The Huge List of Life Insurance Mistakes (to Avoid)

I thought it would be a good idea to write up the list of common life insurance mistakes I see people make and how to avoid them. I've seen other "lists" of mistakes online but I've never thought that they were quite complete enough. While I was making this list, I decided to organize these mistakes into three categories. Those three categories are mistakes made before, during and after you've bought life insurance. It's my hope that my list will help you do a more complete job in checking over your life insurance. For additional help, you can also check my life insurance guide.

Mistakes to Avoid Before Buying Life Insurance

In this first section, I wanted to share with you the mistakes I see people make before they have ever bought life insurance. In many cases, some of these mistakes are more of what I see as attitudes or perceptions about life insurance more so than mistakes. In any case, I think they are important to list here whether you agree with me or not.

• Not owning any life insurance At the beginning of my list is not owning any life insurance at all. Most of us have some group term life insurance through work. You don't control that life insurance though. You should probably also have at least some life insurance that you own personally outside of work. See having enough insurance for a funeral below.
• Relying on the group life insurance you get at work Most of the life insurance you get through your employer will end at some point. It will end either when you leave employment or at a certain age. The problem is that most of us live a lot longer than that. I'm still a fan of group life insurance but I go over a list of the problems with group term life insurance here. 
• Thinking the life insurance policy your parents bought for you when you were a kid is all the life insurance you'll ever need I often talk with people in their 40's and 50's who say they have life insurance and don't need any. When I dig a little deeper, I often hear that the life insurance they do have is what their parents got for them when they were kids. They've never updated or even looked at additional life insurance in decades. While I do run across people whose parents have picked up a significant amount of life insurance for them when they were younger, it's still a good idea to consider increasing your amount. Over time inflation makes it important to add to it.
• Not having life insurance in an amount at least enough for a funeral Unfortunately, everybody is going to die at some point. When you die, you have to pay for some sort of funeral. The responsible thing to do is to at least have enough life insurance to pay for your funeral so others don't have to. You might be fine having your body buried out back in a pine box, but I'm not sure if that's even legal. So in the end, your family plans a funeral. I have heard many stories of family members having to pitch in and pay for funerals out of their own pockets. It's a financial shock for family members to have to pitch in to pay for your funeral. Some people end up setting up payments with the funeral home and if they don't pay may even get taken to court.
• Not having life insurance on your children or other family members for an amount at least enough for funeral Many people don't buy life insurance for their children. While there is a low probability that something will happen to your kids, it's better to be safe than sorry. If the worst happens, there still needs to be a funeral. The people I have talked with that have gone through it, can't stress enough how important is. The same is true for spouses or other family members.
• Not having enough life insurance If you have a young family, a $125,000 mortgage, two car payments and only have $20,000 in life insurance, you probably are underinsured. You should consider picking up more life insurance. Also read my post on how much life insurance do you need?
• Waiting too long to buy life insurance The longer you wait to buy life insurance, the higher the premiums will be due to your age or health problems. Also, since you have to qualify for life insurance, if you lose your ability to qualify due to health problems, you may not be able to get any. I talked with someone the other day who's parent died without any life insurance because they waited until they were extremely ill to buy it and just couldn't get it.
• Not believing in life insurance One phrase I hear from time to time is that people don't believe in life insurance. With the number of GoFundMe fundraisers for funeral expenses that I see, it's a shame that at least enough life insurance to pay for a funeral isn't purchased by everyone. I'm sure that if you are on the paying end of someone who didn't believe in life insurance, you become a believer really quick. I can't count the number of people who've told me they had to pay for a funeral because the person who died didn't believe in life insurance. Needless to say they weren't to happy about it.

Like I said above, I'm not sure whether everyone would agree that all of these would qualify as "mistakes" because everyone is different, I definitely think they are worth thinking about.

Let's move on to mistakes I see that people make when they buy life insurance.

Mistakes to Avoid When Buying Life Insurance

Once you've decided to buy some life insurance, there's a chance you might make more mistakes. Here are some of the most common mistakes I see during the buying process.

