Life Insurance Basics

What is the definition of life insurance?

Simply put, life insurance is an agreement you make with an insurance company to provide financial protection for losses and expenses that would arise if you were to die prematurely. You pay premiums to the insurance company to keep your policy in force. In exchange, if you die while the policy is still in force, the insurance company pays death benefits to your named beneficiary(ies). In most cases, those death benefits are income-tax free.

How do I know how much life insurance I need?

There is not a "One-size-fits-all" answer when it comes to knowing how much life insurance you need. Everyone buys life insurance coverage for different reasons. The right amount of coverage for you will depend on your current and estimated future financial situation, and on your goals for the insurance proceeds (I.E. Pay final expenses, provide estate liquidity, leave a charitable legacy, pay off debts at death, save for children's college expenses, replace your income for a period of years, etc.) talk to your insurance agent to discuss what amount of life insurance will help you meet your goals and needs.

What does life insurance cover?

The primary reason for buying life insurance is to help protect your loved ones from potentially devastating financial consequences that could arise at your death. Life insurance provides cash death benefits to the person or people you name as your beneficiaries, if you die while the policy is in force. Those death benefits are usually income-tax free to the recipient, and can be used for any purpose. Some common uses for life insurance proceeds include paying off debts, paying final expenses and funeral/burial costs, meeting tax obligations, making up for lost income and creating a financial legacy for loved ones.

Who Needs Life Insurance?

Do I need life insurance?

Most people need some amount of life insurance coverage. For single people who don't have anyone else depending on their incomes, a minimal amount of life insurance can provide ready cash to pay for final expenses. People with spouses and/or children should consider buying life insurance to provide a financial cushion, so loved ones wouldn't need to necessarily change their standard of living if a death occurred. Life insurance also has practical applications for people with sizable estates and potential estate tax issues, as it can be used to create a source of cash to pay estate tax obligations and other expenses.

Why is life insurance for children important?

When you buy life insurance on a child's life, you are doing more than ensuring funds would be available to cover the child's final expenses, if he or she died prematurely. You are also helping to protect your child's future insurability. Nobody knows what lies ahead for your child's health; when he or she has permanent life insurance in place at an early age, that policy can remain in force for your child's entire lifetime, as long as sufficient premium payments are made - even if they later develop a health condition that makes them uninsurable.

Is life insurance necessary for young adults?

Young adults may not have families depending on them financially. However, they also generally haven't accumulated enough assets yet to be able to cover final expenses and funeral/burial costs. Life insurance can provide that protection, and can also be used to pay off debts in the event the insured dies, so his or her parents don't have to cover those types of expenses. The cost of life insurance is also based on the insured's attained age when the policy is issued. Buying coverage at a younger age means getting more affordable coverage that can last a lifetime. Iul’s also offer tax-free retirement funds and can be a good savings option for younger adults. They can also pair IUL’s with term policies with living benefits to make sure they maintain their retirement funds even if they develop a disease.

Types of Life Insurance

Are there different types of life insurance?

There are many different options when it comes to buying life insurance coverage. In some cases, a term life policy will make the most sense, providing a set amount of insurance coverage for a fixed time period. In other cases, a whole life or universal life insurance policy may be more advantageous, providing coverage designed to last for your entire lifetime along with a cash value savings component built right inside your insurance policy. Life insurance vehicles can also be used for retirement planning and helping your children or grandchildren get a smart start by protecting their future insurability. Your independent insurance agent can help you evaluate your coverage needs and design insurance protection to meet those requirements, while staying within your budget.

Mortgage protection

Is there life insurance to cover a mortgage payment?

Yes! Mortgage protection insurance offers life insurance protection designed to ensure your mortgage payments will continue to be paid if you die prematurely. This can provide valuable peace of mind to your loved ones, knowing they won't need to change their residence at an already difficult time. Some mortgage protection policies also offer coverage for homeowners who become disabled or are diagnosed with a covered critical illness.

Retirement

How can I use life insurance to fund retirement?

There are actually several ways to use life insurance products to help fund your retirement. You could choose a whole life or universal life policy, either of which will allow you to accumulate funds using the policy's cash value component. Another popular choice is to use the retirement protection products available from symmetry financial group that allow you to take advantage of the accumulation potential in annuities or indexed universal life (iul) policies. These vehicles combine insurance protection with tax-deferred growth or with the option to tie growth to a market index, providing the potential for enhanced returns.

