Everyone! Your need for life insurance varies with your age and responsibilities. It is a very important part of financial planning. There are several reasons to purchase life insurance:
To replace income that would be lost with the death of a wage earner. You may want to make sure your dependents do not incur significant debt when you die. Life insurance may allow them to keep assets versus selling them to pay outstanding bills or taxes.
Ask yourself the following questions:
- How much income do I provide for my family?
- If I were to die tomorrow, how would my survivors, especially my children live?
- Do I have children for whom I would like to set aside money to finish their education in the event of my death?
- How will my family pay final expenses and repay debts after my death?
- Will there be estate taxes to pay after my death?
Only someone who has an "insurable interest" can purchase a policy on your life. That means a stranger cannot buy a policy to insure your life. People with an insurable interest generally include members of your immediate family, but also employer or business partner might also have an insurable interest.
No, not really. If you buy a policy on your own life, you become the owner of that policy. As the owner, you can name anyone as beneficiary, even a stranger or a pet!
You have bought and received the company's guarantee (carrier) that if you die during the term of the policy, it will pay a death benefit to your beneficiary.
It depends. The period of time you'll need coverage for should be the main factor. For example, if you have young children, you may want to consider 20 or 30 years of term life coverage to help your children for college or other future financial endeavors. On the other hand, if your children are out of college and supporting themselves, a shorter coverage period might suit your needs better.
Premiums are typically based on factors such as:
- Age, sex, height and weight
- Health status, including whether or not you smoke
- Participation in high-risk occupations
Life insurance gets more expensive as you get older, and the type of coverage you choose will also affect your premium. Rates for term insurance are typically lower, while rates for permanent policies are typically higher.
Death benefits are generally received income tax-free by your beneficiaries. In the case of permanent life insurance policies, cash values accumulate on an income tax-deferred basis. That means you would not have to pay income tax on any of the policy’s earnings as long as the policy remains in effect. In addition, most policy loans and withdrawals are not taxable (although withdrawals and loans will reduce the cash value and death benefit). Always check with your accountant.
It’s a good idea to review your coverage every few years to make sure it still meets your financial needs. Check to make sure that all information including your beneficiaries, is current. It might be time to re-evaluate your coverage if you:
- Recently married or divorced
- Received an inheritance
- Purchased a new home
- Refinanced your home mortgage in the past six months
- Have a child or grandchild who was recently born, adopted or about to enter college
- Provide care or financial help to a child or parent
- Want to ensure that financial resources are available for a loved one’s assistance or long-term care
The policy owner is the person who owns the life insurance policy. In many cases, the policy owner is also the person who is insured by the policy. However, the policy owner may also be a relative of the insured, a trust, partnership, or a corporation.
A beneficiary is the person(s) selected by the policy owner to receive the life insurance payments upon the death of the insured.
Premiums are the payments made to the insurance company to purchase and keep a policy active.
A death benefit is the amount paid to the beneficiary at the time of the death of the insured.
The face amount of the policy is the amount of the death benefit as stated in the policy. This does not include additional amounts that the policy may provide.
Insurability refers to how likely an applicant is to be offered coverage based on current health, medical background, family history and other factors.
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