Life Insurance - Everything you need to know
Life insurance is necessary when it comes to
protecting the financial security of your family. Simply put, a
life insurance policy gives you the peace of
mind that your family will be able to carry on financially after you're gone.
Of course, no one likes to think about death or dying. Life, however, is full of
risks, and you have to mitigate them. If you should die unexpectedly, would your
family be able to cope, in the midst of everything else, with the fiscal
repercussions?
By
buying life insurance, you can minimize those
financial uncertainties. No matter whether it's a spouse, parent, business
partner, child, or anyone else who relies upon you for financial support,
life insurance can help them carry on with
their lives and reach their goals without the financial hardship that might
otherwise result from your death.
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Life Insurance Frequently Asked Questions
Frequently Asked
Life Insurance Questions
Q. Why do I need a
life insurance policy?
Life insurance gives you and your family peace
of mind.
Life insurance also underpins any effective
financial strategy for dealing with loss. Simply put,
life insurance exists so that if you die, your
family will have needed cash. So when it comes to safeguarding your family for
when you're not there, choosing the right
life insurance policy now is one of the most
important decisions you'll ever make.
If you have a
life insurance policy, you have a way to:
- Supplement your retirement income
- Continue taking care of your family after you
die
- Help your family replace lost income
- Cover any expenses related to your death
- Bolster family finances to protect against
unexpected future obligations
- Give your survivors flexibility for dealing
with the future. Proper finances prevent them from having to alter their living
or job situations immediately after your death
- Help maintain your family's standard of living
by paying for such everyday expenses as groceries, bills, rent or mortgage
- Contribute towards ongoing child-rearing
expenses
Pay for your children's education
- Provide peace of mind for you and your family
- Remember that you're not only buying
life insurance for your peace of mind today,
but also to protect your loved ones for the future.
Q. How do I know I need
life insurance?
You need life insurance for those who depend on you. When people depend on you,
you need life insurance. Simply put, life insurance gives your family crucial
financial support at a time when they'll most need it.
Investing in life insurance gives you immediate security now as well as
protection for the future. Life insurance can help your family:
- Cover its debts
- Manage the close of a business
- Pay estate taxes
- Support elderly parents
Above all, remember that life insurance helps
protect the people and fulfill the obligations that you leave behind.
Our Life Insurance Needs Calculator will help
assess your life insurance needs.
Q. How much life insurance do I need?
Everyone's answer to that question is unique. Many factors influence the amount
of life insurance you need, including:
- Marital status
- The number of children you have
- Any outstanding debts, such as mortgages,
college tuition bills, or installment loans
- Your current level of savings
- Any future income needs
- How much of an estate you want to leave your
heirs
- How much you can afford to pay for premiums
Some financial experts recommend that you carry
an insurance policy worth five to 10 times your annual salary. Of course that
ballpark figure is no substitute for working through your own financial needs.
But the bottom line is that according to the rough guideline, most people don't
have adequate insurance. Remember too that your life insurance needs can
increase in the future.
When evaluating your life insurance needs, ask yourself these questions:
- How much would your dependents receive if you
died tomorrow, and how much would they actually need? Your insurance policy
should come as close to making up the difference as you can afford.
- Will there be any immediate family needs at
the time of your death, such as medical expenses, burial costs, or estate taxes?
- What would be adequate funds for a
readjustment period, to finance a move, or to provide time for family members to
find a job?
- What are ongoing or future financial needs,
such as monthly bills and expenses, daycare costs, college tuition, or a
spouse's retirement savings?
Our Life Insurance Needs Calculator can help
you determine how much life insurance you need.
Q. What are the different kinds of life insurance?
Most insurance boils down to two kinds: term life insurance, and whole life
insurance.
Term life insurance covers you for a specific period of time — a term. If
you die during the term, then we pay a death benefit.
Whole life insurance covers you for your
whole life, so long as you continue to pay an annual premium. The plan also
accumulates value, which you can take as cash or use to increase the value of
the plan itself.
Each kind of insurance has its own benefits and
drawbacks. The kind of coverage you select will of course revolve around your
own, unique circumstances. Remember that your financial protection needs might
be best met through a combination of different kinds of insurance.
Q. What is Term Insurance?
Term Insurance is a basic, no-frills
life insurance that protects you for a specific period of time. If you die
during the policy term, then we pay benefits to your beneficiaries. Unlike other
kinds of insurance, however, term insurance does not pay dividends, and you may
not borrow against it.
Term insurance is a good choice for ensuring the availability of funds to pay
for significant financial events such as mortgage or college tuition, or for
budget-conscious families seeking the most affordable, initial premium payments.
Term insurance offers the most coverage at the lowest initial cost.
Company offers several different kinds of Term Life Insurance:
Level Premium Term policies have premium
payments that remain the same for a period of time. Company offers premium term
life insurance with excellent rates that are fully guaranteed — for up to 30
years. We also offer even lower rates on term life insurance with guarantees
that extend for a portion of the term.
Yearly Renewable Term policies give you protection for a year at a time; you can
automatically renew it each year, with no continued proof of good health needed.
Your premiums will usually increase every year, for as long as you keep the life
insurance policy. This type of policy will often give you the lowest initial
cost for getting life insurance.
How does term insurance work?