• Buying life insurance without an agent Let's face it. Life insurance agents have gotten a bad reputation because some of them have used some questionable sales tactics. A lot of people are afraid to meet with an agent and use their services. First, it's important to note that whether you use an agent or not, your premium is likely to be the same. The other thing that is important to note is that if you fill out the life insurance application on your own without an agent, I've heard of insurance companies denying claims because the application wasn't accurate at the time of application. Since it doesn't really save you any money to go direct, then as a safeguard, I'd still recommend working with an agent. That way, you'll have a person you can ask to help you if you need it.
• Not taking advantage of guaranteed issue when you should Occasionally, I see offers people in the workplace turn down offers for guaranteed issue life insurance. Guaranteed issue means you don't have to answer medical questions. I've seen people who couldn't get life insurance any other way turn down a great offer they'll never get again.
• Lying on the life insurance application (or application for re-instatement) I'm often asked by people what if they lie about an answer to a question on a life insurance application. If I had to guess, I'd say the most common thing that people consider lying about is tobacco use. There are a lot of smokers out there who don't really consider themselves smokers even though they smoke all the time. As an agent though, I have to remind people to always be honest on your life insurance application. Otherwise, the insurance company may deny a claim if they find out and you don't want that to happen.
• Not preparing properly for the life insurance exam For policies that require you to take a medical exam, you want to make sure that you make sure to follow some common sense rules. You don't want to hurt yourself by doing poorly on an exam you could have done better on. I once had a applicant go partying and drinking binge the holiday weekend right before he took his exam. Of course, his blood work was all out of whack and his exam results increased his premium. Just keep in mind, try and keep your diet clean and body rested before you take an life insurance exam. This isn't the time to experiment with smoking pot for the first time for example (or anytime for that matter!)
• Buying the wrong type of life insurance One of the more popular pages on my website is one that discusses accidental death. It's visited by people who want to know if they will get paid from an accidental death policy. Sometimes people buy accidental death only policies by mistake not knowing that they won't pay if you die of an illness. Then there is the old debate between term and whole life.
• Not setting up the life insurance options correctly A life insurance application is a multi-page document with lots of detailed information to fill out. It's easy to overlook some common options you want selected.
• Free additional riders Be sure that any riders that don't cost you anything are added to the policy. It's easy for an agent to overlook adding an option you might want added. If there is no charge for it, then there is no reason not to add whatever is available. Sometimes, it's overlooked.
• Contingent owner You might want to name a contingent owner in some cases. A good example would be when you have a life insurance policy on a minor. If something happens to you, you might want to name a specific adult to be the owner. This will make sure that the person you want managing it will.
• Automatic premium rider If you have a permanent life insurance policy, you'll want to select yes for the automatic premium loan option. This will provide a safeguard if you can't pay your premium for a reason like being sick and unable to take care of your bills.
• Dividend options If you have a whole life policy, make sure you choose the right dividend option. There are five dividend options you can choose from.
• Not considering conversion options when buying term insurance When you buy a term policy, it's a good idea to have a conversion option available. A conversion option allows you to change a term policy to a permanent policy. You want to make sure that the options you have to convert to are just as quality as the term policy you started with.
• Owning your life insurance in your own name Owning your own life insurance in your own name can cause a couple of problems.
• Potential estate tax While life insurance death benefits are income tax free, they are not estate tax free. Anything you own, including life insurance is considered part of your estate for estate tax purposes. With the recent tax changes, I'm not sure this is still an issue but it could be.
• Impact on medicaid qualification If you are looking to qualify for medicaid, then any life insurance you own may have to be surrendered.
• Making mistakes with your beneficiaries There are three mistakes people make when naming beneficiaries. Those are:
• Naming your estate You always, always, always want to name a direct beneficiary. Payments made to a direct beneficiary pass outside your estate outside the hands of creditors. If it goes into your estate, your beneficiaries have to wait until your estate is settled before they get the money which could be months or even years down the road. Life insurance claims are paid as soon as the insurance company processes your claim.
• Naming a minor You want to try and avoid naming a minor as a beneficiary. Minors have to have someone appointed to manage their affairs. This is even more important if you have children from a previous marriage. Since it's pretty common for people with younger children to also not have made a will, it's a possibility an ex could be in control of money for your children when you didn't want them to be.
• Not naming a beneficiary If you don't name a beneficiary, it will go to your estate.
• Not naming a contingent beneficiary You always want to list a back up beneficiary in case your beneficiary dies at the same time as you or before you to keep your death benefit from going into your estate.
• Not telling your beneficiary you have named them as beneficiary From time to time, people don't know who is listed as the beneficiary to a policy when someone dies. This leads to confusion and sometimes anger over what in the world you were thinking when you named someone else beneficiary.

That's a pretty long list of things to watch out for when you are buying life insurance.

Now, let's move on to the next set of mistakes.

Mistakes to Avoid After You Buy Life Insurance

Once you own some life insurance and it's in place, here are some other mistakes that could potentially occur. Be sure and read through these to make sure you aren't making any of these mistakes. 

