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1. What is life insurance? |
| Life insurance is the binding contractual agreement between a life insurance company and an insured person that typically protects those who are financially dependant on the insured. The agreement between the insurance company and the insured, known as a policy, provides details and stipulations about who should be provided cash payment as compensation in the event of the insured’s death. | |
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2. Why would I need life insurance if I don’t have any dependents? |
| Regardless of if you have dependents, there are many benefits to securing a life insurance policy. Beyond ensuring that those left behind in the event of your death do not incur any unexpected expenses such as your funeral costs (averaging $7,000) or outstanding debt (from student loans, credit card, etc.), life insurance can assist you with estate planning, taxes, and even preparing for supplemental income during retirement. | |
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3. What are some of the business uses for life insurance? |
| In today’s economy, it is pretty common for employers to offer some type of life insurance to their employees as part of their employee benefit plan. In addition, many companies utilize life insurance to protect themselves against any unforeseen circumstances that might impede the success of their business. Typically, businesses will insure a Key Person – someone whose loss of life could greatly affect the financial well being of the company through loss of profits and/or unpaid business debts. Or, they might use insurance benefits to ensure a Business Continuation that establishes a buy/sell agreement by assigning the business interest of the deceased partner to an able partner or group of employees. | |
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4. How much life insurance do I need? | ||||||||||||||||||||||||||||
Depending on your lifestyle or place in life (i.e. starting
a family), life insurance needs vary from person to person and may
even change over time. When determining your personal life insurance
needs, there are several factors that should be taken into consideration,
such as:
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5. What is a beneficiary? |
| A beneficiary is the person(s) or entity selected by the policyholder to whom benefits are paid in the event of the insured's death. The insured can assign multiple beneficiaries and has the power to determine how the proceeds will be divided. The insured usually maintains the right to change the beneficiary(ies) at any time. | |
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6. How are benefits paid? | ||||||||||||||||||||||||||||||||
Referred to as the settlement option, the insured can
either designate how the death benefit should be paid to the beneficiary
in the event of the insured’s death or let the beneficiary choose.
The list of settlement options include:
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7. What is estate planning? |
| Estate planning involves the transferring and administration of property, home(s), investments, business(es), assets, etc. when the owner dies. To minimize estate taxes, time delays and costs usually associated with a Court Probate of an estate, an estate plan usually includes the drawing up of a will and setting up trusts or other legally recognized entities to hold and distribute a deceased person’s property. | |
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8. What is a will? |
| A will is a legal document created by the owner of an estate, or his/her attorney on the owner’s behalf, that states his/her desires for the disposition of assets upon his/her death. | |
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9. What is a trust? |
| A trust is a legal contract between two or more parties in which something of value, such as property or money, is held by the secondary party(s) (“the Trustee” ) for the exclusive benefit of a third party (“beneficiary”). Trusts may be created for a variety of purposes including but not limited to providing money for education, protecting assets from creditors, reducing estate taxes or providing income to future generations. | |
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10. Should I buy term life or permanent life insurance? |
| Term life insurance is generally for people with short term needs (approximately 20 years); where-as, permanent life insurance is for long term needs or for life. For example, a person may consider term life insurance while they are supporting a young family. Others might choose permanent life insurance when preparing for retirement. In many cases, people choose to purchase both types of policies to ensure coverage of all their needs. | |
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11. What is the advantage of level term life insurance vs. yearly renewable term life insurance? |
| If you require life insurance for longer than a few years, level term life insurance is a far more cost effective plan. While the premiums of a yearly renewable term life insurance policy are initially lower, they rise every year and quickly become much more expensive than the level term life insurance. | |
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12. What considerations should I make when purchasing a life insurance policy? | ||||||||||||||||||||||||||||||||||||
Depending on the insurance company, life insurance policies
offer several free and additional options and riders. Things you might
want to consider when choosing the best policy for you and your family
are:
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13. What is expected of me when applying for life insurance? |
| After you determine that you would like to purchase life insurance, you will be required to submit an application, disclose your full medical history, and undergo a medical examination scheduled and paid for by the insurance company. | |
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14. When will my life insurance coverage start? |
| With most life insurance companies, once the life insurance policy has been issued and you have paid your first month’s premium, your coverage will begin immediately. | |
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15. How is a premium determined? |
| Premiums are determined by the underwriter based on your risk classification. Your risk classification is determined by a culmination of factors such as personal and family medical history, financial situation, recreational activities and vocation. | |
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16. Should my stay-at-home spouse get life insurance? |
| When we think of life insurance, we tend to think about coverage on the person who pays the bills. However, the cost of a stay-at-home spouse does translate into real dollars. Should something happen to him/her, provisions would need to be made for home maintenance and childcare - both of which could definitely cause some financial hardship. | |
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17. Are there taxes associated with a settlement? |
| If a settlement is paid in the form of a lump sum, the proceeds collected from a life insurance death benefit are usually exempt from income taxation. However, if the settlement is paid using another settlement option, then the interest earned on the principal death benefit can be taxed. Not to mention, the proceeds from a death benefit can be subject to estate and inheritance taxes. | |
