ownership Transfer Available
The provisions of the group policy allow you to transfer ownership of your coverage to your spouse, business partner, professional corporation or a trust. Transfer of ownership could result in a tax advantage for you. Contact your tax advisor for details.
How do I Apply?
- Simply click here to complete an application form and return it to Bultman Financial Services, Inc. by fax or mail. Use a separate form for your spouse.
- Some applicants may be required to have medical exam in order to apply for coverage. Contact Bultman Financial Services, Inc., for more information on medical requirements.
- Your coverage will become effective upon approval of your application and receipt of your premium. You will be billed semi-annually unless you request to be billed annually or by electronic fund transfer (EFT).
The only death claims against your group term life coverage to be denied will be for misrepresentation of your application or death by suicide within the first two years of coverage. Please read your insurance certificate for details. For information on termination of coverage, also consult your certificate.
For Information Contact:
13625 Bishops Drive Suite #100
Brookfield, WI 53005
Accidental Death Benefit Exclusions A loss is not covered if it results from any of the following:
1) Suicide or attempted suicide, while sane or insane.
2) Intentionally self-inflicted injuries, or any attempt to inflict such injuries.
3) Sickness, whether the loss results directly or indirectly from the sickness.
4) Medical or surgical treatment of sickness, whether the loss results directly or indirectly from the treatment.
5) Any bacterial or viral infection. This does not include pyogenic infection resulting from an accidental cut or wound or bacterial infection resulting from accidental ingestion of a contaminated substance.
6) War, or any act of war, except as provided by the War Risk Hazard provision. War means declared or undeclared war, and includes resistance to armed aggression.
7) An accident that occurs while the person is serving on full-time active duty for more than 30 days in any armed forces. But this does not include Reserve or National Guard active duty for training.
8) Travel or flight in any vehicle used for aerial navigation (includes getting in, out, on or off any such vehicle), except as provided by any Hazard provision, if the person is performing as a pilot or a crew member of any aircraft.
9) Commission of or attempt to commit an assault or a felony.
10) Being under the influence of any narcotic unless administered or consumed on the advice of a doctor.
Accelerated Death Benefit option is a feature that is made available to group life insurance participants. It is not a health, nursing home, or long-term care insurance benefit and is not designed to eliminate the need for those types of insurance coverage. The death benefit is reduced by the amount of the accelerated death benefit paid. There is no administrative fee to accelerate benefits. Receipt of accelerated death benefits may affect eligibility for public assistance and may be taxable. The federal income tax treatment of payments made under this rider depends upon whether the insured is the recipient of the benefits and is considered terminally ill. You may wish to seek professional tax advice before exercising this option.
This policy provides ACCIDENT insurance only. It does not provide basic hospital, basic medical, or major medical insurance as defined by the new York State Insurance Department. IMPORTANT NOTICE: THIS POLICY DOES NOT PROVIDE COVERAGE FOR SICKNESS.
State Bar of Wisconsin Group Term Life Insurance coverages are issued by The Prudential Insurance Company of America, 751 Broad Street, Newark, NJ 07102. This presentation is intended to be a summary of benefits and does not include all policy provisions, exclusions and limitations. A Booklet-Certificate, with complete information, including limitations and exclusions, will be provided. If there is a discrepancy between this document and the Booklet-Certificate issued by Prudential, the terms of the Booklet-Certificate will govern. Contract series 83500. CA COA# 1179, NAIC# 68241
Long-term care insurance (LTCI) helps to offset the cost of a broad range of services needed by people, for extended periods of time, due to a chronic illness or disability. These costs vary depending on the services needed and can quickly deplete an estate.
Because the State Bar of Wisconsin is endorsing the LTCI plans of select insurance companies, these companies are offering a discount. In addition to members and their spouses, this discount is being made available to parents of members and their spouses. Employees of law firms and their spouses are also eligible for this discount.
Choice of Companies
Because of the many different features and benefits offered by companies, and the different underwriting criteria it is impossible to pick one company that is the best for everyone. By endorsing multiple companies the State Bar is allowing you to select the appropriate policy coverage for your individual situation.
How to Get More Information
When a person applies for long-term care insurance, questions relating to his or her health status will be asked. Each insurance company has its own underwriting criteria. You can download a form in order to receive an illustration, call us (262) 782-9949 or (800) 344-7040 or com sbwinfo bultmanfinancial email Bultman Financial Services.
to visit our Long Term Care Information Center
The Office of the Commissioner of Insurance publishes a free “Guide to Long-Term Care” (PI-047) to help evaluate individual needs. This guide can be obtained from the OCI Web site.
Read Mary Kay Bultman's InsideTrack article: Retirement plan should include long-term care insurance