Life Insurance FAQs

Following are a few questions and answers which are often asked about Life Insurance for you and your family needs, that we hope will be helpful. If what you are looking for is not here, please contact your agent who will be able to provide you the answers you are seeking.

How much Life Insurance do I need?
This is a very difficult question for individuals to answer. It is not an easy task to determine how much an individual might need at a current age to handle outstanding obligations should premature death prevent that individual from meeting those obligations.

Providing income for a family after the breadwinner is deceased is not as easy to predict. Calculations need to be performed to determine what regular monthly income a survivor would need to replace the income lost by the death of a spouse. If there are children, one needs to determine what the costs will be for college as well as speculate any unknown emergencies, i.e. health problems that might cause a financial disaster for the survivors.

One needs to consider the following:

Children, their current ages and their health
Outstanding mortgages and other debts
Saving Plans such as 401 K, IRA and other
Assets that could be liquidated should the funds be needed

One should develop an Estate Plan and periodically review it, i.e. 3 to 5 years to determine that it is still adequate. There are many good reasons to plan for an estate. The obvious one is to provide for the orderly disposition of an individual's affairs and assets when that individual dies, and to direct who will receive the property when he/she dies. Through estate planning, you may reduce or eliminate estate taxes on property when the individual dies. By planning the estate, the survivors may avoid probate.

What should I consider when purchasing Life Insurance?
Even if you’re on your own for the first time, just getting married, starting a family, or simply enjoying retirement Life Insurance can help provide monetary death benefits to those you designate as a beneficiary.

Considering what to purchase with regards to Life Insurance primarily is what is hoped to be accomplished. One must first determine the needs for Life Insurance. Determining the needs requires analysis of some of the following:

What obligations does a person have, even though he/she dies?
Final Expenses - Cost of Dying, which includes final medical expenses and funeral expenses.
Debts and current bills including outstanding mortgages
What obligations would be left behind at death for someone else to be responsible for?
Will there be survivors who will suffer financially as a result of lack of financial support of the deceased?
Are there minor children who will be left with no financial means to attend college?
What are the costs for the final expenses, i.e. medical, funeral, burial, etc.
Is there a need to supplement retirement income?
What assets are available that can be liquidated, if needed?
Do you want the survivor to liquidate the assets, or retain them?
Other specific needs of the individual's family due to disabilities, medical conditions, etc.

Once the needs have been identified, the types of Life Insurance policies available should be reviewed to determine which of the various types of Life Insurance policies will satisfy the needs identified. The goals of the estate plan will not be realized, if the Life Insurance policy chosen is not designed to provide the funds needed.

What kind of Life Policies are there and what are the differences?
There are two major types of Life Insurance Policies. The first one to consider is Term Insurance which provides a death benefit only. Term policies are issued for a specific period of time, i.e. 5 years, 10 years, 15 years, 20 years, etc. At the end of the policy term, the policy is lapsed and no death benefit is available after the policy term is over.

Term Insurance Policies may provide a level death benefit throughout the policy term. Some Term policies, however, reduce in death benefit during the policy term. That is the death benefit is reduced each year. For example, a Reducing Term Policy issued for a 20 year term, will reduce in death benefit each year during the entire policy term until the term is over and the death benefit is zero. This type of policy is often used to provide funds to pay off Mortgages at the time of death of the insured, since the death benefit reduces at the same rate as the outstanding mortgage. One of the disadvantages of Term Insurance is that the premium must always be paid to retain the death benefit in tact. If the premium is not paid, the policy will lapse and the death benefit goes away.

Permanent Life Insurance is the second major type of Life Insurance. There are several versions of these types and some of them are:

Whole Life
Universal Life
Limited Pay Life

Permanent Life Insurance can provide more than just "death protection". These products combine death protection and savings. They can be useful during your lifetime, not just after it. They can help you achieve your financial goals through cash value accumulation, which can help with college or retirement savings.

Permanent Life Insurance policies provide level death benefits and living benefits. The living benefits provide the cash accumulations known as cash values as savings. The cash value can be used to pay the premiums on the policy to keep the death benefit in tact. It also can be used for emergency funds by borrowing a portion of it from the policy. The cash value funds might be used for college, purchase a home, start a business, or to supplement retirement.

The Limited Pay policies are paid up in full once the premium payment period is over. These policies are often issued for a 20 year policy term. The premiums are paid during the policy term and at that time the policy is paid up and the death benefit remains in tact. If there is an outstanding policy loan on the policy, the policy loan" is deducted from the death benefit when paid.

When purchasing Life Insurance, one must consider:

What are the needs?
What are the estate plan goals?
What Life Insurance policies will provide the funds to satisfy the needs and realize the goals of the estate plan?
What needs are there for living benefits to fund retirement or provide cash values to pay for college funds?

