Life Insurance

As primary income provider, consider life insurance to provide for your family when you are no longer there to do so yourself.

When deciding if you should purchase life insurance, you should first consider its primary purpose. This insurance provides no direct benefit to the policyholder since it is only paid out upon the death of the policyholder. Therefore, the intent of this insurance is to provide financial benefits to those listed as beneficiaries of this insurance policy.

Funeral and burial costs average approximately $15,000 to $20,000, and if you don’t have funds put aside for this cost, subsequently someone in your family will most likely need to accept the burden of these expenses. For this reason, many people suggest that everyone should have at least enough insurance to finance the policyholder’s funeral.

The other important question to ask yourself is: “Do I have someone who depends on me financially?” Dependents can be children, a significant other, parents, or anyone else who financially relies on you. Most people agree that the primary purpose of this insurance is to provide income to your dependents who will suddenly find themselves at a financial loss in your absence. If you provide the primary income, you need to consider this insurance as a way to provide for your family when you are no longer there to do so yourself. If you are not physically bringing home an income but you are staying at home raising your family. You need to consider the hidden financial asset of the services you are providing as well.

Term life insurance is considered to be the most basic of life insurance that can be purchased. This is because term life offers just pure death benefit protection only, without any cash value builds up within the policy.

Term life insurance is often very affordable – especially for those applicants who are younger and in good health at the time they apply for the coverage.

With term life insurance, coverage is purchased for a certain length of time, such as for ten years, 15 years, 20 years, 25 years, 30 years – and in some cases, even longer.

Typically, when purchasing a level term life insurance policy, the amount of the premium will remain the same throughout the period that the policy is in force. Provided that the insured survives throughout the time period of the policy, and he or she wishes to remain covered by life insurance, they will need to re-qualify for a new policy at their then-current age and health status.

At that time, the premium on a new life insurance policy may be quite a bit higher. In some cases, a term life insurance policy may have an option to convert the coverage over into a permanent life insurance plan.

Permanent Life Insurance

Permanent life insurance is different from term insurance because it offers both death benefit protection, as well as a cash value component. It also differs because, as the name suggests, it does not have a time limit like term insurance, but rather is intended to last for the remainder of the insured's lifetime – provided that the premium is paid. There are many different types of permanent life insurance.

The simplest type of permanent life insurance coverage is whole life. With this type of coverage, the premium amount is locked in and will remain the same throughout the entire lifetime of the policy.

This can be helpful for those who need to stick to a budget. It also means that if a person purchases a whole life policy at a very young age, they will still pay the same amount of premium when they get older – regardless of advancing age, or even an adverse health issue.

In some cases, where a person's pre-existing conditions require the individual to buy high-risk life insurance, some graded whole life policies are the only option.

The cash that is in the cash value component of a whole life insurance policy is allowed to grow on a tax-deferred basis. This means that the gain on these funds will not be taxed until or unless they are withdrawn – allowing them to compound exponentially over time.

At first, the cash in a whole life insurance policy will grow slowly. This is because the majority of the early premium dollars will go towards paying the agent's commission and the insurance costs. However, over the years, the cash in a whole life policy can steadily grow, often with a minimum guaranteed rate of return.

Some whole life insurance policies will even provide dividends to their policyholders. Because these are considered to be a return of premium to the policyholder, they are also not taxed. Dividends can also help the cash value in a policy grow significantly – although they are never guaranteed.

Universal life insurance is another form of permanent coverage. This type of life insurance also provides a death benefit and a cash value component where the funds are allowed to grow tax-deferred.

Universal life insurance is more flexible than whole life coverage, though. This is because the policyholder is allowed – within certain guidelines – to choose how much of his or her premium dollars will go towards the policy's death benefit, and how much will go towards the policy's cash value.

Because universal life is a permanent life insurance policy, the policyholder will have access to their cash value account. So, just as with a whole life plan, the cash can be borrowed or withdrawn for any reason – including paying off debt, supplementing retirement income, or even going on a vacation.

Life Insurance FAQ

1. What is universal life insurance?

Universal insurance (life) is a unique product, in that it is actually two different products packaged together. The first product, a one-year annual renewable term life policy at the face amount listed on the policy. The second product, a cash value account that grows at either a guaranteed interest rate or the current rate whatever is higher. Universal insurance (life) has some advantages such as the ability to cash out at any time and the ability to change the number of premium payments.

