Why Life Insurance?

 

Regardless of age, marital status, or number of dependents, everyone needs life insurance.  The younger and healthier you are, the lower the premiums.

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Life insurance can be used for many reasons, such as:

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Business Planning

Burial Expenses

Charitable Donations

Debt Repayment

Education Funding

Emergency Funds

Estate Planning / Taxes

Family

Financial Security

Income Replacement

Investment Diversification

Legacy

Medical Expenses

Retirement Income

Savings

Tax-Free Income

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You can take full advantage of life insurance while you are living through accelerated death benefits (living benefits) and tax-free cash values.  Otherwise, your beneficiary(ies) will receive the death benefit that will be free from state and federal income taxes.

 

 

Types of Life Insurance

 

Term (Pure) life insurance provides a stated death benefit for a specified term (length of time) with guaranteed fixed premiums.  Once the term expires, the policy will automatically terminate unless you renew the policy at a higher premium each year.  Also, without additional underwriting (health assessment), you can convert all or part of the policy to a permanent one before or at the time of the term expiration.  Some companies offer better conversion options than others.  Most life insurance companies offer 10-, 15-, 20-, and 30-year policies.  In addition, some companies offer 5-, 25-, 35-, and 40-year ones.

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Permanent life insurance provides the opportunity to have coverage for your entire lifetime.  The four types of permanent life insurance are whole, universal, variable, and indexed.  Whole life insurance premiums are guaranteed (fixed).  However, they are the most expensive.  Universal life insurance (UL) allows flexibility in premiums, depending on the frequency of premiums and duration of the policy.  For an additional cost, you can have the premiums guaranteed.  Variable life insurance (VUL) has separate accounts comprised of various investment instruments, including stocks and bonds.  It is considered a securities contract.  Indexed life insurance (IUL) allocates part of the premiums to annual renewable term insurance and the remainder to the cash value of the policy after fees.  Throughout each year, based on increases in equity indices, interest is added to the cash value.

 

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Accelerated Death Benefits (ADBs)

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Accelerated death benefits (living benefits) can be included in a life insurance policy.  The benefits allow you to receive tax-free cash advances against the death benefit in case of chronic, critical, or terminal illnesses.  Most life insurance companies include the accelerated death benefit for terminal illnesses in their policies.  However, only a few companies include all three benefits.  Other companies offer all three benefits for an additional cost.  While you are receiving these benefits, your premiums will be waived.

 

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Premium Recovery

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A premium recovery endorsement enables you to fully surrender the life insurance policy during certain periods of time throughout the duration of the policy.  You can recover all or a portion of the paid premiums less any debt, withdrawals, charges, and fees.  Only permanent life insurance includes this endorsement.

 

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Convertibility

 

A term life insurance policy includes an option to covert all or part of the policy to a permanent one.  The benefit of convertibility is no additional underwriting is required.  Depending on the life insurance company, some policies restrict the timing of conversion, your age at the time of conversion, or type of permanent policy to which you can convert.  Not all companies are created equally.

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Underwriting

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Underwriting Categories/Classes:

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Preferred Plus/Preferred Best/Select Preferred/Super Preferred

Preferred

Standard Plus/Select Plus/Super Standard/Plus

Standard/Select

Substandard

Preferred Tobacco/Nicotine/Smoker

Standard Tobacco/Nicotine/Smoker

 

Each class offers different premiums.  All life insurance companies’ underwriting guidelines are different.  Depending on your resident state, health history, age, and requested death benefit amount, you might qualify for no exam.  You must provide accurate information to receive an accurate quote.

 

Underwriting Criteria:

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Tobacco, Alcohol, and Drug Use

Aviation

Blood Pressure

Cholesterol

Citizenship

Driving Record

Family History

Foreign Travel

Hemoglobin A1C

Health History

Physical Measurements

Recreational Activities

 

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Death Benefit

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Generally, the death benefit is not considered as taxable income.  Therefore, the beneficiary does not have to pay taxes on it.  However, if the death benefit is not paid out immediately and held by the life insurance company for a period of time, the beneficiary might have to pay taxes on the earned interest.  Also, if the death benefit is paid to an estate, whoever inherits the estate might have to pay estate taxes on the death benefit.

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Financial Needs

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Typically, good benchmarks for life insurance for an individual are to have at least ten times annual income in a death benefit amount and a term length long enough for the child(ren) to be outside of undergraduate age(s).  Nonetheless, each person has different needs and plans for his/her financial future and legacy.

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