Insurance World

Should I lease a car or buy it?

Think of a term life insurance policy as leasing a car. When you lease a car you get the benefits of using the car, but when you stop paying you don’t have a car anymore. As with term insurance as long as you pay your premiums you get the benefit of the term life insurance policy, but when you stop paying, you no longer have any coverage.

Whole life or “permanent policies” are designed to build up a cash value. So similar to buying a car you have an asset that you can keep. Unlike a car, hopefully this asset will grow in value. Whole life, Universal life and Variable Universal life are all different types of permanent insurance. Permanent insurance, most of the time, is meant to keep until you die or as a saving vehicle.

The way the policy grows in value gives you the different names of insurance such as, Whole Life, Universal Life, and Variable Universal Life. That leads to the understanding of the different types of permanent policies.

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Whole Life- Is an insurance policy where premium payments are usually the same throughout the life of the policy, as is the death benefit. You usually need to pay the premiums as long as the policy is in force.

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Universal Life - Is an insurance policy where premium payments may be changed and the death benefit can also be changed by the owner. Usually if the death benefit is being raised you will have to show some evidence of insurability (medical information) or other information requested. Your policy grows at a stated interest rate which changes every so often.

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Variable Universal Life - Is an insurance policy where premium payments may be changed and the death benefit can also be changed by the owner. Usually if the death benefit is being raised you will have to show some evidence of insurability (medical information) or other information requested. Your policy grows at the rate of your investment choice you choose. Since you may invest in market instruments similar but not exactly like mutual funds. Your policy can lose value causing larger premium payments than expected.

Take a step back and think about it from the insurance company’s point of view, its easier to understand the difference. A portion of the cash value that builds in the insurance contract will pay for the “cost of insurance”.

Whole life- The insurance company is taking most of the risk. They are paying a death benefit to you no matter what happens to the cash value in the account. As long as you make your payments the insurance company has to pay your death benefit. This may be the most expensive.

Universal life - The insurance company is taking some risk. The policy grows give the current interest rate it pays. At times you are only able to earn low interest rates. You may need to make up more payments to keep your policy.

Variable Universal life - The insurance company has taken the least amount of risk. In the Variable policy the rate of return is variable, meaning you don’t know how fast your policy will grow or shrink. This type of policy is most likely used for someone who is younger and can ride out the volatility of their portfolio. Since you take on the most risk in this type of policy it usually has the smallest premiums.

It is estimated that more than 60% of the U.S. population that has health insurance receives their coverage through an employer that offers a group health insurance plan. It’s no secret that employees value health insurance benefits, perhaps above all other benefits. Employers, on the other hand, like to offer comprehensive group health insurance as it tends to attract and retain qualified employees as well as reduces the company’s turnover rates.

In most states, group health insurance is available to companies with 2 or more employees. Often the number of employees covered under the group health insurance plan determines the types of coverage available as well as the premium costs.
For example, companies with between 2 and 50 employees are typically classified as a small business. Such businesses are eligible for small business health insurance; however, each state has its own set of regulations that determines what business can be classified as a “small business”. It’s interesting to note that some insurance companies will market a “group” health plan to a single individual that is self-employed. In such cases, it’s important to realize that these “one-man” groups may not qualify for the same regulations that apply to larger groups.

Companies will thousands of employees may have their group health insurance plans customized for them by a health insurance carrier. Some large corporations will even choose to self-insure, with the health insurance carrier responsible for administering the health plans.

The primary difference between individual and group health insurance is that the plans offered to individuals (and “one-man” groups in some cases) are not “guaranteed issue”. This is a significant difference and means that the insurance company cannot deny coverage due to preexisting medial conditions of any of the eligible employees. The insurance company is allowed to ask medical questions, but can do so only for purposes of assessing the premium to charge for the group health insurance coverage.

The costs of group health insurance premiums is typically split 50/50, meaning the employer will cover 50% of the premium costs with the employee responsible for the remaining 50%. Even though minimum employer contribution varies by state, these percentages have changed in recent years due to the dramatic increase in health insurance costs, with employees bearing an ever-increasing share of the total costs.

There are tax incentives available to both employers who offer group health insurance and their employees. Business owners can generally deduct 100% of the premium costs and can reduce their payroll taxes by offering group health insurance as part of an employee’s compensation package. Employees, on the other hand, can pay their share of the insurance premium with pre-tax dollars.

In an environment of ever-growing health care and health insurance costs, eligibility in a group health insurance is becoming critical for many employees. Even with paying a higher percentage of premium costs than in the past, employees still are better off financially (and receive greater choices) with group coverage than with an individual health plan. At the same time, business owners are fully aware that offering quality group health insurance creates a more satisfied, and therefore more productive, workforce.