• Not making sure your life insurance policy was delivered If you buy an individual policy, you should receive a policy. This policy will either be delivered by the agent or by mail. You want to make sure that you receive a policy so you can review it. We bought an individual policy on my son from where my wife works five months ago and I still haven't received the policy. After getting no response from the agent who wrote the policy, I finally contacted the insurance company directly. While I was able to verify the coverage was inforce, the insurance company still has not sent us a policy so I can review it. You have to stay on top of it like I am to make sure you get a policy. Remember though, that you will not get a policy for group term life insurance. That's because you don't own anything there. This is for individual policies only.
• Not reading the life insurance contract One of the reasons you want to make sure you get a policy when you should is so that you can read it. In the story I shared with you in the mistake above, the policy we bought on my son was supposed to be guaranteed issue and that's why we bought it. But I want to read the application attached to the policy to see if there were any medical questions. I also want to see if the policy was indeed a true whole life policy and not a universal life policy. These are things I won't know for sure until I actually read the policy. This is important because it doesn't matter what your agent tells you, it only matters what the contract says. You want to read it. At the very least, you want to make sure you verify your personal details are correct and that you got what you actually applied for both in plan and in amount. You also want to make sure your premium is correct and your beneficiaries are listed how you listed them. You'd be surprised how many times this stuff can be incorrect. If you don't pay attention, it might be too late to correct it. If you need help reading your contract, you should ask your agent or call the insurance company if you need to.
• Not considering paying your premium annually If you have the funds to pay your premiums annually, you should consider it. This saves you money on the premiums, maybe close to a month's worth each year.
• Not keeping the illustration you were given at the time of sale A key tool used to understand how a life insurance policy is supposed to work is called an illustration. You should keep this illustration (along with any other sales material you received). You want to keep the illustration so that you can compare the values you are supposed to have each year to what your annual statement actually shows they are.
• Not keeping your policy documents properly organized and in a safe place Make sure you keep all of your life insurance documents organized and in a safe place.
• Not requesting the removal of a tobacco surcharge if you quit using tobacco Sometimes people forget about asking the insurance company to remove a tobacco rating if they used to smoke or used other tobacco products. Every company is different, but in most cases if you have stopped for more than 1 to 2 years, you might be eligible to have that removed.
• Not exercising guaranteed conversion options If you buy a policy with a guaranteed insurability rider, don't forget to check out what you can do when your options become available. Especially if you have health issues.
• Not knowing what life insurance you have The most common answer people give when you ask them about their life insurance is that they know they have something, but don't know what it is. Most people also buy their life insurance and then never review it. Don't let that be you.
• Not keeping your life insurance policies You should keep all the policies you own in a safe place. A lot of people toss them aside and never know where they are if they need them. While the policy isn't completely necessary if you have to ever file a claim, it certainly helps to have it on hand as proof if you ever needed it.
• Not destroying lapsed policies Imagine keeping policies that had lapsed or been cancelled in your important papers and then your family finding them after you died. Then only to discover that they aren't inforce. Beneficiaries are left questioning the insurance company why they have policy if it isn't inforce. It puts everyone in an awkward spot.
• Not reviewing your life insurance annual statement each year Most people get their annual statement from the insurance company, glance at it and just set it aside. But what you want to do, especially if you have a universal life policy, is compare the statement to the values you expected and saw on the illustration you received at time of sale. The best time to make up in short fall in value is right when it happens. So if you see less in your policy than what was supposed to be there, you might want to add more money right away. Not doing so puts your policy at risk later. The amount needed might be much higher later and you could lose your policy.
• Failing to make required premiums I've ran across many people who have permanent life insurance policies who stopped making premiums. The policy stays in force because the premiums are being paid out of the cash value. This just eats away the value of your life insurance policy. If it's a universal life policy, it severely compromises it. It's a little easier to fix the damage with a traditional whole life policy.
• Failing to change beneficiaries You'd probably be upset if your spouse forgot to change their beneficiary from an ex-spouse to you. But believe it or not, it happens. Don't forget to review your beneficiary arrangements if you get divorced or if you got married. Sometimes people forget to change the beneficiary from the parents or other family members to another spouse.
• Not filing a claim Believe it or not, sometimes people die and a claim is never filed. It's not just the insurance company or agent that may not always be aware of the death of a policyholder. Beneficiaries sometimes don't know either. In fact, I got a call recently from someone who's called me two years after his wife had died. He had recently remembered it or found some paperwork that jogged his memory to check. We filed the claim and got it paid.
• Underfunding universal life insurance policies Many people have universal life insurance policies and are paying a premium that is not sufficient to keep the policy inforce for your whole life. If this is you, unless you dig in to look at your policy now, you won't know until you are much older and get a premium notice from the insurance company. The best place to look and see if you are underfunding your policy is the annual statement. There will be a paragraph that will tell you how long the insurance will last under the current assumptions.
• Borrowing against the cash value You want to do everything you can to never borrow against your life insurance policy. I especially think this is true if it's a universal life insurance policy. I feel better about borrowing cash value from a traditional dividend paying whole life insurance policy. But if you do that, make sure that you pay the interest each year. Also, consider paying it back. If it were me, I'd never borrow against a universal life policy. If you plan on using loans in your life insurance strategy, I'd only borrow against whole life policies.
• Forgetting about riders purchased After many years have gone by, it's easy to forget what life insurance riders you have added to your life insurance policy. I've run across policies with disability income riders or child riders that people had totally forgotten about.
• Not converting child riders If you have a child with a pre-existing condition, you want to look at any conversion option available with any child rider. It might be the only opportunity to get a life insurance policy for your child.
• Not removing child riders that have expired Once your kids have a reached a certain age, a child rider may no longer provide any coverage. However, you'll still pay the premium because the insurance company doesn't know your kids are no longer eligible. I've seen people paying for child riders when they didn't need to anymore and helped them get that rider removed.
• Not keeping your address current You need to contact the life insurance company when you change your address. Otherwise, you won't receive your annual statements - or more importantly - your premium notices. You don't want to take a chance on your life insurance lapsing just because you didn't get a notice in the mail the premium was due.
• Replacing a life insurance policy You want to think twice about replacing an existing life insurance policy with a new life insurance policy. It's not always in your best interest to get rid of an old policy you have had for years. 
• Overfunding a universal life insurance policy There are limits to how much "extra" money you can put into a life insurance policy. If you put too much money into the policy, it could create what is called a modified endowment contract that has tax consequences.
• Transferring ownership of a permanent life insurance policy that has cash value If you transfer the ownership of a permanent life insurance policy that has a cash value to someone else, that could affect the tax treatment of the life insurance. If you are considering such a transfer, ask your tax advisor about transfer-for-value rules.

As you can see, there are still a number of mistakes that you can run into even after you have bought life insurance.

Conclusion

Well, if you are a little surprised of the length of my list, it's probably a good idea to review your life insurance.

Even I still think I left a couple of things out. If you think I missed any mistakes or want to add anything to the discussion, then be sure and put your thoughts in the comments below.

Also, if you need some individual life insurance, and want to help support this site, why not let me be your life insurance agent. Click the blue button just below or click ask for a proposal.

Nonforfeiture Options: Don't Just Let Your Policy Lapse

A lot of people get into a situation where they can't pay their life insurance premiums. Often, the solution is to ignore the premium notice. When you do that, your life insurance will lapse and it ends.

After that, you won't receive any more notices from the insurance company.

Problem solved.

Before you let that happen, it's a good idea to see if there are any other ways you can handle it.

One way, is by using a nonforfeiture option.

But what are nonforfeiture options anyway? I'm going to go over what they are below. After that, I'll go over a couple of other options to look at before the non-forfeiture options.

What are Nonforfeiture Options?

Nonforfeiture options are a feature of whole life insurance policies. These options allow you to stop paying premiums. You can then cash your policy in, buy a reduced paid up policy or buy extended term insurance.

Let's go into more details about these three options.

The Three Nonforfeiture Options

There are three nonforfeiture options available. Keep in mind that each option depends on the value of your policy. If you haven't had your policy very long, you won't have any cash value and no nonforfeiture options are available.

If you do have cash value, remember that it may be subject to a surrender charge. A surrender charge is a penalty for cancelling early. Any surrender charge comes out of the cash value in your policy. It's not something you have to pay out of your own pocket. If you have borrowed from the policy in the past, that would also reduce your cash value.

With that said, here are the three nonforfeiture options.

1. Cash surrender This is cashing your policy in. The insurance company will send you a check for the net cash value and then you can do whatever you want with the money. You'll use the cash surrender option if you need the cash.
2. Reduced paid up insurance You can use the cash value to purchase a whole life policy that is paid for. It will be less than the original face amount and since it is paid up, it won't require premiums. You'll just own that amount of life insurance from that point forward until you die.
3. Extended term insurance You can use the cash value to keep the original life insurance face amount but only for a specific term, or time period. How long the term is depends on the cash value of the policy. Once it's changed to extended term, you won't have to pay premiums anymore but you also won't build any more cash value. 

Nonforfeiture options are final with the exception of extended term insurance. If you elect extended term insurance, I believe it might be possible to reinstate the policy back to the original policy. Honestly, I am not sure if you can reinstate during the extended term insurance period. I have never had anyone ask.

Surprisingly, during my more than 25 years in life insurance, I have never seen anyone request paid up insurance or extended term insurance.

