There are basically three types of life insurance policies. They are Whole Life Insurance , Universal Life Insurance and Term Life Insurance.
Term Life Insurance is a type of limited time life insurance. It provides protection for a certain number of years or time period according to the policy -- usually offered for ten or twenty years.
Term Life usually has the lowest premium in the early years making it more affordable. If you purchase a policy for a 10-year period and you die in any of those 10 years, your beneficiary receives the money of your insurance policy. If however you are still living at the end of the term, your insurance policy is over unless you can renew the policy at usually a higher premium. You are insuring the possibility that you may die within the time period of your policy. Term Life does not build any cash value.
Whole Life Insurance is a type of permanent life insurance. It provides life-long protection. You pay a fixed premium amount for life, the price you pay for your policy stays the same for life. As long as you pay your premium the death benefit will be paid to your beneficiary or beneficiaries when you die. This type of policy is priced and designed for you to keep over a long period of time. You are insuring the fact that you will someday eventually die and that the policy will then pay out to your designated beneficiary or beneficiaries. "Whole Life" builds up cash value over time, from which then you can borrow from. The policy cash value grows at a guaranteed rate.
Universal Life Insurance is another type of permanent life insurance. This type of life insurance policy gives you more control. You can decide when and how much you want to pay into your policy after you pay an initial premium. The policy cash value grows at an interest declared by the company each year. You also have access to your cash value through policy loans.
When should I consider Term Life insurance?
Usually when you need protection for a limited amount of time, up to 20 years, and your main concern is buying insurance at the lowest cost. During the term of your life insurance policy you may be able to convert to a permanent life insurance policy if your needs change. Many term life insurance policies have a conversion privilege that will allow you to change from term life insurance to whole life insurance without a medical examination. It is important to check the conversion privileges of any term life insurance policy with the insurance company before you make a purchase decision.
What are the advantages of Term Life Insurance?
Initially, term life insurance premiums are generally lower than those for permanent life insurance policies, allowing you to buy higher levels of coverage for your current needs. Term life insurance should be considered if you need protection to last not more than 20 years. If you expect you will need life insurance for a longer period, consider a permanent life insurance policy such as whole life insurance.
What are the disadvantages of Term Life Insurance?
Your life insurance coverage may end, or your premiums may become too expensive to continue as you grow older. Your life insurance policy builds no cash value and you can't borrow money from your life insurance policy.
How do insurance companies rate individuals who want to buy Term Life Insurance?
Insurance companies generally rate individuals by their age, gender, health history and occupation.
Can I take out a loan against my Permanent Life Insurance policy?
Yes, You can borrow any amount up to the cash value of your permanent life insurance policy. Credit checks are generally not required. You will pay an interest rate on the money you borrow, and in some cases the loan you take out can be taxable. If you die before you have paid back the loan, the outstanding balance and interest will be deducted from the death benefit.
What optional protection can I add to my basic Term Life Insurance policy?
Some life insurance policies allow you to add riders to your policy:
- A Waiver of Premium Rider if you become totally disabled usually before you reach 60 years of age. This means you don't have to continue paying your life insurance premium during the term of your term life insurance contract or policy if you become totally disabled.
- Accidental Death Benefit Rider in the event the insured dies from an accidental death prior to age 70.
- Child Protection Rider lets you add your children to the policy premium.
- Accelerated Benefit Rider allows you to receive a lump sum payment of up to 25 % of the base policy benefit. This is for cases of terminal illness in which you can expect to live less than 6 months. Also for major organ transplants (lung, heart, liver, pancreas), or for nursing home confinement for remaining of life. The maximum amount you can receive is usually $25,000. Check with your insurance company for the exact details of coverage.
What are the reasons to consider permanent Life Insurance such as Whole Life Insurance?
When you expect your life insurance needs to be permanent, or to last more than 20 years, and you want to pay a consistent premium. Unlike term, permanent life insurance rates don't go up. Rates generally stay the same as long as you maintain your policy in effect. A permanent policy also builds interest with time from which you can also borrow money from. Should your future needs require additional funds to pay for unexpected expenses, or help pay for a child's education, your permanent life insurance policy will help with the money you need.
How much Life Insurance coverage should I get?
It is suggested you determine the amount of income you would like to replace and the number of years it would take to replace this income if you were no longer around to financially provide for your family or those financially dependent on you (the insured). Generally, it is recommended you purchase coverage to replace at least 7 to 10 times your current annual income. This is a general "rule of thumb," and does not take into consideration current assets or any special needs you and your family may have in the future. You may need more or less coverage, based on your individual circumstances.
This is the replacement income you think your family would need to replace the income and maintain the living standards that you currently provide, but which would stop if you were no longer around to provide for their financial support.
Your income sources and savings (and amounts), whether you are single or married, and if married your spouse's earning capacity, the number of persons financially dependent on you, and other factors should influence how much coverage to buy. You may also want to consider funding future expenses such as college education, retirement, and any special needs a child or family member may have.
You should take into consideration what immediate financial needs there will be after your death to cover such expenses as medical bills, funeral expenses, and estate taxes. Also consider what costs would be involved in a readjustment period for family members who relied on your financial support. Consider monthly bills and other ongoing expenses, rent or mortgage payments, day-care costs, and tuition fees, etc.
Is a medical exam required for a Life Insurance policy?