2. How much life insurance should I buy?

You could ask ten different insurance professional and you would get ten different answers. The most common reasons for purchasing this type of insurance include coverage of debt, specifically a mortgage, replacing lost income for survivors, and making sure funds available for the education of children. How you actually determine how much life insurance you need is really a personal decision. What I recommend is you find an insurance agent you can trust, like The Murray Group. Have an honest discussion about what you hope to cover with your life's insurance and what your financial capabilities are and make your decision from there.

3. What is the difference between universal and whole life insurance?

Universal and whole life insurance, both considered as permanent insurance products. However, there are very distinct differences between the two types of insurance. Whole life insurance is a much safer product in that most whole life policies have a guaranteed premium which gets you a fixed death benefit and cash value that grows at a fixed, guaranteed rate. However, you will pay more for your whole life and also restricted in when you cash in the cash value. Universal life insurance is much more flexible. You can change the death benefit the premium you pay and the interest in the cash value account grows at an amount subject to market conditions (there is usually a guaranteed minimum though). You can actually not make payments if you have sufficient cash value in which to draw off.

4. Why is there life insurance for children?

Placing such insurance policy on a child can make some people a little uncomfortable. The thought of a child passing is often too hard for parents or grand-parents to bear. However, most insurance (life) policies bought on the lives of children are not purchased as a means of providing financial relief in the event a child passes. Instead, whole and universal (life) insurance policies bought as presents for children. These insurance policies become tools for the child later in life. It may take 20 years for the child to see the benefit of the present but these children often rewarded quite well for the investment made in this insurance.

5. Is my employer sponsored life insurance plan enough?

Employer-sponsored life insurance is a wonderful benefit to receive as an employee. However, just because this insurance is offered through work doesn’t mean that your family is adequately protected in the event you die. These three questions you must ask of your employer-sponsored insurance policy: 1. Am I responsible for premium payments and if so can I pay more to get more life insurance? 2. How is the amount of insurance determined? Is there a fixed benefit or is the life benefit paid as a multiple of my salary? 3. Is the policy portable? Get the answer to these three questions from your human resources manager and then consult an insurance professional to determine if you are adequately protected

6. Does long-term care insurance cover nursing home cost?

Long-term care insurance does cover nursing home costs as part of the general benefit structure. There are many different benefits that come to long-term care insurance. As our population ages, long-term care insurance is quickly going to become one of the most important insurance policies we own. The cost of self-insuring long-term care can cripple a family. Be very careful when purchasing long-term care insurance as there are many different options for coverage and many different benefit structures.

7. Do I need long term disability income insurance?

Long-term disability insurance protects your family and you from lost income in the event you are injured and can’t work. Unlike life insurance where a beneficiary is paid, long-term disability pays you. Living with a disability is tough enough, but experiencing financial struggles makes your living worse. Under a standard long-term disability policy, you get 60% of your income to an age you determine. The most common age we see is 65 years old.

8. What is the difference between whole life and term life insurance?

When you purchase a whole life insurance policy that policy is guaranteed for as long as you can pay the premiums. In addition, whole life has a cash account that grows at a pre-determined fixed rate. Term life insurance is very simple. Pick a death benefit. Pick the number of years you would like coverage. The insurance carrier provides you with a premium based on your health. You pay the premium each year you have insurance until the policy runs out. In determining the correct amount of insurance it is important to consult a professional that will help you determine your personal and unique needs.

9. Are You Safe with Your Employer’s Group Life Insurance?

Unfortunately far too often employer-sponsored group life insurance programs are not adequate for your family’s protection in the event you pass away. There are three very important questions you need to ask your employer about your group life insurance program…

10. Do I need long-term care insurance?

Long-term care insurance becomes more important every single day as the cost of providing health care rises. Families have gone bankrupt paying the long-term care expense for elder loved-ones that can no longer make it on their own. To clarify, Long-term care doesn’t just provide coverage for the nursing home or facility. Long-term care policies can also provide coverage for in-home care as well as many other benefits you may not be aware of. It is very common these days for children to pay long-term care policies on their parents to protect their own assets in the event their parents someday need long-term care services.

11. What’s the difference between group life and individual life insurance?

Group insurance (life) is a product that is provided by an employer. Sometimes the employer will cover the premium and another time group life is an optional benefit that the employee will purchase if they desire. Individual insurance (life) is a product that you buy and own yourself that is separate from anything that has to do with your work. Group insurance can at times be slightly less expensive. However, there are many drawbacks and restrictions to a group insurance policy that you must be aware of.