- Who Needs Life Insurance?
The need for life insurance varies with your age and responsibilities. There are several reasons to consider purchasing life insurance including the need to replace income that would otherwise be lost due to the death of the wage earner. Life insurance allows one’s loved ones to “remain in their own world” (financially) after an income earner’s death. Life insurance may allow them to keep some of your assets versus needing to sell them so that they can pay any outstanding debt. Families often purchase life insurance on a non-income-earning spouse or partner who may be performing roles (homemaker duties, child care, etc.) that would carry a cost to replace in the event of that person’s untimely death.
- What is the Right Kind of Life Insurance?
There are multiple policies containing different variables. For example, there are policies that give coverage for your lifetime while others may only cover a specific number of years. There are two basic types of life insurance: term insurance and permanent insurance.
- Term Insurance has lower premiums in the early years but does not build up cash values for you to use in the future. It also covers you for a term of one or more years and will pay a death benefit only if you die during that term.
- Permanent Insurance provides long-term financial protection. Policies such as universal life, variable universal life, and whole life include a death benefit and in many instances, cash savings. With the element of savings in mind, premiums are typically higher, but overall net cost – based on policy performance – tends to be much lower over time.
- How Much Life Insurance Do I Need?
To determine how much life insurance is needed, you will need to ask yourself a few questions including: How much of the family income do I provide? In the event of my death, how would survivors get by? How will my family pay final expenses or repay debts after my death? General rules of thumb sometimes point to replacing 5-10 years of income (depending on ages of children, debts, etc.) as a starting point). Do I have family members or organizations I’d like to leave money to?
- Why am I Still Receiving Bills Even Though I was Told it Would be “Paid Up” After 10 Years?
Some life insurance policies do have true “paid up” premium structures. With others, the policy may provide guaranteed interest rates and/or dividends the insurance company will pay on your premiums. However, policy performance must be equal to, or better than, what was originally illustrated for a policies out of pocket premiums to cease.
- Who Can Take Out a Policy on My Life?
Only an individual who has an “insurable interest” can purchase an insurance policy on your life. That generally means someone who would suffer financially in the event of one’s death.
- Does My Beneficiary Have to Have an Insurable Interest?
No. If you purchase a policy on your life, you become the owner and can name anyone as the beneficiary.
- What About Companies that Advertise “No Physical Exam”?
The insurance might be more expensive than if the company required a physical. Even without a physical, you may still have to answer general health questions on your application. Recent developments have made the acquisition of life insurance more streamlined.
- Isn’t it Cheaper for Me to Buy Insurance Online?
No. Insurance companies file their policy rates with the respective state insurance departments, and those rates are the same for anyone selling those policies. When you buy insurance online, you are still buying form a licensed agent, that agent just happens to be some distance away. A local, licensed agent should be able to provide the same rates.
- If I Don’t Die During the Policy Term, did I Waste Money?
No, you have purchased peace of mind. With term life insurance, if you die during the term, the company will pay your beneficiaries. Also, many policies offer a “conversion” provision that allows the policyholder to “convert” the term policy to a permanent policy, without having to go through the underwriting process again, within certain guidelines.
- Should I Switch Companies to Take Advantage of Promotional Rates?
There are risks involved if you do this. You can become susceptible to a new contestability period – and possibly increased premiums - and begin this new period each time you switch.
- What Does it Mean When They Say My Permanent Policy will be “Fully Paid Up” at 65?
“Fully paid up” means you have made enough premium payments to cover the cost of insurance for the remainder of your life.
- What is a “Participating” Policy?
This is a pay that could pay you dividends, meaning you have a chance to participate in the company’s earnings.
- What Happens to the Cash Value in My Policy When I die?
The insurance company will pay the death benefit. Your beneficiaries cannot collect more than the stated death benefit. Any loans which have not been repaid will be subtracted from the death benefit. Any dividends earned on the policy will likely add to the original death benefit/face amount of the policy, if not withdrawn previously.
- Tips for Buying Life Insurance Include:
- Find an insurance agent and company you feel confident in.
- Decide how much is needed, the length of time it’s needed, and what you can afford. Agents and other resources can help in that regard as well.
- Learn the different types of policies and what they will provide for you.
- Do not sign an application until you have carefully reviewed to ensure the answers are completed with accuracy.
- Purchase a plan that you intend to stick with as it may become costly to leave the plan during its early years.