FAQs
Who needs life insurance?
Nearly everyone needs life insurance. If someone will suffer financially when you die, chances are you need life insurance. Life insurance provides cash to your family after your death. This cash (known as the death benefit) replaces your income and can help your family meet many important financial needs like funeral costs, daily living expenses and college funding. Take a moment to consider how life insurance might fit into your financial plans.
- You're Married
When you're married, you share everything with your significant other, including your financial obligations. Many people mistakenly believe that they don't need to think about life insurance until they have children. Not true. What it one of you were to die tomorrow? Even with the surviving spouse's income, would that person be able to pay off debts like credit-card balances and car loans, let alone cover the monthly rent and utility bills.
- You're Married With Kids
Most families depend on two incomes to make ends meet. If you died suddenly, could your family maintain their standard of living on your spouse's income alone? Probably not. Life insurance makes sure that your plans for the future don't die when you do.
- You're a Single Parent
As a single parent, you're the caregiver, breadwinner, cook, chauffeur, and so much more. Yet nearly four in ten single parents have no life insurance whatsoever, and many with coverage say they need more than they have. With so much responsibility resting on your shoulders, you need to make doubly sure that you have enough life insurance to safeguard your children's financial future.
- You're a Stay-At-Home Parent
Just because you don't earn a salary doesn't mean you don't make a financial contribution to your family. Childcare, transportation, cleaning, cooking and other household activities are all important tasks, the replacement value of which is often severely underestimated. Surveys have estimated the value of these services at over $40,000 per year. Could your spouse afford to pay someone for these services? With life insurance, your family can afford to make the choice that best preserves their quality of life.
What types of life insurance are available?
There are two basic kinds of life insurance, term and permanent. Many variations of these standard forms of life insurance also exist, probably the most popular being universal life.
Term Insurance
Term Insurance does just what the name implies ... provide protection for a specific term of one or more years. Since protection is only provided for a specific time period it is considered temporary protection.
Term insurance provides you with the greatest amount of coverage per premium dollar. Most policies are "convertible," which means the policy can be traded for permanent life insurance protection. Premiums for the new policy will be higher than those paid for the term policy.
Permanent Insurance
Permanent life insurance provides you with protection for as long as you live. Premium costs are averaged over your lifetime, so the premium does not increase as you get older. The premiums are higher than what you would pay for an equivalent amount of term insurance.
The most basic type of permanent insurance is "whole life." Whole life policies develop cash values on a tax-deferred basis. This cash value can be used for a variety of purposes, including: Using the policy as collateral and borrowing up to the current cash value. This is useful for funding short-term obligations. If you die before the loan is repaid, the amount owed and interest is deducted from the life insurance proceeds. Payment of premium to keep your policy in force. You may authorize the insurance company to borrow from your cash value to pay the premium due. Use the cash value to fund a paid up policy at a reduced level of protection if you wish to stop making premium payments completely.
Universal Life
Universal life insurance combines features of both term and permanent insurance. Universal life not only offers life insurance protection, it also accumulates cash which is credited with interest earnings. The amount you earn depends on current interest rates.
The premiums you pay are added to the cash accumulation portion of your universal life policy. Each month a deduction from the account value is made to provide for life insurance protection and other benefits and riders. An administrative fee is also deducted from the cash accumulation.
What is Key Person Life Insurance?
The primary purpose of life insurance is to offset economic loss due to an individual's death. It's easy to understand how life insurance indemnifies a family for the loss of income of a working parent. Key person life insurance is similar except it is a business that is indemnified against loss. Key person life insurance is purchased by a business on the life of an owner or employee whose services contribute substantially to the success of the business. The company is both owner and beneficiary of the insurance.
Buy & Sell Agreements - What Is A Buy-Sell Agreement?
A buy-sell agreement is an agreement among owners of a business (whether the business is conducted in the form of a partnership, limited liability company (LLC), or corporation) as to the eventual disposition of each owner's interest and can be a useful tool to achieve desired objectives. The owners of a closely-held business may enter into a buy-sell agreement to retain or transfer ownership and control of a corporation that provides a predetermined method of selling a deceased owner's interest in the business to the surviving owners.
Buy-sell agreements are also used to restrict attempted dispositions of stock by stockholders during their lifetime (by sale or gift), in addition to restricting those who inherit from a deceased stockholder. Thus, a buy-sell agreement can effectively retain or transfer control among the stockholders during their lives and at their deaths. Such agreements are normally funded by life insurance on the lives of the owners. Buy-Sell funded agreements take the form of a corporate redemption agreement or a cross-purchase agreement among the owners.
Why should I buy life insurance?