Everybody usually chooses just to cash surrender their policy if they don't decide to hang on to it.

Before you cash your policy in, keep reading for some other options to consider before you do.

Can't Pay Because You Are You Disabled? On Strike?

If you can't pay your premium because you are disabled, you might qualify for a waiver of premium benefit if you added that rider when you bought the policy.

I've also heard of waivers for if you go on strike. They are rare but do exist.

Either rider, if you qualify, would help you pay your premiums.

Check Your Policy Dividends

If you have had your policy for awhile, you might have accumulated some dividends you could use to pay your premium. Also check to see if your dividend is more than your annual premium. If so, you could change your policy's dividend option to reduce premium.

Not all whole life policies are participating so this may or may not be an option but it's worth checking into.

Take a Policy Loan to Pay Your Premium and Use Automatic Premium Loan

The next option is take out a policy loan to pay the premiums until you can start up again. Once you can start paying the premium again, you can pay off the loan.

Standard procedure for me on every whole life application I submit is to choose automatic premium loan. By doing this, it builds a layer of protection against the policy lapsing because a premium is overlooked. 

If a premium payment is missed, and the policy has a cash value, it will automatically trigger a policy loan and pay the premium. It will continue to do this for every premium missed as long as their is cash value. If there is no cash value, the policy will lapse.

I set it up this way because of unforseen circumstances. If you get sick and can't take care of your bills for whatever reason, it will keep your policy inforce as long as there is cash value. This will keep your policy inforce until you or a family member have a chance to take care of your bills.

While you don't necessarily have to pay the loan back, it's a good idea to do that if you can. It's certainly important to pay the interest. Otherwise, that interest could capitalize and that mean you'll pay interest not just on what you borrowed but also on the interest that you didn't pay.

This could erode the value of your policy.

Reduce the Face Amount of the Policy

Another option to explore is to reduce the face amount of the policy. If you reduced the face amount of the policy, the premium will also go down.

It's possible that you could make the policy more affordable and keep it inforce at a lower amount.

Don't Just Stop Paying Your Premium to Let Your Policy Lapse

If your intention is to cancel the policy, make sure you formally cancel it. This is especially true if you have cash value. Doing nothing means the cash value could just be eaten up by premiums.

Whether you have cash value or not, I always recommend filling out a cash surrender form if your intention to cancel it. This accomplishes to things. First it makes sure you don't waste your money. Second it lets the insurance company know what you want to do and then you don't waste their money sending you all these notices.

Believe it or not an astounding number of people just let their policies lapse.

Are Nonforfeiture Options the Same for Other Types of Life Insurance?

The above nonforfeiture options are for whole life policies. Since term life insurance has no cash value, there are no nonforfeiture options.

As far as universal life insurance policies, you can cash surrender the policy and switch it to extended term. The reduced paid up option is not available.

Conclusion

If you can't pay your life insurance premium, there are potentially three nonforfeiture options you can use. There are also a few other options you can potential use to hang on to your life insurance.

Have you ever used the nonforfeiture options? If so or if you have any questions, please let me know in the comments.

5 Dividend Options for Whole Life Insurance

If you have a whole life policy with a mutual insurance company, you are in luck because those policies may pay dividends. That's great news but what are you going to do with all that newfound cash? Well, the insurance company may give you up to five different dividend options to choose from.

Below, I'll talk about the dividend options you can choose from along with some other things about dividends you might want to know.

What are Whole Life Insurance Dividends?

Mutual insurance companies are owned by their policyholders. When a mutual company earns a profit, it may share some of that profit with you the policyholder.

Your share of that profit is called a dividend.

Since you pay a premium to the insurance company, any dividend you receive back is considered a return of premium.

Dividends are declared annually by the board of directors of mutual companies. Then it's paid to you. Dividends are not guaranteed. The board of directors is under no obligation to pay you a dividend nor give you a set amount.

There are up to five dividend options you can choose from.

Let's talk about those options.

The Five Dividend Options

At the time you apply for your life insurance, you tell the insurance company how you want to be paid your dividend. Don't worry, your choice isn't locked in forever. You can change the option down the road if you want.

1. Paid in cash The insurance company will send you a check in the amount of your dividend. You can cash that check and do whatever you want with it.
2. Purchase paid up additions Instead of receiving a dividend check, you can ask the insurance company to keep your dividend in your policy and use it to buy what are called paid up additions. Paid up additions are like little tiny life insurance policies above and beyond your base policy. Each dollar of paid up additions, buys more than a dollar of paid up additions. Not a whole lot but slightly more than your dollar. That means, paid up additions increase the face amount of your policy.
3. Accumulate at interest The next option is to let the insurance company keep the dividend you received in an account that earns interest. 
4. Reduce premiums You can choose to have the insurance company reduce your premium by the amount of the dividend.
5. Purchase one year term insurance In some cases, insurance companies will let your dividends by an additional amount of one year term insurance. This will also increase the face amount of your policy.

Those are the dividend options you can choose. But which one makes sense?

Which Dividend Option Should You Choose?

On whole life insurance, I personally would set up my dividend option to buy paid up additions. I'd keep it that way until I was confident that the dividend was declared each year was more than my premium. Then I might consider switching it to the reduce premium option.

I'd set up my term policies dividend option to reduce premium although I wouldn't expect a dividend on a term policy.

Do All Life Insurance Policies Pay Dividends?

Only policies issued by mutual companies pay dividends to their policyholders and not all mutual life insurance polices pay dividends. Not even at a mutual company. The policy has to be a participating policy. Only participating policies pay dividends.

Also, a policy can be a participating policy but not expect to receive dividends. A good example of this might be a term policy. It's more likely, the whole life policy will pay dividends but not always. In order to know for sure, you have to read your policy to find out.

If you have a policy with a stock company, you won't receive dividends. Only the shareholders would.

Here's the difference between stock and mutual insurance companies. 

Are Dividends Taxable?

Generally, dividends are considered a return of premium up to the amount of your premiums paid. 

Dividends Are NOT Guaranteed

It's really important to understand that dividends are not guaranteed. The performance of the insurance company, the economic conditions and the board of directors of the insurance company all are a factor here.

