Life Insurance Explained
If you’ve been on the fence about getting life insurance, here are some things that you should know.
A life insurance policy is a contract between two people: the insurance company and the insured. The policyholder pays the premiums having a specific death benefit be paid upon his or her death to another person (beneficiary). Generally, policies that provide from $250,000 to $2 million in coverage are purchased. However, higher coverage levels can be purchased at an increased cost.
Term life insurance is temporary insurance and has no cash value. When you stop making the required premium payments, the policy will expire. If you die during the term of the policy, your beneficiary will receive the death benefit.
Permanent life insurance with cash value is like an investment account and accumulates a savings element called cash value. This element allows you to view your policy as an investment vehicle, similar to a bank savings or money market account. Your cash value grows by investing premiums in a portfolio of mutual funds that are selected by the company issuing your policy. The portfolio also includes investments in bonds, common stocks, preferred stocks and guaranteed interest contracts (GICs). You may borrow money from your cash value to purchase a home, pay off a mortgage, or for another qualified purpose.
Whole life policies are permanent insurance that combine features of term and cash value (investment) insurance. Whole life policies offer lifetime coverage with the potential for growth of cash value over the life of the policy. These policies are designed to meet long-term insurance needs at cost levels relatively affordable over an extended period of time.
Universal Life Insurance provides flexible coverage and premium options that can provide a lifetime combination of term and permanent insurance with the potential for growth of cash value over the lifetime of the policy, all in one contract.
Life settlement leases are products that have many variations, including the ability for a beneficiary to invest instead of getting the death benefit.
The major difference between term and whole life insurance is that in a whole life policy, the cash value grows with premiums and investment activity, while in a term policy it does not. For example, a whole life policy owner may invest premiums over time and the growth of cash value will be taxed as regular income. A term life insurance policy owner's investment income would not be taxed by the government during their lifetime. The growth of your cash value is tax-free! So this is one way in which a whole life policy may be more advantageous than an ordinary term (no-payment) life insurance policy.
There are other advantages and disadvantages between term and whole life policies. However, the primary reasons for acquiring a whole life policy are similar to those applying to term insurance. Whole life is a relatively inexpensive way to provide monetary protection for your family if you die prematurely or become seriously disabled. In addition, since the cash value grows tax-deferred, it may be possible for your beneficiaries to take distributions tax-free. In general, this would not be possible with a term policy.
How can you determine which type of policy is right for you? It depends on your financial circumstances at the time of purchase as well as your needs in the future. Most people overestimate the amount of life insurance they need. The goal of life insurance is to provide enough insurance to protect your beneficiaries against financial hardship and not to make a profit. There is no such thing as too much protection, but there is such a thing as carrying excessive coverage. To determine how much term or whole life insurance you need, sit down and list your dependents' financial needs in the event of your premature death or total disability.
There are a few general rules you should follow when considering what type of policy to purchase:
For more details on each type of coverage, visit this Life Insurance Comparison Chart .
Policy term versus cash value: Regardless of which type of coverage you choose, the total premium that you will pay over the life of your policy will be greater with cash value than without it. To determine which type is most appropriate for your situation, ask yourself the following questions:
Which type of policy to buy? The purchase of life insurance is an important decision that should not be taken lightly. Visit an independent agent or advisor so that you can weigh all the different options and make a determination based upon your own needs and finances. And in case you're wondering, here's a list of popular insurance companies/agents near me!
Generation Life Insurance Agency, Adams Insurance Agencies Inc. (Berkshire Hathaway), Albert Ellis & Foster, Allstate - Ed Reynolds, Allstate - Keith Still, AmFam Insurance Group Employee Benefits Programs, American National Insurance Company (Life Settlements Division), American Security Life Insurance Company, American States (AIG), Ameriprise Financial Services Inc. - Lifelong Financial Planning, Amerprise Financial Advisors LLC (Ameriprise), AMP Agency LLC (Allstate), Assurance Companies of Texas, Brown-Smith-Shanklin Associates Inc., Century 21 Siegfried and Jensen Realtors. Intracoastal Realty Inc. (Life Settlements Division), CIGNA Financial Advisors, Coldwell Banker - David Pfeiffer, Creative Insurance Services, First Allied Corporation Life Insurance Company (First Allied), Foresight Insurance Group, Fred Snyder Agency Management Inc., Greenwich Securities Corporation - GSC Financial Corp. (Life Settlements Division), Guardian Life Insurance Company of America, GWB Holdings Inc., Hartford Steam Boiler Inspection and Insurance Company, Hinnant-Wixt Agency of Safety Investment Services LLC (Children's Choice)
http://www.lifeinsuranceadvisor.org/sisabout.asp
http://www.lifeinsuranceadvisor.org/liscomp1a.htm
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http://www.lifeinsuranceadvisor.org/onsite/consultation.asp
https://www.lincolnfinancialnetwork.com/wps/portal/lincolnfne
https://www.aiglife.com
https://www2.cigna.
Conclusion: The answer to the question of which type of life insurance is appropriate for you lies somewhere within your personal situation. But it can be summarized by the general considerations for both types:
Term Life Insurance Term life insurance is a form of protection that provides coverage for an event that occurs during your working years, usually up to age 65. Term life covers events that generally occur between ages thirty and sixty-five.
How Much Should I Get? In making a decision about term life insurance, it is important to understand how much coverage you need. In most cases, the amount of coverage you buy will depend on whether you have dependents or not.
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Life Insurance Explained