Frequently asked questions about life insurance

Frequently asked questions about life insurance:

1. What is life insurance and why do I need it?

Life happens! It is important to care for your loved ones and to keep them financially secure after you die. There is absolutely no replacement for you, but life insurance will give you and your family peace of mind. It is also important to cover stay at home moms since their economic contribution to the household is immeasurable. The bottom line is that life insurance financially protects your family and loved ones at a time when it is needed the most.

2. What is the difference between term, and whole life?

The main difference between whole life insurance and term life insurance is that term life insurance provides temporary coverage for a specific period of time while whole life provides coverage for your entire life. With term insurance, a death benefit is the primary feature. But whole life policies combine a death benefit with a savings feature.

The advantage of term life insurance is that it is less expensive. The downside is that at the end of the term, the policy will have no value.

The advantage of whole life is that you can use it as an investment, borrow against it, or withdraw money while you are still alive. This money comes from the cash value that the policy has built up over time. The downside is that it takes a long time to build cash value. 

3. Who should get whole life insurance?

Anyone who wants to provide for their family’s financial well-being. Younger adults who want to lock-in lower premiums or wish to build cash value for their retirement years. Others include high income earners, people who need to convert assets into cash fairly easy, and retirees who need more supplemental income.

4. Who should get term insurance?

Term life insurance is best suited for young single adults with no dependent, in cases where a large debt would be passed on to a family member who cosigned on a loan. Others include young married couples with children, single parents, and business partners with a buy-sell agreement. A buy-sell agreement is for business owners whose business partners make an arrangement to buy the interests of a deceased business partner. 

5. What does whole life insurance cover?

Whole life insurance, also known as traditional life insurance, provides permanent death benefit coverage for the life of the insured. In addition to paying a death benefit, whole life insurance also contains a savings component in which cash value may accumulate. Interest accrues at a fixed rate and on a tax-deferred basis.

6. What does term life insurance cover?

Term life insurance provides coverage for a limited time period. It’s a contract with the life insurance company to pay your beneficiary a certain amount of money if you die during the coverage period. Some policies will allow you to use your benefits before you die to cover medical expenses.

7. How do I know how much life insurance I need?

In order to determine how much life insurance you need, it’s best to look at your surviving family’s immediate and future financial obligations, and compare that with your available financial resources. Immediate needs include funeral costs, medical bills, and taxes. Ongoing expenses include mortgage payments, utilities, and food. Future expenses include college tuition, and retirement funds. Finally, financial resources can include your partner’s income, savings, income-producing assets, and investments. We can help you make these determinations at a free consultation.

8. What is a life insurance beneficiary and why do I need one?

A life insurance beneficiary is an individual, entity, trustee, or estate named by the policy owner to collect the death benefit proceeds upon the insured’s death. There are two types of beneficiaries. A primary beneficiary is the first one in line to collect the death benefit upon the insured’s death. A contingent beneficiary, also known as a secondary beneficiary, is the second one in line to collect the benefit if the primary beneficiary is deceased.

9. What is Universal Life insurance?

Universal life insurance, also called UL, is a permanent type of coverage that provides guaranteed death benefit payment to heirs, cash value accumulation on a tax-deferred basis, and offers the advantage of flexibility. A portion of your premium payment goes to cover the cost of insurance, and the remainder is placed in a designated account to earn interest.

Most companies give you three to four different accounts from which to choose based on your comfort level and financial goals. Most coverages are rigid. In essence, term life offers great costs but short duration, whole life provides a lifetime’s protection but with higher prices. UL provides the flexibility to skip premium payments or to adjust the face value in the future (increase or decrease) should you choose to.

10. What is a Variable Universal Life Insurance?

Long-term protection with the opportunity for cash value to grow based on market performance. The cash value fluctuates based on market performance and can be accessed whenever you need it. These benefits accrue tax deferred, allowing you to maximize your savings. The beneficiary receives a guaranteed death benefit which is typically income-tax free.