It's possible, you might not receive a dividend at all.

Conclusion

So those are your five potential dividend options. It's a good idea to review how your dividend options are set up.

Let me know how you've set up your dividends or if you have any questions in the comments below.

My Choice Between a Stock vs Mutual Insurance Company

There are two type of insurance companies you can choose from when you buy insurance. One is called a stock insurance company and the other is called a mutual insurance company. In this article, I'm going to break down what each type of company is. I'll also talk about which type of company I like best.

What is a Stock Insurance Company?

A stock insurance company is owned by shareholders. Any profits or losses are shared with the shareholders. Stock of the insurance company is publicly traded on the stock exchange.

A stock company puts the focus on providing a good return for their stockholders.

What is a Mutual Insurance Company?

A mutual insurance company is owned by it's policyholders. All profits and losses are shared with the policyholders.

When mutual companies share profits with their policyholders, it's in the form of dividends. Dividends represent a return of premium to the policyholder. And while dividends are not guaranteed, this structure puts the focus on the value to the policyholders.

Demutualization

One concern if you choose a mutual company over a stock company is that a mutual company can demutualize. Demutualization is when a mutual company converts to a stock company. This could happen if a mutual company decides it needs to raise capital.

A good example of demutualization was when Prudential converted from a mutual company to a stock company in 2001. Prior to demutualization, Prudential had struggled with some large claims from hurricanes and a legal settlement and they needed capital. As a result, Prudential is a much different company than they were before they converted.

Before that, if you'd asked me if Prudential would ever convert to a stock company, I would have thought you were crazy. The moral of the story is that there is no guarantee a mutual company will always stay that way.

Stock vs Mutual - My Choice

For most insurance, I don't really have a preference between a stock company and a mutual company. However, when it comes to permanent life insurance, I would definitely choose a mutual company for a couple of reasons.

The first reason is because I'm fan of guarantees. Whole life insurance from a mutual company provides more guarantees than the universal life products that stock companies offer.

And because of the guarantees in their whole life policies, mutual companies get the edge from me for that particular product.

The second reason I'm not a fan of stock companies is because they are publicly traded. A publicly traded company has a lot of pressure to increase it's stock price. If the financials of the company go south, their going to try and find that money somewhere. There's a good chance it could come from the expenses hidden in their universal life contracts.

In fact, the New York Times reported a lawsuit accusing Transamerica of doing exactly that.

Market pressures can not only lead to bad management decisions, there's also the chance the company a target for a takeover.

This could lead to the same problems.

While bad management can happen in either a stock or mutual company, I'd still opt for a mutual company because I believe a stock company is more vulnerable to problems than a mutual one.

That's not to say a mutual company can't experience problems so you still have to be careful which mutual company you choose.

Conclusion

While most people probably couldn't tell you whether they have insurance at a stock company or a mutual company, it's good to know the type of company you are buying from.

And when it comes to permanent life insurance, my preference is for a mutual company over a stock company.

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I have helped thousands of people with their life insurance over the last 25 years and would love to help you too.

If you already know you want me to help you with your life insurance, fill out this form to ask for a proposal from me or click the blue button.

If you need more information before we begin working together, then I've provided some reasons why you might want to consider letting me help you out.

5 Reasons You Might Want Me to be Your Agent

Here's a list of five reasons you might want to work with me.  I want to focus my help on what you need but here's an page about me and my agency and you can also find my Facebook page. if you are interested in reading more.

• Local to the area I'm close by if you need any face-to-face help to buy your life insurance.
• Long-time experienced life insurance agent Over the past 25 years, I've helped thousands of people with their life insurance.
• Help completing your life insurance application Life insurance applications are lengthy and can be tricky to complete accurately. I'll make sure everything is completed and submitted properly.
• Help satisfying your underwriting requirements Once you've applied for life insurance, you may need to schedule an exam or provide additional information to the insurance company. I make sure you know what's going on and what to do.
• Ongoing customer service After you've bought your policy, I'll continue to work with you long after you've bought a policy. Since I've been an agent for more than 25 years, you can count on me being around to help.

Those are a just few reasons that might be important to you when deciding who to work with as your life insurance agent.

BONUS: Help with Your Open Enrollment Where you Work

At open enrollment time where you work, there are always a number of insurance options to choose from every year. I'll be on call for you at open enrollment time if you have any questions about the types of options you can choose from.

How to Get Started

The first step is to get some information from you so I can prepare a proposal for you. I've created a form for you to send me your basic information. This will help me understand what you want.

After you've fill out the form, I'll get in touch with you to decide how to move forward.

Here's the simple form to fill out or click the blue button to get started.

Direct Recognition vs Non-Direct Recognition (Does It Matter?)

Does it matter if your life insurance policy is a direct versus a non-direct recognition policy? Here, I'm going to break down what the difference is between these two types of policies. Then, I'm going to answer the question, does it matter?

The Difference Between Direct Recognition vs Non-Direct Recognition

A whole life policy allows the option to ask for loan against the value of your policy. A policy loan, may reduce the dividend you receive when it's paid. If your policy is a direct recognition policy, you'll receive a lower dividend than if you didn't have a loan. If it's a non-direct recognition policy, your loan has no impact on the dividend you'll receive.

On the surface, you'd guess that a non-direct recognition policy would be a better deal. The insurance company will ignore your loan and pay you the normal dividend.

But, that might not be the case.

Let's walk through why not.

Dividend Rates Don't Matter, Actual Values Do

Let's say one insurance company pays a dividend of 6% and another  pays a dividend of 5%. Which insurance company is a better deal for you?

If you said the company that pays a 6% dividend, that would seem like a good answer but may not be the right one.

The reason is that the company paying the 6% dividend may be more expensive than the one paying 5%. Their administrative cost, cost of insurance and other expenses may be higher.

The net effect?

You could actually see less money in your policy from the company with the higher rate.

Why?

The internal costs of the policy eat up the difference.

Here's a report on dividend rates from some insurance companies.

Use an Illustration to Compare Policies

Insurance companies don't make it easy to figure out which company is the better deal. But you can get a good idea of which company might give you better values.

You can request an illustration for each policy and look at the projected values in the future. While it will be hard to make an apples to apples comparison, you can get close.

