Life insurance is a tool to help you plan for your family’s future. It can provide financial resources to fulfill promises and obligations to your family if you are no longer living.
The death benefit is income-tax free and can be used to cover funeral expenses, repay debt, provide education, and pay estate taxes or any other expenses your survivors may incur.
Also, if you are a business owner or shareholder, life insurance may be used to help ensure that a family business will pass to your intended successor.
There are also benefits to certain types of life insurance plans during your lifetime.
Protect and provide for those who matter most
For years, you’ve focused on making sure your family had the financial security they needed. Now, as you look forward to the future, your priorities begin to shift. Life insurance can play an important role in helping you accomplish the things you want to achieve.
It’s more than just a death benefit. Beyond providing financial security for your loved ones, life insurance can also offer you:
- Financial protection for your loved ones or business—to replace income, covers mortgage costs, or fund educational needs in the event of an unexpected loss.
- Account value growth potential to use as a financial resource—through loans or withdrawals for your personal needs, such as help with education expenses or house remodeling.*
- Tax-deferred asset protection and accumulation—any increase in the cash value of your insurance policy due to investment gains aren’t taxed until you withdraw the money after you retire and your original premiums are never taxed upon withdrawal.
- An efficient means of transferring and creating wealth—high payout and tax- free, these are two of the reasons that life policies make a great vehicle for wealth transfer.
- A source of funding for small business—business owners can borrow against the cash value of their policy for a variety of reasons, like helping their business during tough economic times or pay overhead expenses.*
- Supplemental retirement income—can provide a stable source of income that is not impacted by market conditions and is a good addition to your retirement strategy.*
- Protection from long-term care expenses—opportunity for living benefits in the event of a permanent chronic or terminal illness through optional policy riders.*
There are different types of life insurance and riders that can help you accomplish your financial goals. We are life insurance brokers/consultants who can help find the right insurance plan to accomplish your goals
Types of Life Insurance
There are different types of life insurance available that will help your needs and/or your beneficiaries’ needs. They are divided into two categories
- Term Insurance. This is the type of insurance that is designed to have a specific end date where either death benefits or premium change after the designated end date and is used for coverage for a specific time frame. One example of this is mortgage protection where death benefits reduces at the same rate as your mortgage balance (with the premium remaining level) until the mortgage is zero and the benefits will then stop. Another example is a level premium plan for 20 or 30 years. When the period is reached, it converts to an annual renewal term where premium increases annually based on your age.
- Permanent Insurance. The reason this is designated permanent is because you can own this type of plan for your lifetime with no end date except when benefits are claimed. The two general types of permanent plans are
- Universal Life. This is life insurance with a Cash Value side fund. The Cash Value earns interest credited by the life insurance company based on current market rates. There is a Guaranteed minimum rate that will be credited if market rates fall close to zero.
- Whole Life. This type of insurance has the greatest guarantees, hence the most expensive Option. They are offered by Mutual Companies [E1] which are private companies where the Policyholders participate in ownership.
How much life insurance should an individual own?
A rough rule of thumb is about 6 to 8 times annual earnings. However, many factors should be taken into account in determining a more precise estimate of the amount of life insurance needed.
Important factors include:
- Income sources (and amounts) other than salary/earnings
- Whether or not the individual is married and, if so, what is the spouse's earning capacity
- The number of individuals who are financially dependent on the insured
- What death benefit is payable from Social Security and/or from an employer-sponsored life insurance plan
- Whether any special life insurance needs exist (e.g., mortgage repayment, education fund, estate planning need), etc.
It is recommended that a person's insurance broker/consultant be contacted for a precise calculation of how much life insurance is needed.
What about purchasing life insurance on a spouse and on children?
Purchasing life insurance for a spouse who is not earning an income is still important because financial resources are needed to pay for household services lost if the non-working spouse dies. Purchasing life insurance or obtaining a life insurance rider for children is primarily to provide for burial benefit if a child dies. It also allows you to transfer and convert the plan to a larger death benefit without additional underwriting.
Should term insurance or cash value life insurance be purchased?
It all depends on your objective and budget. Typically term insurance is the least expensive insurance you can buy. However, the downside is that the premium you pay is level for a set amount of time. If the death benefit is not triggered and the level term time ends, it automatically converts to an Annual Renewable Term with higher premiums based on your age at the time the level period ends and will go up every year. With a Cash Value Life plan, you can pay a level, but higher, premium for a longer period. Also, depending on your objective, this may be the proper tool to provide supplemental retirement income.
How does mortgage protection term insurance differ from other types of term life insurance?
The face amount under mortgage protection term insurance decreases over time, consistent with the projected annual decreases in the outstanding balance of a mortgage loan. Mortgage protection policies are generally available to cover a range of mortgage repayment periods, e.g., 15, 20, 25 or 30 years. Although the face amount decreases over time, the premium is usually level in amount. Further, the premium payment period often is shorter than the maximum period of insurance coverage--for example, a 20-year mortgage protection policy might require that level premiums be paid over the first 17 years.
Can an existing life insurance policy be used to provide for the repayment of an outstanding mortgage loan?
Yes; the purchase of a new mortgage protection term insurance policy is usually not required by the lender. An existing policy, either term or cash-value life insurance, can be used for many purposes, including paying off an outstanding mortgage loan balance in the event of the insured's death.
Credit life insurance is frequently recommended in conjunction with the taking out of an installment loan when purchasing expensive appliances or a new car, or for debt consolidation. Is credit life insurance a good buy? Credit life insurance is frequently more expensive than traditional term life insurance. Further, if you already own a sufficient amount of life insurance to cover your financial needs, including debt repayment, the purchase of credit life insurance is normally not advisable due to its relatively high cost.
Supplemental accident insurance that helps with what your health insurance plan might not cover. The cash benefits are paid directly to you (unless assigned otherwise) to be used however you choose.
How does Accident Insurance Work?
- If you have an accident and break a bone. You have to go to the Emergency Room to repair it. If, for example, you break a leg. Hypothetical cost for treatment is $7100.
- There is also the cost of the ambulance ride to the Emergency Room where your copay could be $100.
- Accident insurance will help offset your deductible or coinsurance (which averages 40% out of pocket) in the Emergency room as well as the Ambulance copay.
- Based on hypothetical above here’s how it works:
- 7100 x 60%=$4260 paid by insurance company
- $2840 + $100 ambulance copay=$2940
- $2734 Paid by Accidental Insurance Plan
- $206 Out of pocket
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