Term life insurance

What happens when term life insurance expires?

When you buy a term life insurance policy and outlive the policy term, you may have the option of extending coverage for a new term. However, be aware that the premiums can jump significantly when you exercise this option. That's because the premiums were originally based in part on your attained age when you took out the policy. The new premiums will be based on your attained age when the initial term expires. You may also have the option of converting an expiring term policy to a permanent policy. Talk to your insurance agent to explore options for your particular policy.

Critical illness insurance

Can I get life insurance if I have a critical illness?

Unfortunately, waiting to obtain critical illness insurance coverage until after you've been diagnosed with a critical illness means that you won't be eligible to cover that illness or health event.

Critical illness insurance is available to people who aren't diagnosed with a serious illness at the time of coverage. Buying the policy while you're healthy has definite benefits: once you pass any underwriting procedures, you would select the policy, and pay policy premiums to the insurance company. In return, if you are later diagnosed with a critical illness that is covered under your specific policy, the insurance company will pay you a lump sum cash benefit.

*Under the Affordable Care Act, you should still be able to maintain health insurance coverage as long as you keep paying your policy premiums, as health insurance providers are not able to discriminate based on pre-existing conditions.

Disability insurance

Why do I need disability insurance?

Learning you have cancer, heart disease, or another type of critical illness can be devastating and may leave you wondering how to protect your family from potential financial hardship if your illness was to result in death. Having a critical illness does not necessarily mean you will not be able to obtain life insurance, although you will likely not be able to obtain as much coverage as you desire and may pay high premiums for a policy. None of us own a crystal ball to predict what the future holds; therefore, it's best to buy life insurance when you are relatively young and healthy. You may be able to obtain insurance at more favorable rates and have the peace of mind that comes from knowing you are protected, no matter what life brings.

Who receives the cash payout for a disability insurance claim? When you are unable to work because of a disability, your monthly obligations and expenses unfortunately won't just go away. If you buy a disability insurance policy from your independent insurance agent and later become disabled, the insurance company will make payments directly to you or to your designated payee. This can provide much-needed cash you can use to make up for lost income. Use disability claim benefits to pay your mortgage or rent, help with medical expenses, pay your regular monthly bills, or for any other expense.

Universal life insurance

What happens if I miss a premium payment for my universal life insurance policy?

One of the key benefits of universal life insurance policies is their flexibility when it comes to premiums. Because cash value accumulates inside the policy, the policy owner may be able to occasionally miss a premium payment without causing the policy to lapse immediately. The cost of insurance would be withdrawn from the accumulated cash value to keep the policy in force. Of course, relying on this flexibility too frequently or for an extended period of time will likely mean that additional premium payments would be required in the future in order to keep the policy going.

Life Insurance Financial

What is the cost of life insurance?

Many people put off buying life insurance because they think they are not going to be able to afford it. In reality, life insurance is usually much more affordable than people think it will be. The cost of your policy will be based on many factors, including your attained age and overall health at the time you apply for coverage, what type of policy you buy (I.E. Term vs. Permanent coverage), and whether you select optional policy options. Your independent insurance agent can help you find policy options that meet your insurance needs - and your budget.

How are life insurance premiums determined?

The amount of policy premiums you will need to pay to keep your life insurance policy in force will depend on a number of factors, including the type of policy you are buying, how old you are, and your health and lifestyle. Generally speaking, permanent life insurance premiums are higher, because you're buying coverage designed to last your lifetime, rather than just "Renting" term insurance coverage. Premiums for a young, relatively healthy individual will be cheaper than those paid by an older person with some past or potential health complications.

Are life insurance premium payments tax deductible?

Premium payments for individual life insurance policies are never tax deductible. In certain circumstances, business owners can deduct premium payments they pay on life insurance policies for employees (other than the business owner or anyone else with a financial stake in the company), as long as the business is not the beneficiary of the policy. The rules and limitations are nuanced, so it's best to consult with a tax professional to determine tax deductibility for your particular situation. The real tax benefit for life insurance lies in the tax treatment of death benefits. In most cases, the payments to beneficiaries of life insurance policies after the death of the insured person are income-tax free to the recipient(s). However, interest on a life insurance policy generally must be reported as ordinary income by the recipients.