With an illustration, you can compare what the projected future values might be. The one with higher values could be the better performing company.

I say could be for a couple of reasons.

First, dividends aren't guaranteed. You don't know what dividends will actually be.

Second, the internal costs of the policy could always change inside the policy down the road. Since the contract allows the insurance company to change costs inside the policy, you may never know until years later the impact that will have on your values.

So, I limit my comparison to the guaranteed values in the contract to see which company is better.

If on a guaranteed basis, one company performs better, I'll likely go with the company that guarantees me a better deal.

Avoid Direct Recognition with High Fixed Interest Loan Rates

I'd avoid policies that have a high fixed interest rate and are direct recognition. That's because you'll not only get a reduced dividend, you'll also pay more interest on top of that.

Look at Dividend History and Company Performance

Since dividends are a return of premium, you want to focus on the strength of the insurance company. Is the company a solid performer? Does it have a strong history of paying dividends?

Focus more on the strength of the company rather than whether it's a direct or non-direct recognition policy.

Conclusion

If you plan on taking out loans, the interest rate you pay may be a bigger factor than whether a policy is direct or non-direct recognition.

What matters most is which company performs better and returns that performance to you the policyholder.

Let me know if you have any questions in the comments below.

Is Pregnancy a Pre-Existing Condition for Short Term Disability?

A common question I get from women at open enrollment time is if pregnancy is a pre-existing condition for short term disability. Usually, this question comes from women who are already pregnant and who aren't currently enrolled in the STD plan. So in this article, I'm going to talk about how pregnancy is treated under most plans.

Pregnancy and the Pre-Existing Condition Limitation

Most group disability plans are guaranteed issue at every enrollment. This means you can enroll without any medical questions and will be approved regardless of health. However, in exchange for the guaranteed approval, any claims may be subject to what's called a pre-ex, or a pre-existing condition clause.

The most common pre-ex clauses are 3/12, 6/12 and 12/12.

Here's is what the numbers 3/12, 6/12 and 12/12 mean:

(Number of Months Look Back Period)  /  (Number of Months Look Back Applies)

A 3/12 pre-ex means that if you file a claim within the first 12 months the policy is in effect, the insurance company will look back 3 months before the policy took effect to see if it was caused by a pre-existing condition. If it's a 6/12, then the insurance company will look back 6 months for a pre-existing condition for any claim filed in the first 12 months.

If the condition was pre-existing during the look back period, then the insurance company can deny the claim.

Keep in mind that if you are enrolling in the disability plan in November but the plan takes effect on January 1 that the 12 months begins on January 1 and the look back period would be the three, six or 12 months before the effective date and not the date you enrolled.

If you are pregnant when you enroll, your claim for short term disability will most certainly come in the first 12 months the plan is in effect and therefore, your claim would be denied.

However, if you enrolled in October and got pregnant on January 10th after the effective date, then your pregnancy would not be considered pre-existing since it occurred after the effective date.

The Difference Between Group and Voluntary Disability Plans

One factor that may come into play is whether the disability plan you are being offered is a group disability plan or a voluntary one.

The difference between a group plan and a voluntary plan is underwriting. While group disability might be guaranteed issue at every enrollment, a voluntary disability plan might only be guaranteed issue when you are first eligible.

If it's a voluntary plan, if you don't enroll the first time you are eligible and want to enroll later, you might have to answer the medical questions to get in. If you are pregnant, this could possibly prevent you from being approved for the short term disability.

In addition, if you have to answer medical questions to qualify for your disability plan, if you have any other medical conditions outside of being pregnant, those conditions might prevent you from getting disability insurance as well.

The best time to enroll is when you are first eligible under those plans.

Options If You Are Already Pregnant

If you are already pregnant, you'll want to check out how much vacation and sick time you have available that you could use doing your maternity leave.

Alternatively, there are some companies that allow you to allow you to buy, sell and donate vacation time. If your company does that, a possible solution to not having short term disability insurance is to buy it or get some one to donate it to you.

As far as donations go, most donations are made for people with serious illnesses and so I wouldn't really count on that as an option.

The other option is to take your maternity leave unpaid.

Sign Up the Year Before You Get Pregnant if Possible

If you are trying to get pregnant, you might consider signing up at the enrollment period prior to the year you want to get pregnant.

If your employer's plan looks back for any claim filed in the first 12 months after the effective date and you satisfy that 12 month time period in the year prior, then your pregnancy won't be considered pre-existing.

If this is a planned pregnancy, that might help you out to remember to do that.

Conclusion

Pregnancy is considered a pre-existing condition if you are a newly enrolled in your disability plan and most likely will be excluded. Try and plan ahead and make sure you enroll when first eligible or the year before to get around the pre-ex clause found in most group disability plans.

As always, in group insurance, every plan may vary in what it covers depending on what your employer negotiated with the insurance company.

Let me know how you handled your short term disability in the comments below to help my readers further understand their options.

Don't Throw Away Your Benefits Confirmation Statement

Each enrollment period, you should receive a benefits confirmation statement. This statement confirms what benefits you selected for the upcoming enrollment year. In this article, I'll talk about why you want to make sure you get one each year. Plus, you'll want to keep each and every confirmation you receive for as long as you work for your employer.

Why is the Benefits Confirmation Statement Important?

Your benefits confirmation is your receipt that proves what you signed up for at enrollment time. Without it, if there is any question about what you enrolled in, your stuck. That's because you have no record of what you signed up for if you didn't remember it that way.

Because time passes and people forget things easily, what matters most is what's on paper - or PDF in this day and age. Remember, having written proof of enrollment selections matters a whole more than verbal conversations do.

A Simple Example of Why the Confirmation Statement is Important

Let's say that at your initial enrollment you were offered supplemental group term life insurance on a guaranteed issue basis. The amount you could get at the time without any medical questions was $200,000. You decide you need the additional group term life and ask if you could get more than $200,000.

You learn that you if you want, you could go as high as $500,000 with what's called evidence of insurability. That means you have to qualify for it by answering medical questions.

At the time you don't have any health problems and decide you want to do that. Later you learn you were approved for the higher amount and tuck that fact back in the memory banks for later.

