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Non Forfeiture and life insurance
Purchasing life insurance is a decision that must hold over years if not
decades.
What happens if something changes significantly such as losing a job.
What if you can't continue to pay the life insurance premium?
This is where non-forfeiture comes into play for most permanent plans.
It may be a core part of the policy or it may be a rider.
Let's look a little at the world of non-forfeiture and why term life
insurance is a key strategy to avoid ever having to worry about it.
You can always run your term life quote here:
Why Non-Forfeiture is Important with Life Policies
When we may make purchases, we're going with an expectation of our current
financial situation remaining the same or hopefully improving.
What's the alternative, right?
Things happen.
The economy takes a large downturn and you loose your job and benefits.
If you're like many Americans, there's not enough to savings to
maintain your current expense and debt load for an extended period of time. You
write out your monthly budget to see what can go.
- The Cable bill goes.
- That extra car lease goes.
There's your
life insurance premium.
Hmm.
You know you need life insurance but this is crunch time.
You weigh the odds versus that monthly line item staring up at you.
How Term Life Rates Factor Into Forfeiture Odds
First, the best way to avoid having to make this decision is inherent in the
nature of term
life insurance rates.
Term life is the epitome of
cheap life insurance.
Compared to whole, universal, etc, it can be 1/10th the cost for a similar
guaranteed amount of life protection.
$50/monthly is much easier to swallow and will likely make the cut
mentioned above over $300/monthly with whole life insurance.
This is why you want adequate insurance coverage but make sure to avoid
over-insuring.
Non-forfeiture is added to many permanent life insurance options such as
whole because the premium is so much higher and therefore more at risk in such a
downturn.
In our view, it's a smoke screen.
The pitch is basically, "Hey, if you get into trouble financially, you'll
have this non forfeiture option where you'll get money back".
It's the no harm - no foul reply.
It's important to understand how the "cash value" is financed by a much
larger premium that you are paying to have whole life over term at our more in
depth
term life and investing article.
The Different Kinds of Non-Forfeiture Options
That being said, let's at least look at the non-forfeiture options which can
occur in a few different flavors.
Cash Surrender Value
The first is Cash Surrender Value which means they will return the accrued
cash value usually minus loan amounts or interest on loans. The policy then
ceases coverage. Great...so we get back a portion of the extra premium we paid (whole
versus term life rate) and now we have no coverage. Thanks!!
Reduced Paid Up option
With this option, you can have your cash value go towards a reduced amount of
paid up coverage. Again, now they're using our extra premium to buy a reduced
amount of expensive whole life insurance.
Extended Term
With this option they take our cash value and buy term life
insurance...which is probably the what should have been purchased from the
beginning.
You may also be able to use the dividends to pay as much premium as possible
or take a loan out against cash value to pay premium.
The important consideration with all these non-forfeiture options is that
they primarily based on "cash value".
The problem with cash value is that it's your cash...minus the life insurance
company's cut.
This cut can be significant and so all these options really amount to a sales
technique to overcome the natural questions that arises in most people
comparing life insurance..."What if I can't afford to make the premium".
The more direct answer would be "Hey, we can take the watered down cash
value which is only a percentage of the extra premium you gave us and let you
use it...oh and your coverage probably ends".
This is our take on it and ultimately you need to make your own decision but
If I were buying life insurance, you know where I would put my dollars.
Again, there is absolutely no cost to you for our services. Call
800-710-0455 Today!