How can I use life insurance to save for college?

Life insurance can do much more than provide tax-free cash benefits when you die. It can also be used to help save for - and to pay for - college expenses for you or your children or grandchildren. When you purchase permanent life insurance, including whole life and universal life policies, you have the opportunity to build up a cash value inside of the policy. If you start funding this cash value account when your children are small, you'll be amazed at how it grows over time. When it's time to start paying for college, you can borrow against the cash value or take a partial distribution from it.

Life Insurance Approval

How long does it take to get approved for life insurance?

The length of time between when you apply for life insurance coverage and when your policy is approved and issued can vary, depending on a number of circumstances. Life insurance applications go through an "Underwriting" process. This is an opportunity for the insurance company to evaluate their potential risk in issuing the policy. In certain cases, underwriting is streamlined and automatic, so you may be approved for coverage almost immediately after applying without having to provide evidence of insurability. In other cases, underwriting can take any where from a couple of weeks to a couple of months.

What are some common reasons life insurance claims are denied?

Life insurance is designed to provide death benefits after the named insured person on the policy dies. However, there are certain circumstances where death benefit claims will be denied. The most common of these is because sufficient premiums were not paid to keep the policy in force. Other potential reasons for denying a claim is a finding that the insured person lied or materially misrepresented a fact on the application for coverage, or when the beneficiaries fail to submit required documentation to support their claim. Finally, suicide in the early years of a policy (usually the first two years) is also usually not covered.

Is it possible to get life insurance with diabetes?

Life insurance underwriting decisions are based on a number of factors. Having diabetes or other health conditions is not necessarily a bar to getting coverage. However, someone with significant health issues or underlying conditions may not be approved. If you are approved for coverage, you may need to agree to pay higher premiums to keep the policy in force.

Can I use life insurance to pay for long-term care?

If you don't have a stand-along long-term care insurance policy, you may be wondering what your options are for paying for your own long-term medical care, should the need arise. There are actually several ways you can use life insurance to pay for long-term care. First, you may want to explore a combination life insurance/long-term care insurance policy.These types of policies are designed to allow you to receive policy benefits in some form, whether that's through payment of your long-term health care, or through death benefits to your named beneficiaries after you die. Your life insurance policy may also include a provision allowing you to take accelerated death benefits to pay for your own long-term care, under certain circumstances. Life settlement options may also be available. Talk to your insurance professional to explore what options are available to you.

Can you get life insurance with pre existing medical conditions?

Possibly. Having a pre-existing health condition is not an automatic bar to being able to obtain life insurance coverage. When you apply for coverage, you will need to provide information and answer questions about the condition, and if approved for coverage, you may pay higher premiums to obtain the policy. One of the benefits of working with an independent insurance agent is that he or she can easily shop around to find different policy options for you to consider, so you can evaluate them and make an informed decision. Even if one carrier says "No", odds are good that another carrier will say "Yes!"

Is it more difficult to be approved for a universal life insurance policy?

Generally speaking, universal life insurance policies may require a more stringent underwriting process than term life policies for the same face amount. That's because a term life policy is designed to provide life insurance protection for a specific period of time, whereas universal life policies are designed to provide life-long protection, as long as premiums paid are sufficient to fund the policy. However, many carriers also offer "Guaranteed issue" or "No exam" life insurance options that are easy to qualify for. However, going that route can leave you underinsured and can leave you paying more for your insurance coverage than you would otherwise need to pay.

Life Insurance Comparisons

What is the main difference between accidental death and dismemberment vs life insurance?

Life insurance policies generally pay death benefits to the named policy beneficiaries regardless of how the insured died, although there are generally some exclusions for suicide occurring during the early years of a policy. In contrast, accidental death and dismemberment policies only pay benefits if death occurred as the result of a covered accident, or if an accident caused dismemberment, as defined under the policy. While both types of policies would likely pay death benefits if the insured person died from an automobile accident, only the life insurance policy would pay if the insured died after battling cancer.

Life insurance versus a pension: which is best?

