Frequently Asked Questions About Life Insurance

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Many people have questions about life insurance.

I have put together some of the most common questions that people ask about life insurance along with the answers.

If you’re wondering what life insurance is all about and how it works, then this FAQ is a great place to start.

Why Should I Buy Life Insurance?

Life insurance is purchased by people for a variety of reasons.  The following is a sample of some of the most common reasons why people buy life insurance, but there are many more:

·         Income replacement for lost wages if you’re the major breadwinner

·         Paying off a mortgage or personal debts such as credit cards and loans

·         Funeral, burial and medical expenses

·         Retirement and savings

·         Money used to fund your child’s education

·         Estate reasons, trusts and charitable donations

·         Business reasons

What Types of Life Insurance Policies Can I Buy?

There are 2 types of life insurance policies which you can buy and they include term insurance and permanent insurance. Permanent insurance is broken down further into whole life, universal life and variable life.

How much Life Insurance Do I Need?

This is dependent on your individual situation and actual needs.  Ideally, most experts state you should get 10 times your annual gross salary. It also depends on your reasons for buying life insurance. You need to take into account your current savings, investment plans and other assets plus any other plans such as what you might receive from your employer or Social Security.  Then, consider what you might consider the financial shortfall for your situation and you can use that as a guideline.

What is Term Insurance?

Term insurance policies cover you for life but are purchased for a specific length of time such as 5, 10, 15, 20, 25 or 30 years.  These policies cover lump sum, non-taxable death benefits only.  The premiums for the term you select are fixed for the term you select. These policies are also renewable or can be converted into a permanent policy, often without having to take a medical exam

What is Whole Life Insurance?

Whole Life insurance has both death benefits and a tax sheltered cash value accumulation feature.  Premiums and the rate of return on the cash value accumulation are guaranteed. These policies have a higher premium initially than a term policy, but the coverage is for your lifetime.  Whole life premiums can be paid-off in a limited number of years.

What is Universal Life Insurance?

Universal Life insurance is similar to whole life as it has both death benefits and a tax sheltered cash value accumulation component.  You have more flexibility with this type of policy as you can change your death benefits and how you pay the premiums.  Some policies allow you to choose your investment options.

Is Life Insurance Tax-Free?

Yes, in most instances your named beneficiary will receive a non-taxable lump sum payment on your death benefits.  However, if you name your estate as beneficiary, or buy a policy as a third party, there may be possible tax implications at both the state and federal levels.

Can I Change My Beneficiary?

Yes, and all you would have to do is contact your insurance company or agent and request a ‘Change of ‘Beneficiary’ form.

Can I Pay My Life Insurance Premium By Installments?

Yes, you can pay your premium as a lump sum, and most companies allow you to choose either monthly, quarterly, semi-annual or annual payments.  Payment options may vary from company to company.continue page 2……