Small term life insurance policies may only require a simple oral test that any insurance agent can administer. Generally this test reveals if you are a smoker or if you are infected with the aids virus. A medical exam is however always required for large benefit insurance policies. This process takes about 15-30 minutes and is usually done at your home or any other convenient location. The exam is conducted by a licensed paramedical or medical doctor and usually involves a blood and urine specimen, blood pressure reading, height and weight measurement. You may also be asked a series of questions regarding your medical history.
What should I know before I replace a Life Insurance policy?
It is not wise to make a hasty decision if you are thinking about replacing a life insurance policy. A quick decision could result in a loss of coverage, an unnecessary increase in your insurance premium, or may result in you having to take another medical exam because of your older age or your health which may have worsened since your current policy was issued. Review your reasons for changing policies very carefully. Seek professional advise from those you trust and take your time to explore all possibilities, such as whether you can change your existing policy to meet your new insurance needs at a reasonable cost to you. Talk to your agent or several agents to discuss your needs and to review your financial situation before you go ahead to replace a policy. Should you decide to cancel your current policy make certain that you do not cancel your old policy until you have the new one in hand and in force. A termination notice must be signed in order for the old policy to be canceled.
Should I buy Life Insurance coverage for my spouse and/or children?
It is important to protect the income capacity of a household where both spouses earn significant income. Even if your spouse is not a wage-earner, you may want to consider coverage in case your spouse were to die prematurely. The coverage could help pay for any household services lost due to the death of a spouse. Also, the loss of a spouse be too great to deal with after the loss of a spouse. This may be a time for you to spend more time with your children or make other career adjustments and decisions. Coverage for your spouse may help ease the financial burden on yourself and provide extra income for your children's future. In certain circumstances, it may be advisable to buy life insurance on children, however generally, it may be more advisable to get the appropriate amount of insurance for the breadwinner (s) first.
What determines if I pay standard or preferred rates on Life Insurance?
You must be in very good overall health, have a good family health history, and lead a healthy lifestyle to get preferred rates. You must not have any significant personal health problems or smoke tobacco of any type. You cannot have a history of alcohol abuse or drug use, or be involved in any hazardous activities. Insurance companies set their own limits on weight to height, cholesterol, blood pressure. Each company has their own guidelines to determine your rating.
What if I smoke cigarettes or other tobacco?
You will pay more for your premium if you smoke cigarettes or other types of tobacco. Most insurance companies require you be a nonsmoker for at least one year before you can qualify for nonsmoker rates. Some companies may allow pipe, cigar, and chewers to qualify as nonsmokers, however most companies consider you a smoker if you smoke or chew any type of tobacco, including pipe and cigar.
How can I protect my Life Insurance coverage if I become totally disabled and can no longer afford to pay for my Life Insurance premiums?
Insurance companies offer a rider called "a waiver of premium," which you can purchase extra and add to your policy. This protection is available if you are under 55 years of age and usually terminates at age 60. In the event you become totally disabled, the insurance company will waive your premium payment for as long as you are disabled. In other words you will continue to get life insurance coverage but you do not have to pay your monthly premium as long as you are disabled or as stated in the terms of the policy. Coverage usually begins after 6 months of disability. Check with your life insurance company for the exact details of coverage and their definitions of what they consider to be totally disabled.
Can my Life Insurance policy be canceled if I become ill or any other reason?
No. An insurance company cannot cancel your policy due to health or other reasons as long as you continue making your premium payments. Once the life insurance policy is issued it stays in effect during the policy period as long as you did not intentionally give misleading, inaccurate, or false information on your application. You as policy holder can however cancel your life insurance policy at anytime.
What will my term Life Insurance cost after the guaranteed period?
Your term life insurance policy, if renewable has a guaranteed maximum renewal premium which is the most amount you will have to pay to renew your life insurance coverage. After your initial insured period you can reapply for new coverage with the same company or choose another company. If you qualify you can begin a new period of guaranteed rates. This is known as a "re-entry" if your insurance company qualifies you to continue your term life coverage. Re-entry is dependent on your good health when the policy is up for renewal. If you do not qualify at this time for a competitively rated policy your policy may carry a conversion privilege. This allows you to convert your term life insurance to a permanent, or universal life insurance policy. This conversion time privilege is different with each company. Check with your insurance company for the exact details of coverage.
What if the cause of death is a suicide?
Generally insurance companies do not pay claims if death by suicide occurs during the first two years the policy is in force. Ask your insurance company or agent about their policies relating to suicide deaths and claims.
How do I file a Life Insurance claim?
Life insurance can provide almost immediate cash for your family, however you need to file a life insurance claim first if the insured dies to receive his or her death benefit. Call the insurance company or the agent of the deceased to file a claim . The agent or broker will explain the details and assist you in the claim filing. Have your life insurance policy handy in case you need any policy information. You can also write to the nearest office of the insurance company for information on filing a claim.
The life insurance company may require you to submit a certified copy of the death certificate from the funeral director. Follow the instructions on the life insurance claim form, and mail the required documents to the insurance company for a settlement. Once the claim is submitted, you should receive the benefit check in a reasonable short amount of time. You may receive a lump sum or installments, according to the terms of the policy. You may also be able to leave the money on deposit for interest to accrue.
Life insurance claims should be made within 30 days or as soon as possible after a death. The life insurance claim is usually paid within 30 days, unless an investigation is needed to determine the cause of death, or if death occurs during the first two years the policy has been in force. The first two years are known as the contestable period. Interest is paid from the date of death until the check is issued after the investigation is completed. Most beneficiaries prefer to take the proceeds of the policy in a lump-sum payment, although there may be other settlement options for leaving the money with the insurance company.