Determine how much insurance you need. Our Life Insurance Needs Calculator is a
good place to start. Then select from the following options:
- Policy duration: 10, 15, 20, 25, or 30 years.
- Policy amount: from $100,000 to $5 million.
So for example, if you're buying term insurance
to cover the 25 years left on a 30-year mortgage, and the balance is $100,000,
then you'll want a $100,000 policy for a 25-year term. Then, each year, you'll
pay a premium to cover your risk of death during that year. If you die, we pay
the death benefit (also called the "face amount" of your insurance policy — in
this example, $100,000) to your beneficiary. Your beneficiary will not have to
pay income tax on any death benefits received.
If you're considering term insurance, plan ahead — your life insurance needs
might change, or you might want to extend the policy. Consider purchasing a term
life insurance policy with a convertible feature, which gives you the option to
convert your term insurance to whole life insurance. All company Term plans
contain a conversion privilege.
To get the right kind of insurance, be sure to consider the differences between
term and whole insurance.
Q. What is Whole Life Insurance?
Whole Life Insurance is just like it sounds — it protects you for your
whole life. In other words, you don't buy a whole life insurance policy and
expect to let it lapse. Here's how it works: As long as you keep paying the
premiums, the death benefit will always be there. These policies are designed to
provide coverage over a long period, and are a good choice if you do not expect
your life insurance needs to diminish over time.
How does it work?
When it comes to whole life insurance, the most common type is Straight Life
Insurance. With Straight Life insurance, you pay an annual premium for as long
as you live. Other types of whole life insurance let you pay a premium for a
shorter period of time, or just once.
In addition to a death benefit, most whole life policies have a feature known as
"cash surrender value." An insurance policy's total cash surrender value is made
up of two components: cash value and dividends. The cash value will increase
each year in accordance with the schedule contained in the insurance policy. Our
whole life insurance plans also pay dividends, which you can also use to
increase the policy's cash value.
In general, you won't pay income tax on the cash value increase, unless you
cancel the insurance policy. In that case, you'll only owe taxes on the amount
greater than the total of the premiums you've paid less any dividends received.
If you hold the life insurance policy until you die, no one will owe income tax
on the policy proceeds.
When choosing a whole life insurance policy, make sure you:
- Pick an insurance policy that, starting the
very first year, has a guaranteed cash surrender value, and choose the one with
the highest cash surrender value in the very first year.
- Consider "participating" insurance policies,
since they can pay dividends which increase your plan's value by boosting both
the total cash surrender value and the death benefits — the money paid to your
beneficiaries when you die.
- Give preference to a plan that lets you cancel
the insurance policy and receive the dividend and cash value as one lump sum.
(In insurance industry parlance, canceling a policy is sometimes referred to as
"surrendering" the policy.) Be wary of any insurance policy that levies
"surrender charges" when you cancel.
- Study the product illustrations carefully —
especially the guaranteed cash values.
- If you ever need to stop paying premiums on
your insurance policy for any reason — and you may need to — you want a plan
that lets you use the accumulated cash value of the life insurance policy to pay
the premiums, thus keeping your coverage current.
- Evaluate whether the policy lets you borrow
from the life insurance company, using the cash value in your life insurance as
collateral. Note that in all cases, if you do not repay the loan, then the value
of your insurance policy decreases, and your beneficiary will receive a reduced
death benefit.
When researching the right life insurance
policy to select, consider the differences between term and whole insurance.
Q. What are the differences between term and whole life insurance?
Term Insurance
Advantages
- In general, when comparing an equivalent
amount of coverage between term and whole life insurance plans, term insurance
premiums are lower.
- Term insurance is good for covering specific
needs that will eventually disappear, such as your children's college tuition,
or a mortgage.
Disdvantages
- Unless you buy level premium term insurance,
your insurance premiums will increase as you grow older.
- If you need your term insurance plan for a
greater length of time than you initially estimated, your coverage may become
very expensive.
Whole Insurance
Advantages
- With whole life insurance, as long as you
continue to pay the required premiums when due, your policy is guaranteed to
remain in force for your whole life.
- With fixed premium plans, your premiums won't
increase as you get older.
- Your whole life insurance policy can
accumulate a cash value free from current taxes, which you can borrow against.
- Surrender your whole life insurance policy for
its cash value at any time.
- Use the policy's dividends to automatically
increase the amount of life insurance you own (its face value) or receive the
dividends as cash.
Disadvantages
- To buy the level of protection you need, the
cost of the required premium payments may be too high.
- As your needs change over time, you may
ultimately require less insurance.
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Q. What does a product illustration show?
When you buy any type of life insurance, you should receive a product
illustration. Insurance policies can be complex; illustrations help us show you
how various policies work by providing examples of how the insurance policy will
function in different situations and under various conditions. When reviewing
insurance product illustrations, make sure to ask these questions:
- Which insurance figures are guaranteed?
- Which insurance figures are not guaranteed?
- What's the guaranteed cash value of the
insurance policy in the early years?
- Are there any dividends in the early years?
- How realistic is the assumed interest rate for
dividends?
- If I cancel my life insurance policy, how much
cash will I receive? How will that amount change over time?
- If I cancel the insurance policy, will I pay
penalties? How might that change over time?
- If I opt to borrow from the insurance policy,
how much will I be able to borrow?
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