Which option is for me?

If you die in 25 years, your survivors receive $18,000 more under Option 2. On the other hand, if you don’t die during that time and instead take your surrender value, you’re better with Option 1. In effect, by choosing Option 1, you’re gambling on a long life so that you can withdraw a larger cash value. To determine which option is best for you, you must consider a number of factors:

• Your current age and health
• How much protection your dependents will need as you age
• Whether you can increase your net worth at a greater rate by investing in other options
• How much of a gamble you’re willing to take

Death Benefits Options

With universal life insurance, you can choose how much death benefit is to be paid. You have two options, and although the options appear similar, some subtle differences between them can change the amount dramatically. With both options, your premium remains the same throughout the term of the policy, but the death benefit and surrender value differ.

Option 1: Fixed death benefit
When you choose a fixed death benefit, whatever amount you sign up for (in the example, $50,000) goes to your survivors. In actuality, the face value of the policy — the initial $50,000 —decreases by the amount you’ve accumulated in your cash value account. The death benefit remains the same because the decreased face value and the increased cash value add up to the total amount you chose.

Option 2: Increasing death benefit
With the second option, your death benefit increases in line with the increase in your cash value. Your survivors get the surrender value, which certainly appears to be a great deal more for the consumer than what Option 1 provides. So what’s the catch? Why would anyone choose Option 1?
With Option 2, your cash value increases more slowly than with Option 1. So you must continue paying the annual premiums, often when you no longer need the same kind of protection you did 25 years earlier.

Borrowing Against Your Cash Value

Universal life policies allow you to borrow against your cash value, usually at interest rates below what you can get elsewhere, even for loans secured against other assets. However, borrowing against your policy generally lowers the interest you receive on your cash value, making it equal to or less than the interest at which you borrow.
For example, say that you earn 4 percent on the first $500 of cash value and 7 percent on any amount in excess of that $500. You now have an accumulated cash value, or surrender value, of $7,874. You can borrow $3,000 against this policy at a 6 percent interest rate — well below what you can get at a bank (even for another type of secured loan) — so this deal is quite good if you need the cash. But the interest you earn on the cash value of the insurance policy is no longer the 7 percent of the amount over $500. In fact, the interest you earn takes into account the $3,000 you borrowed, and the total interest you earn on your account is

• 4 percent on the first $500
• 6 percent on the next $3,000 (the amount borrowed)
• 7 percent on the balance

Are You Attractive?

I was just interviewed by a reporter looking for information on safety equipment and its use in controlling workers compensation losses.

An issue came up that warrants a post.

To get the best rates on your insurance you must be attractive to insurance companies. Well run, safe companies with good loss records will get better quotes than average companies.

You want the insurance markets to want you.

When insurance company inspectors show up at your door put your best face forward. The insurance bid process is a place to show off how well run your company is. Exceptional management and an exceptional loss control / risk management program will always pay off in lower premiums.