Eight years later, unbeknownst to you, your employer decides they are going to make some changes to the benefit plans and the group term life insurance program changes to another insurance carrier.

Now behind the scenes this is what's called a takeover. This means that the insurance company will again make a guarantee issue offer to new employees and "take over" the group life insurance amounts everyone else has already.

Enrollment time comes, only this time, you are in a hurry. You don't have much time to take care of your enrollment this go around. Since your company has face to face enrollments, you meet with the enroller and let them know I'm in a hurry, I just want to keep everything the way it is. So the enroller, zips through your enrollment and gets you on your way.

However, when the take over of the group life occurred, for some reason your benefits didn't carry over the $500,000. The enroller had no idea what you had last year and assumes the system is correct because they can only go by what they are given and aren't involved in the takeover process.

In fact, it's not unusual for enrollers to have no clue what you had the year before and it's not really their fault. They can only work with the information they have been given.

This particular year, you also attained a new five year age band and so the premium was more for the $200,000 than before and you don't notice much difference in your paycheck so nothing seemed out of the ordinary.

That is until a few enrollments later, you finally notice that your benefit confirmation shows you only have $200,000 and so you question it. You are told that's what it shows you have. If you want more than that amount, you'd have to provide evidence of insurability again. But unfortunately, you found out last year, you had type 2 diabetes and can't qualify for the higher amount.

In this situation, you'd probably be upset and rightly so. But this is where the benefit confirmation statements from each year can help. It's your proof that when the takeover occurred, someone goofed.

Now technically, it might not be possible to fix this problem. That's because, it's really up to you to make sure everything is done the way you want. It'll depend on the agent the company has. But without the confirmation, you could definitely be out of luck.

Check your confirmation at each enrollment carefully and compare it to last years

At every enrollment, you want to get a confirmation. And it's a good idea to compare it to last year's statement. This will help you confirm that you have what you wanted and also see how it differs from last year.

Check you payroll deductions to make sure they are correct

Once the year begins, take a look at your payroll deductions and make sure they match your confirmation statement as well. These days with all of us on direct deposit, it's easy to never look at your pay stub and just look at the net amount in your bank account and move on.

Paying attention to your payroll deductions can help you spot a problem when it happens.

Conclusion

So, my advice is that each enrollment, get a confirmation statement. Compare it to last years once you receive it. When the new deductions start, confirm your deductions are correct.

It's much easier to correct a problem when it occurs than several years later with no record of what you had before.

Let me know in the comments, if your employer provides you with a benefit confirmation statement at enrollment time. And also let me know if you have had anything similar happen to you.

How to Find Prospects for Life Insurance Clients

The most important skill you'll need to build your life insurance agency from scratch is to find the best way to prospect for life insurance clients. Unfortunately, in the life insurance business, it's not what you know that matters. It's marketing that knowledge to the people who need it that does. That marketing is called prospecting.

In this article, I'm going to walk you through how I approach prospecting. Are there other approaches that will work? The answer to that is yes, of course. This is just the way I do it.

So with that, let's get into my philosophy and approach.

Find prospects who want to work with you

The goal of my prospecting method is to find people who want to work with me. Life is too short to waste my time trying to twist someone's arm to become a client. So the very first thing I want to stress to you is that my prospecting system isn't designed to fight with people in order to get them to work with me.

I've always thought that the life insurance industry's bad reputation was well earned with all of the objection handling and high pressure sales tricks to get people to buy policies.

Because of that, I've tried to be the exact opposite and you should too.

Find prospects who love people

As silly as this sounds, life insurance is really about love. Let's face it. Love is hard to find and a lot of people in this world just might not have anyone in their life that they care about enough to buy life insurance.

Bottom line is that people buy life insurance because they don't want the people they love to struggle if they died.

You are in search of those people.

Build a large database of prospects that look like people who buy your product

The first step is to build a database of individuals and businesses that look like your target clients. For your life insurance agency, you'll be targeting individuals and businesses. Let's talk about what type of prospects you'll be looking for in both cases.

• Individual life insurance policies (3,000 prospects) For individual policies, you will be looking for families with children. You'll also target executives and individuals with good incomes. That doesn't mean that prospects who might be single or have other types of jobs won't buy life insurance. They will. Just when we are building our pool of prospects, we want to fill them with the people most likely to buy the policies we are selling.
• Group life insurance prospects (1,000+ employers) Small, medium and larger employers of all kinds almost all have group life insurance. I'd suggest targeting employers with at least 50 employees for group life insurance. To make things easier, you might want to make your pool of employer groups all over 100 employees as needed for the next target.
• Worksite permanent life insurance prospects (1,000+ employers) For our worksite program, you'll be targeting employers of more than 100 employees. Specifically, we also be looking for employer groups that have employees who aren't targeted by our individual sales efforts. The ideal worksite clients are manufacturing groups, government groups and hospital groups.
• Insurance brokers who work with employers (as identified) You'll also want to target brokers who work with employer groups that you want to work with.

The reason you want to build a large database is because you want to have plenty of people to call so that you don't feel so "married" to specific prospects that you put pressure on them. More prospects in the pipeline relieves sales pressure.

The Prospecting Strategy

Your goal is to get out of the sales mentality and instead get into the offer making business. To do that, you'll first figure out what those offers are, then you'll do the best you can to get that offer in front of as many people as you can and then work with those interested in the offer you make.

As you do this, you want to focus on getting people to at least hear your offers and then make a yes or no decision. You don't want to get wrapped up in what the decision is. Whether it's yes or no, accept it and move on. For the yes's, we'll start working with them. For the no's we'll recontact them at later dates.

Let's break down these steps:

• Craft an offer that solves a problem your prospects are likely to have The first step is to craft an offer. This will be the hard part. In future articles, I talk more about how to craft your offers that get interest and discussion started. These offers will be different for individuals and employer groups since they are different targets.
• Contact your prospects and make the offer Once your offer is crafted, you want to impress upon your prospects that all you want to do is make sure they hear your offer - whatever it is. Further, you want to stress that whether they become a client or not isn't what's important at this stage. You are indifferent to whether they buy or don't buy. But it is important to you that they at least hear the offer out.
• Work with those prospects who are interested in your offer For those that "raise their hand" so to speak, these are your real prospects and you'll take them through a predetermined set of steps to facilitate a yes or no decision.
• Do an awesome job and ask for their help identifying future prospects Deliver more than your clients expect and ask them to help you find more clients.
• Keep making offers and refilling your database Over time, your database or prospects will need to be cleaned and refilled to keep enough prospects. 

