What is Life Insurance?
What is a policy’s “face amount?"
What is a policy’s “death benefit?”
What is a beneficiary and why is it important to designate one?
A policy beneficiary is the person (or persons) who receives the death benefit upon the death of the insured. Without a named beneficiary, the policy itself dictates who receives the payout. These automatic beneficiaries are stipulated by the policy terms. Such automatic beneficiaries could include:
- Other family members
- Your estate
If your estate becomes the beneficiary, it becomes subject to estate taxes. This is a compelling reason to have named beneficiaries on the policy. As with the need to annually reassess your coverage needs, it’s important to also regularly review your beneficiaries list. Has someone died? Has there been a birth? Have you recently gotten married or divorced? All of these, along with other life events, can cause a need to change your named beneficiaries.
What happens if my primary beneficiary dies?
What is term Life Insurance?
What is Permanent Life Insurance?
A Permanent Life Insurance policy provides coverage for the insured’s entire lifetime. In contrast to Term Life polices, Permanent Life policies build cash value over time. Assuming the policyholder keeps premiums paid and up-to-date, Permanent Life policies guarantee a payout upon expiration. There are three primary types of Permanent Life Insurance policy:
- Whole Life – These policies provide coverage throughout the lifetime of the insured. Policyholders can take out loans from these policies once they’ve accrued a significant cash value.
- Universal Life – These policies also provide coverage throughout the lifetime of the insured. They also offer flexible premium amounts, as well as flexible face value amounts. Universal Life Insurance is especially beneficial as part of a retirement portfolio or for achieving long-term financial goals.
- Variable Life – The cash value and death benefit of these policies varies depending on an underlying investment into which premiums are consigned. Premiums may be invested in stocks, bonds, and/or money market funds. Like any other such investment, these policies carry a certain amount of risk, but any earnings accrue tax free until payout.
Why do I need Life Insurance?
My company provides automatic Life Insurance coverage as part of my benefits package. Do I need more coverage?
My company offers additional Life Insurance coverage for a premium. Should I take out this coverage?
What amount of Life Insurance coverage do I need?
Exact calculations of the amount of coverage you need are difficult. However, you can make dependable estimates based on a number of factors. Ask yourself:
- What percentage of my family’s income comes from my salary?
- If I died, could my family live without my salary?
- If I died, how much money would be available to my family through my 401k and other retirement savings?
- How old are my children? How long will be it before they go to college?
- How much money have we already saved for my children’s college education?
- How much are our monthly bills? Our mortgage payment?
Remember: The prices of just about everything rise over time. You need to take inflation into account when making coverage estimates. For instance, if your children are young and won’t go to college for 10 or more years, the price of a college education will probably be significantly greater by the time they graduate high school.
How many years of Life Insurance coverage do I need?
How much should I expect to pay for Life Insurance?
This depends on a number of factors, including:
- Your age
- General health condition
- Type of policy you choose (i.e., Whole, Term, or Universal Life)
- Your status as a smoker or nonsmoker
- Length of coverage you choose
Is there anything I can do to make Life Insurance coverage for me and my family less expensive?
There are a number of steps you can take to make your premiums as low as possible:
- Buy coverage as early in life as possible. Premiums generally rise as you get older.
- Don’t smoke.
- Maintain a healthy weight and diet.
- Consider buying a combination of Term and Whole Life Insurance to get your rates down to affordable levels. Term Life is generally more affordable than Whole Life.
- Consider group coverage through your job. Depending on the size of your company, such coverage can be surprisingly affordable—especially for Term Life.
I’ve heard there are certain tax advantages associated with Life Insurance. Is that true? What are they?
Is the beneficiary I name required to have an insurable interest?
My provider requires a medical exam to gauge my “insurability” before a policy can be issued. What is insurability?
I’ve already got some Life Insurance coverage. Why would I need more?
Over the course of a lifetime, your coverage needs will be extremely fluid. That’s why it’s important to annually or even bi-annually assess your current coverage and needs. Have those needs changed over the last year? Additionally, certain life events also require immediate reassessment of your coverage requirements. Consider adjusting your coverage if you:
- Get married
- Get a divorce
- Make a new home purchase
- Refinance your mortgage
- Welcome a new child or grandchild
- Have a child or grandchild about to enter college
- Start providing care or financial assistance to a family member
- Need to ensure long-term care for a family member