What coverage options should I consider when selecting the Life Insurance Plan?
Along with determining which type of Life Insurance Policy best fits the needs, you also need to consider some of the options included in the plans. Some of these are: Waiver of Premium - This option can provide that your premium payments will be waived should you become totally disabled and unable to work. This option can be crucial in retaining your Life Insurance in force during a period of time that can be stressful enough as a result of a serious illness or injury. Having this benefit option can relieve the worry about being able to pay Life Insurance premiums to provide for your family at a time when your income has been reduced as a result of a disability.

Accidental Death Benefit - Accidental Death Benefit or Double Indemnity as it sometimes is called can provide additional death benefits should death be the result of an Accident. Accidental Deaths come unexpectedly such as in an automobile accident and can leave survivors traumatized.

Settlement Options - These Options are the choices the insured makes during his/her lifetime; how the life insurance proceeds will be paid to the beneficiary. The proceeds can be disbursed in a lump sum, a monthly income, or any other method the insured elects. If the insured wants to provide a monthly income for the balance of the beneficiary's life, that option can be selected. In this manner, the lost income as a result of the death of the insured can continue via the Life Insurance proceeds.

Premium Payment Methods - This is the method that the insured chooses to pay the Life Insurance premiums can be chosen to best fit his/her financial needs. The premiums can be billed periodically, i.e. monthly, quarterly, semi-annually or annually or through payroll deduction or automatic deduction from your checking account.

Beneficiary Clauses - The insured can elect the beneficiary that he/she wishes to receive the proceeds. The beneficiary can be one individual or more than one, with the funds being divided equally or in any proportion that the insured chooses.

There are numerous options and riders that can provide additional benefits to the survivors or to the insured. Additional death benefits can be provided through the use of guarantee purchase options. These options allow the insured to obtain additional life insurance benefits regardless of medical conditions that may have materialized since the policy was first purchased. For example, should someone become ill with a long term illness, if this option is included in the policy, the insured can purchase additional death benefits without requiring medical eligibility.

One should investigate all of the options that are available when the policy is being considered to provide for any possible future needs that the insured may not be aware of at the time of purchase. One must plan for the future and the unknown that might cause severe financial needs for the survivors.

How can I determine a plan which I can afford and still get the benefits I need?
Purchasing Life Insurance can be an added strain on the family budget, but in order to plan for the future, it must be seriously considered and included in the future goals. Purchasing certain types of policies can cause a financial drain on the family budget and will not be continued. Hence the plans will not satisfy the needs of the estate plan. One must consider the amount of death benefits needed and then determine what can be afforded on the monthly budget to provide those benefits. Term Insurance can be purchased at lower premium rates than Permanent Life Insurance. As a result often Term Insurance is the only method of providing the death benefit needed. Some Permanent Plans provide options of including additional death benefits by Term Riders.

When a husband and wife both need to have death benefits, Joint Life Policies can be purchased. These provide for death benefits for each at lower rates than if they purchased individual policies. Their ages are combined and the premium rates charged are much lower in a Joint Life policy than if each individual purchased separate policies.

Employers often provide employee benefits to their employees by offering Life Insurance for the employees as well as their dependents. These are group policies and are provided at lower rates than if the individuals purchased the policies separately and individually. The employees can also purchase Accidental Death benefits at much lower rates than Whole Life or Term Insurance purchased individually.

Taking time to research various insurance plans, obtain quotations from several carriers, research your financial institutions plans, as well as checking into your employee benefit plans can assist you in developing best plan for you at the lowest premium possible. Shopping around is always an excellent step in getting the best product for your premium dollar.

When is it the right time to purchase Life Insurance?
The loss of a loved one can bring about tremendous emotional trauma, particularly when it is sudden and unexpected. One must deal with the emotional saying "goodbyes" while at the same time moving on with life for the survivors. Death is final with no turning back, but with death some things do continue on. When there is a sudden automobile accident or other unexpected event, it can leave the survivors unprepared for what lies ahead when that person that was depended on so greatly, is no longer here to provide. The saying "you don't know what you have, until it is taken away from you. Only then can you appreciate what you had". This is ultimately true with the death of a loved one.

After they are departed, we can't ask them:

What did you want to do with this?
How am I going to pay all of these medical bills from the automobile accident?
How am I going to put the kids through college without your income and support?

These are very serious questions and can be overwhelming to someone facing a future of uncertainty caused by the death of a major supportive person in their life. Life Insurance is sometimes never thought about until one experiences a death of a loved one and the difficulties facing them in the future. It's one of those things we don't want to think or talk about. Even though we know it is inevitable, we still want to postpone unpleasant thoughts and acts for a later time. But even though we want to postpone the unpleasant tasks, by delaying them we often can bring undue harm to our survivors.

It is better to purchase the life insurance and project what you think will be needed, than to delay until it is too late. When considering when is the right time to purchase Life Insurance, it should be realized that anytime is the right time and waiting too long, might be a disastrous mistake.

My husband and I both work and we have three children. We just can't afford to purchase a large amount of life Insurance. What can we do?
Raising a family of three children in today's economy can be stressful and financially draining. You might consider purchasing a Family Policy. Family Policies are combination policies providing Whole Life on the husband with Term Insurance on the wife and children. The plans can provide Life Insurance on all of you and the premiums are reasonable. You might also consider Joint Life for you and your Husband and Jumping Juvenile policies for the children.

I'm 23 and single. Do I need Life Insurance?
Although you may not have a large amount of obligations right now in your life, you might consider another aspect of Life Insurance. Life Insurance rates for you at age 23 are much lower now than it will be when you reach the age of 30 or 35. Each year, the premium rates increase according to your age. As a result, the longer you wait, the higher the premium rates will be. You might consider purchasing a Permanent Plan, with Guarantee Issue options so that you can purchase additional coverages when you need it at guaranteed rates.

I'm a single parent providing for two small children. How can I provide for their future if something happens to me?
Being a single parent is extremely difficulty and financially draining. But you need to provide for your children, in the event you are not here to provide for their college. You should purchase a plan naming an executor or trustee who will be the guardian for your children until they reach maturity. If you name your minor children as the beneficiary, they will not be able to receive the funds until they reach the age of 18. Leaving the care giving of your minor children to a member of your family with no financial support to assist them will create a financial hardship for them as well as your children. You should consider who you would want to care for your children and how you can provide the funds they will need.

How should I designate a beneficiary? When money enters an estate and there is no will, the court handling the disposition of that estate is required to distribute the assets according to state law, which may or may not be the way the deceased would have wished. Naming a beneficiary in a Life Insurance policy prevents this from occurring. The beneficiary designations chosen by an insured provide a guarantee that the individual the insured has named will receive the proceeds of the Life Insurance policy at the time of the insured's death. How the Beneficiary clause is listed is very crucial.

If the insured names only one beneficiary and that beneficiary dies prior to the insured, there are no instructions to the Life Insurance Company on who the insured wants the funds to be paid. There should always be some contingent beneficiary named to prevent the funds from the Life Insurance policy from going into the insured's estate and hence may not be used as the insured wants. The Primary Beneficiary is the first person in line to receive proceeds of policy. There may be more than one person in which case they share the proceeds equally. Naming a Contingent Beneficiary results in designating a person to receive the proceeds should the primary beneficiary die before the insured, or if the primary beneficiary elects not to receive the proceeds.

The choice that the insured makes in naming the beneficiary he/she wants to receive the proceeds from the life insurance policy is most crucial to satisfying the goals of distribution of the proceeds. It is a segment that should be reviewed routinely to make sure that no changes should be made. Marriages, birth of children, divorce, the death of the beneficiary can make changes in the ultimate goals and should be revisited and modified if desired.

My brother and sister in law recently divorced. My brother had to make my sister in law an irrevocable beneficiary. Can he change the beneficiary when he remarries?
A Revocable Beneficiary is one that can be changed by the policyowner. Naming an Irrevocable Beneficiary results in the insured not being able to change the beneficiary clause, once it is established. Only the Irrevocable Beneficiary can make that change. Your sister in law has probably requested this to protect her from your brother changing the policy beneficiary clause from her to his new wife when he remarries. This has become a fairly routine process in the past few years by attorneys seeking to protect their clients who in most cases have minor children.

Is it a good idea to name a guardian or trustee as the beneficiary to provide for my children?
Naming minor children as beneficiaries is not always a wise decision. Minors are unable to receive the funds until they reach legal age. Unless a trustee or guardian is named, usually the insurance company will hold the funds and it will draw interest until the minor reaches legal age before proceeds will be paid.

You should select a trusted relative or friend that you are confident will provide for your children. You can also name your financial institution to select a representative to be the financial guardian and caretaker for your children. The courts will oversee their activity and be certain that your children are cared for and that no one else will benefit from the funds left for them by way of the Life Insurance policy.

If I don't name a beneficiary, what will happen with the proceeds from my life Insurance policy?
If you do not name a beneficiary or there is no beneficiary alive to collect the proceeds from your life insurance policy, the funds will go into your estate. The funds will become a part of your estate of which outstanding debts can be taken from.

Can I name more than one Primary Beneficiary so that the proceeds is divided between my two brothers?
You can name as many primary beneficiaries are you desire. You can indicate how much of the proceeds you want to go to each one of the primary beneficiaries. You can also elect to distribute the funds on a percentage basis, such as 50% to each if there are two primary beneficiaries, or one third to each is there is three primary beneficiaries.

If there are other questions you have, please let us know and we will be pleased to provide those answers for you

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