LIFE INSURANCE BASICS
Life insurance is an extremely important component of any financial and retirement plan and no one should be without it. Life insurance, in its most fundamental form, provides money typically to beneficiaries after the insured person dies.
Life Insurance Can Be Strategically Planned To Help:
- Replace your income with a non-taxable death benefit
- Reduce the financial burden on your family of having to continue without you
- Help put your children through school
- Pay the mortgage, car note, and other debts you leave behind
- Pay your funeral expenses
- Pay your estate taxes
- Create an instant estate (a financial legacy) to leave to your beneficiaries
The 3 Basic Types of Life Insurance:
- Term Life: Generally less expensive than other life insurance products and is designated for a certain time period or to a certain age. Term life insurance is named for the contract's limited length or "term" and is pure life insurance. Term policies generally last for 1, 5, 10, 15, or 20 years, or to some specified age such as age 65 or age 100.
- Whole Life: Provides lifetime coverage. The premium the insured must pay generally does not increase with their age once the policy is approved and purchased.
- Universal Life: Premium amount and death benefit are both flexible. You are able to change the amount of your premium payments and/or death benefit after you buy the policy. Increasing your premium payments as you age is important to maintaining your universal life policy.
Note: There are many more types of life insurance policies that are derivatives and combinations of the three types mentioned above. Contact F.R.E.D to speak with a licensed insurance agent/advocate about which is best for your particular circumstances.
Who Can Take Out a Policy on My Life?
- Only someone who has an "insurable interest”, such as someone in your immediate family. A stranger cannot buy a policy to insure your life.
How Much Life Insurance Do I Need?
- Your life insurance plan should be structured to meet your unique life circumstances (for example, a single person may need less life insurance than a couple or a couple with children). Let your current and predictable future needs be your guide.
- The amount of life insurance a person should get depends on their unique life situation. Some people have life insurance through their employer, which sometimes uses the equivalent of their salary or a multiple (such as three times) their salary as a coverage limit and may allow the employee to purchase additional term insurance. This is usually the insurance component of an employer-subsidized group plan. The problem with the employer-subsidized group plan usually is that when the employee leaves the employer, the coverage can be terminated. This is a great disadvantage to the employee because when she leaves the employer, s/he will be older and therefore a new life insurance policy will be more expensive.
- This is why acquiring life insurance at the earliest opportunity in your life is very important.
Here Are Some Additional Life Insurance Considerations:
- Decide what type of life insurance policy you want: term, whole life, universal life, or a combination of these policies.
- F.R.E.D NOTE: Make sure you calculate your total premiums for the life of the policy because it is often possible to pay more in premiums than the face amount of the policy.
- Always consider whether you want your policy to have an accelerated benefits feature, which is a policy provision (often a policy rider) that lets the policyholder, under certain conditions, collect part of the death benefit before he/she dies. Determine if you will have sufficient income now and in the future if you should become so ill that you are unable to work and would, therefore, need additional income for such expenses as nursing home care.
- Once you receive the life insurance policy, thoroughly read it to ensure your expectations and desired coverage are included. Most life insurance companies offer a “free look” (or “right to review”) provision. Utilize this "free look" opportunity to see if the policy is to your satisfaction.
- The policy owner is the only person who can cancel the policy. If premium payments are not made, the insurer will generally send a payment notice before cancellation.
- Remember that any failure to pay your premium will cause your policy to lapse or it could be terminated. Talk with your insurance agent/advocate about a nonforfeiture clause being added to the insurance policy. A nonforfeiture clause stipulates that an insured party may receive full or partial benefits or a partial refund of premiums after a lapse due to non-payment.
- Review of your policy periodically: Because your insurance needs will change during different periods of your life (i.e., a new baby, death of a beneficiary, purchase of a new home, etc.), F.R.E.D will automatically schedule an annual review of your policy to ensure that it is always in pace with the changes in your life.
- Life insurance is complicated. Utilize the services of trained insurance professionals. At F.R.E.D, our network of Life Insurance professionals is completely devoted to helping you choose the right policy for your current circumstances. We know all of the ins, outs, and nuances of insurance and will utilize our collective experience of over 40 years to get you the policy that is appropriate for your circumstances. Our network of life insurance agents/advocates is comprised of trained insurance professionals ready to advocate on your behalf.
This article is written by
Frederick W Ford
Insurance, Mortgage, Real Estate and Retirement Advisor
NMLS 640619