Many financial experts consider life insurance to be the cornerstone of sound financial planning. It can be an important tool in the following situations:
Replace income for dependents
If people depend on your income, life insurance can replace that income for them if you die. The most commonly recognized case of this is parents with young children. However, it can also apply to couples in which the survivor would be financially stricken by the income lost through the death of a partner, and to dependent adults, such as parents, siblings or adult children who continue to rely on you financially. Insurance to replace your income can be especially useful if the government- or employer-sponsored benefits of your surviving spouse or domestic partner will be reduced after your death.
Pay final expenses
Life insurance can pay your funeral and burial costs, probate and other estate administration costs, debts and medical expenses not covered by health insurance.
Create an inheritance for your heirs
Even if you have no other assets to pass to your heirs, you can create an inheritance by buying a life insurance policy and naming them as beneficiaries.
Pay federal “death” taxes and state “death” taxes
Life insurance benefits can pay estate taxes so that your heirs will not have to liquidate other assets or take a smaller inheritance. Changes in the federal “death” tax rules between now and January 1, 2011 will likely lessen the impact of this tax on some people, but some states are offsetting those federal decreases with increases in their state-level “death” taxes.
Make significant charitable contributions
By making a charity the beneficiary of your life insurance, you can make a much larger contribution than if you donated the cash equivalent of the policy’s premiums.
Create a source of savings
Some types of life insurance create a cash value that, if not paid out as a death benefit, can be borrowed or withdrawn on the owner’s request. Since most people make paying their life insurance policy premiums a high priority, buying a cash-value type policy can create a kind of “forced” savings plan. Furthermore, the interest credited is tax deferred (and tax exempt if the money is paid as a death claim).
What Are Annuities?
An annuity is a financial product issued by an insurance company. It allows tax-deferred growth of assets. At retirement, an annuity can help to provide a guaranteed income stream for one or more people, in specified amounts, for a specified period or for life.
What are Variable Annuities?
A variable annuity is a long-term contract between you and an insurance company that combines investment and protection features into one retirement vehicle. A variable annuity can help you:
- Grow retirement assets through a diversified portfolio of professional managed investment options
- Create a predictable, sustainable stream of retirement withdrawals
- Protect your retirement assets through a death benefit and other optional benefits
- Grow retirement assets on a tax deferred basis
What are Fixed Annuities?
Fixed Annuities are designed to help you accumulate tax-deferred retirement assets and provide retirement income. Fixed Annuities often feature guarantees on principal, minimum interest rates, and a reliable income for life.
The following FAQ's are provided compliments of the Council for Disability Awareness:
How would you pay your bills if your paycheck suddenly stopped because of a disability?
Eight in 10 workers are concerned about how they would pay their living expenses if they had to miss work for six months or longer due to disability. Yet, 70% of working Americans do not have enough savings to meet short-term emergencies and two-thirds of American families are living paycheck to paycheck.
It's not unusual for many people suffering from a serious sickness or injury to lose their job and, with it, their employer provided medical insurance. While some may be eligible for COBRA, few have any idea how expensive that can be. Often with a long term disability comes unexpected expenses like higher out-of-pocket medical and personal care costs. Disability also causes 350,000 personal bankruptcies and nearly 50% of all mortgage foreclosures each year.
What disability income benefits do I have and how would they qualify?
Most large employers provide some form of sick pay and long term disability income benefits for their full time employees. The wide majority of small employers, on the other hand, do not provide these benefits. More employers today are offering disability insurance benefits on a "contributory basis" but most employees don't elect coverage even though the cost can be relatively small. Some workers have purchased their own disability benefits.
There is a lot of misinformation about disability benefits. For example it's not uncommon for employees to mistakenly think their medical insurance covers lost wages, it doesn't.
How will losing my paycheck today impact my retirement security tomorrow?
For the millions of workers relying on their 401(k) or IRA savings for their income during retirement, suddenly losing their income today can be catastrophic. If their paycheck should stop or be interrupted due to an accident or illness, their current contributions would also stop putting their financial security during retirement in serious jeopardy.
What is the Social Security Disability Insurance (SSDI) program?
Social Security Disability Insurance is the primary disability insurance program for most American workers yet one-third do not understand how it works or even if they might be eligible. True, less than half of those that apply for disability benefits are approved and the average waiting period to receive Social Security Disability payments is 2.5 years, but close to 7 million workers are currently collecting monthly Social Security disability payments - averaging $1,004 per month - and almost half are under age 50.
What are the leading causes of disability?
In many cases, the major causes of disability today, such as, cancer, heart disease, obesity and back problems are directly linked to personal behavior. Establishing good personal habits including eating a balanced diet, exercising, visiting the doctor regularly, and avoiding smoking can significantly reduce and even prevent your chances of becoming disabled. More and more companies are recognizing the value of a healthy lifestyle and are offering wellness plans for their employees.