Life Insurance FAQ’s

What is life insurance?

Life Insurance protects a family from a financial disaster should the primary income earner die. It is also an element of a family’s financial planning and life insurance is one of the essential parts of the financial planning process. As in its name life insurance basically explains itself as it insures the life of a person should they die and pay a predetermined amount to another. While the person who is insured has the coverage a person called the beneficiary receives financial compensation if the insured should die there is more to the process. Life insurance is pretty straightforward in that when the insured person dies the policy pays a prearranged amount to the designated beneficiary.

Who are the Parties in a Life Insurance Policy?

  • The Insured - Is the person whose life is insured on the policy.
  • The Beneficiary - