Life Insurance

Answer: Yes, if you want to provide financial protection for your dependents or to your creditors in the event of your death. A business may want to use life insurance to fund employee benefit plans, protect against death of a ‘keyperson’, or to provide for business continuation.

Also, modern life insurance plans include cash accumulation for children and grandchildren and even built in riders to help with long term care coverage in your home or a nursing home.

Answer: The amount of life insurance a person needs is very dependent on their circumstances and the reason for purchasing the policy. There is a built-in easy to use calculator for your use. Life insurance may satisfy several needs for your family in the event of a death. Here are some needs:

• Pay off bills and debts
• Pay off funeral expenses (average is $10,000 to $13,000)
• Meet estate taxes
• Pay off mortgage
• Provide income for spouse – REMEMBER – one of your greatest assets is your salary.
• Pay for children’s education – college is NOT cheap!
• Provide funds for retirement
• Draw interest to provide for special purpose

Answer: While there are many types and variations of life insurance, there are basically 2 types of life insurance:

1. Term insurance

2. Permanent insurance

Term life insurance provides death benefit for a certain period, such as 10 years, 15 years or 20 years. Death benefits are paid only if the insured dies during that term period. Generally, term policies do not build up any cash values.

Permanent life insurance can provide death benefits for your lifetime AND the policy will include cash value build-up. The cash value may be used in several different ways, such as loaning yourself money or using the cash build-up for retirement, creating an inheritance plus death benefit coverage, or helping with money need if you need help at home or in a nursing home before you die. Permanent insurance includes whole life, universal life and variable universal life.

Most people have access to at least one of the two types of life insurance policies: Group or individual.

Group – Most companies offer their employees some form of life insurance, usually term insurance. This is called group because you’re getting protection as part of a larger group. Usually it’s deducted right from your paycheck. It’s easy, less expensive, and a medical exam is not required (a statement of good health, along with a medical history, is usually all that is required to secure coverage and start the policy.

Individual – As its name implies, an individual policy is one in which you apply for coverage on your own. You, or typically a family member – will own the policy. You’ll probably have to undergo a medical exam of sort but some companies just get a detailed medical history. With your permission, they will look into your medical records and perform a background check on any driving offenses and criminal activities. This might sound a little invasive but there are some great benefits to owning an individual life insurance policy:

• It’s portable – if you take a new job at a different company, you don’t have to worry about losing your life insurance protection.
• Lower premiums - You will purchase the policy at your current age. If you wait on getting your individual insurance policy when you're older, you will pay more in premiums because you will be older.
• Level premiums – Generally, individual policies can be structured to have level premiums during the duration of the policy (10, 20, 30 years.)
• Flexibility – If you want to convert or upgrade a term policy, you might have more options with an individual policy than you would with a group plan.

Individual life insurance can be sold directly from an insurance company through an agent or broker, through the mail, over the internet, over the phone, as well as, from banks and other financial institutions. Group insurance may be available from your company.

Here are 5 major reasons people said they want to buy from an agent or broker:*

• I can ask questions – 77%
• I get immediate feedback – 74%
• I am more comfortable – 72%
• I prefer personal interaction – 71%
• I want someone local – 68%

• 1 in 4 with life insurance says they don’t have enough
• 1 in 3 without coverage says they need some
• 1 in 4 wishes their spouse or partner had more

They think it’s too expensive, but 8 in 10 people overestimate the cost of life insurance by three times its true cost.

Underwriting is the process an insurance company uses when it selects applicants it is willing to insure and determines the cost of providing coverage. Here are some of the common factors they may use:

• Your age                    
• Your gender                    
• Your health and health habits (smoking for example)                    
• Your family history                    
• Whether you are engaged in a hazardous occupation, or dangerous hobbies (auto racing or sky diving, for example).                    

In addition, the company may request you consent to an investigative consumer report or a Medical Information Bureau (MIB) report.     

Ironically, some people who buy term life insurance get upset when they find out that if they don’t die, they don’t get anything. This is the tradeoff from permanent insurance to term insurance. Term simply costs less. Remember, most term policies allow you to convert from a term policy to a permanent one.

Permanent insurance policies, such as whole life, universal life, or variable universal life, can provide death benefits protection – someone will get some money if you die AND the build-up of cash value. Depending on the policy and company, both you and someone else may get money.