Insurance Questions, Answers & Definitions
is life insurance, and why do I need it?
Everyone will die someday. Life insurance is a type of insurance
that will give your loved ones a way to pay your final expenses,
and, if large enough, will provide at least a temporary source of
income to your spouse and/or children.
I have enough
money to pay for a funeral. Why should I bother paying for Life
There are lots of reasons for life insurance. According to insurance
statistics, the average family takes five years just to get the
bills in line and adjust the style of living to the loss of one
person's income. If you are independently wealthy, life insurance
will provide a tax free way to pay taxes on your estate. It will
also give your family something to live on while waiting for your
estate to be released from probate. If you have no family, life
insurance can still be a wonderful way to leave a legacy to a favorite
What are the
different types of policies available?
Term Insurance: A type of insurance you can purchase
very inexpensively. It's available in yearly terms ranging from
10 to 30, at which time it can be converted to any other type of
insurance the company offers. However, the conversion price will
be based on your age at that time.
A type of insurance with a savings component into which you pay
your premium. The company pays interest on the savings and takes
the cost of insurance and fees out of it. If funded properly, this
type of plan can last to age 100. But, even if you start with a
small premium, you will always have the option of adding money or
increasing the premium to avoid losing the policy.
Life: Insurance for which you pay a premium from the day
you take it out to age 99–unless you choose a paid up option.
Neither the premium nor the face value will ever change, and the
policy will build cash value that you can borrow against or cash
in if you decide you no longer need the coverage.
Very few companies offer this. It is a type of universal that is
tied to securities such as stocks and bond. An agent has to be licensed
in variable products to sell it to you. Your premium and your death
benefit can change if your investments drop in value.
There are two joint life products, First to die and Survivor or
"Second to Die." Two or more people are insured on one policy. In
first to die, the benefit is paid when the first person dies, and
the policy is terminated. In second to die, the benefit is not paid
until the last insured person dies. This variation is most often
used when people are trying to create a legacy or when they want
to leave the heirs with a way to pay estate taxes.
Final Needs (Burial)
Insurance: This is the only type of insurance your funeral
director can sell you. Usually it guarantees that your final expenses
will be paid, regardless of future increases in funeral costs. It
is usually easier to get than other types of policies as the underwriting
is simplified. If you choose this option, make sure you know exactly
what is covered, and also find out if the policy can be transferred
if you happen to move to another state.
Life Insurance: These policies are advertised widely on
television and are the most common life insurance marketed through
mass mailings. The selling point is that there is NO MEDICAL, and
you CAN'T be turned down for any reason. The catch is that the policy
does not pay the face benefit for the first 1 to 3 years, depending
on the company. If you die in the first year or two, your beneficiary
will receive a return of premium plus interest. This type of insurance
is intended for a person with severe medical issues that make one
uninsurable, such as strokes, heart disease, diabetes, cancer, kidney
disease, or Alzheimer's Disease.
Don't wait until
you think you might "need" it.
One thing is for sure–none of us knows when the grim reaper
will come knocking. But two things ARE certain. The longer you wait
to choose your life insurance policy, the more expensive it will
be, as the price goes up with age. Also, the older you are, the
more apt you are to have chronic illnesses that will result in being
denied or rated up. Life insurance is a love letter to the people
most important in your life. Don't wait to write yours.