Both life insurance and pensions are designed to provide financial benefits. However, they are different in several key ways. Life insurance will pay a cash death benefit to your named beneficiaries when you die, giving them funds to pay final expenses and funeral costs, pay off debts, replace lost, and more. When you have permanent life insurance, there is also a cash value savings component, which can be a way for you to help save funds for retirement. In contrast, pension plans are designed to provide you with income in your retirement years. Benefit payments may stop when you die, or they may continue for your beneficiary's lifetime. When you are evaluating your options for providing financial protection, remember that it doesn't need to be an "Either/or" decision. You can have both life insurance and pension benefits.

Is it more difficult to be approved for a universal life insurance policy?

Generally speaking, universal life insurance policies may require a more stringent underwriting process than term life policies for the same face amount. That's because a term life policy is designed to provide life insurance protection for a specific period of time, whereas universal life policies are designed to provide life-long protection, as long as premiums paid are sufficient to fund the policy. However, many carriers also offer "Guaranteed issue" or "No exam" life insurance options that are easy to qualify for. However, going that route can leave you underinsured and can leave you paying more for your insurance coverage than you would otherwise need to pay.

Mortgage protection insurance vs. Private mortgage insurance: what's the difference?

Although these two insurance products sound similar, they are actually different. Private mortgage insurance, or PMI, is designed to protect your mortgage lender from a scenario where you stop making payments and default on your loan. Your lender may require you to have this type of coverage if you purchase your home with less than 20% down. Mortgage protection insurance, on the other hand, is designed to protect your loved ones in the event you die, become ill or disabled and are unable to continue making mortgage payments as a result.

Life Insurance Beneficiary

How does life insurance work when someone dies?

Life insurance is designed to cover someone's life, providing a cash death benefit when the insured person dies. After someone dies, the named policy beneficiaries will need to submit the insurance company's required death claim forms, a certified copy of the decedent's death certificate, and other information as required by the insurer. Your independent insurance agent can help your beneficiaries through every step of the process, helping them select insurance policy settlement options that make sense.

How do you select a beneficiary for your life insurance policy?

When you apply for a life insurance policy, you will be asked to name one or more policy beneficiaries. Your beneficiaries are the people who will receive the policy's death benefit, if you die while the policy is in force. The choice of beneficiary is an individual decision. However, most married people or people in committed relationships name their spouse or partner as their primary beneficiary. You may also name one or more secondary or tertiary (third) beneficiaries, who will inherit if your first-named beneficiary dies before you. For example, the beneficiary designation for a married person with two children might say: primary beneficiary: 100% to my spouse; secondary (or contingent) beneficiary: 50% to my son and 50% to my daughter. Talk to your insurance agent about the best way to ensure your policy beneficiary designations accurately reflect your wishes for the distribution of policy proceeds.

How does someone know if they are the beneficiary of a life insurance policy?

Insurance companies are obligated to honor the terms of life insurance contracts by paying death benefits to the named beneficiaries when the insured person dies. In some cases, family members or other beneficiaries know they have been named, and they reach out to the insurance company to begin the claims process. In other cases, family members might find an old policy statement or premium bill in their deceased loved ones' records and may reach out to the insurer to find out if the policy was in force. In still other cases, insurance companies themselves need to make a concerted effort to locate policy beneficiaries after a policyholder dies. If you purchase a life insurance policy, try to provide as much current contact information as possible about your beneficiaries, in order to help facilitate payment of policy benefits in the event of your death.

Life Insurance Miscellaneous

How are life insurance companies regulated?

Each state in the U.S. Has its own insurance department, which regulates life insurance companies, policies, agencies and producers (salespeople.) rules, regulations and laws are state-specific and vary from state-to-state. Variable life insurance products, which are considered hybrid insurance/securities products, are regulated by both state insurance departments and the securities and exchange commission (sec.) to learn more about how your state regulates life insurance products and services, you can use this resource provided by the national association of insurance commissioners to find your state's insurance department online.

Who sells life insurance?

Life, disability, and critical illness insurance are complex financial products, regulated by state laws. Licensed insurance agents contract with insurance carriers to provide their products to consumers. At symmetry financial group, our independent insurance agents have completed all required pre-licensing training and post-licensing continuing education to understand the complexities and nuances of various insurance products. Our insurance professionals are licensed and contracted to offer life insurance and other insurance products from more than 30 well-respected insurance carriers.