Now the hard part of the prospecting strategy that I've laid out is that there are still a lot of holes we need to fill out in the process I've outlined.

There's what you say on the phone. There's what you put on your website and direct mail. And when you have prospects interested in your offer, there's a specific set of steps you'll still need to know. These are all things I'll expand on either here or in future articles that I have planned.

For now, the main thing I want you to focus on is that you need a large database of prospects, you want to start contacting those prospects to make your offers and work with those that say yeah I'll hear you out. Those that don't want to hear you out, move on and recontact them at a future time.

Conclusion

Prospecting is the key element to your success as a life insurance agent. If you don't do it, you won't succeed. Prospecting takes a certain mindset and isn't pressure. It's about identifying people who will work with you and moving them forward.

This is the prospecting roadmap I use to build a life insurance agency from scratch. As always, I love to hear from you about your prospecting philosophy and strategy.

Let me know in the comments your thoughts and suggestions.

Is It Better to Be a Captive or Independent Insurance Agent?

As you start your insurance career, one of the questions you will eventually ask is whether it's better to be captive or independent insurance agent. In this article, I'm going to talk about the differences between these two types of agents. I've been both a captive and independent agent and so I'll give you my take from both sides and maybe that will help you decide what you want to do.

What is a Captive Insurance Agent?

A captive agent is an agent that has a contract to work specifically through one and only one agency. They can only write insurance policies that agency allows them to write and those policies have to be written through them.

What is an Independent Agent?

If you are an independent agent on the other hand, you are in control of what companies you want to work with it. You can work direct with an insurance company, partner up with other agents and general agents or write business through independent marketing organizations (IMO's).

Captive vs Independent Agent

Captive agencies are more like traditional employers. An independent agent is like owning your own business. So let's talk about some of the other differences between captives and independent agents.

• Salary and commission With a captive agency, you might be paid a salary or have an incentive plan that helps you financially while you are getting started. As an independent, you'll be straight commission only. Most likely, that commission will be paid as earned. This means you don't get paid until your client pays the insurance company. However, as an independent, you'll receive the total commission you earn. Captives share their commission with the agency they work with.
• Formal training and assistance Agencies that hire captive agents may have a good training program or other agents that can mentor you. If you are and independent, you'll have to learn how to do everything on your own. 
• Expenses Being an independent agent means you'll be responsible for paying everything. As a captive, you might have help paying for your everyday business expenses. They may even pay for the cost of your life insurance license and e&o insurance.
• Benefits At a captive agency, you might be able to participate in benefits like retirement plans or health insurance that your agency contributes to. Independent agents on the other hand have to pay for all of that.
• Existing clients If you are lucky, you might be handed a book of business to service if you start at a captive agency. But as an independent, you'll need to build everything from scratch.
• Ownership Independents own their book of business whereas captive agencies own their clients not the agent. This means if you ever think you might want to go from being a captive to an independent, you most likely will have to start the new agency from scratch.
• Control If you are an independent, you have complete control over how you want to run your business. As a captive, you surrender that control to a large degree to the agency you work for.
• Competitive advantage I think you could argue that an independent has a competitive advantage in some cases because they can make decisions faster sometimes. They also don't have the overhead a captive agency might have. In addition, you could argue that a captive agency might have a competitive advantage if for example, they have name recognition on their side.
• Freedom Probably the best thing about an independent agent is the freedoms it brings. As a captive, you can still have a lot of freedom, but will still have to always answer to the agency for somethings. Things like quotas, expenses and other things like who you can and cannot write business through.

Those are some of the differences I see in between captive and independent agents.

Which is Better - Captive or Independent?

Whether you choose to go as a captive or independent will be tied somewhat to your tolerance for risk. A captive might provide you with a better starting financial safety net or might teach you the business quicker than going out on your own. And if you are more risk averse that will appeal to you.

Many agents choose a captive because that's how they were introduced to the idea of being an insurance agent. Agents also might be drawn to the training programs captives have in place. Again, this would also appeal to you if you prefer an agency to help get you going. This is especially true if you need help getting appointed to insurance companies that they work with like in the property and casualty business. In the P&C business, you might not be able to get appointed to certain insurance companies without their help.

An independent agency on the other hand is appealing to those who want complete ownership and control of their operation. People with strong independent personalities and higher risk tolerance would also be better suited to going the independent route.

Which is better will also be determined a lot by your financial situation at the time you begin. It's a lot harder start as an independent with no resources although it can be done.

How I Got Started and My Experience with Captives and Being Independent

I first started with one of the big mutual insurance companies as a captive. I answered a help wanted ad and didn't really know that being independent was an option. I worked at that insurance agency for five years before going out on my own.

Once I became an independent, I still worked with another general agent. But the difference was that I was more in control of what I was doing than before. To me, having more control over how I worked with my clients made a huge difference to me personally as far as mindset.

Since I think the training programs at the big mutuals and some other captives are overrated, I'd say the hardest part of being independent is just like any other business you might start. At first it's hard because you aren't making anything and you have to build every aspect of it.

If I had to choose to start my career over again, I'd definitely be an independent agent. That's because it suits my personality better. But my advice would be, be prepared to struggle financially to begin with.

The reality of the insurance business, it's not so much how much you know about insurance as it is how many people you meet with. If you don't become an expert on how to find clients, then either is a bad idea.

Conclusion - People Buy You

In the end, your clients are really buying you. If you trust the insurance agency or companies you are working with, they will too.

Insurance is a people business. What it comes down to is that people say yes to people they want to work with. So while name recognition and training are important and might get you in the door to talking with prospects, in the end they buy you.

For that reason, I always suggest people be independent agents over captive agents all day long.

Let me know in the comments how you started and what your feelings are about which you think is better, captives or independent agents.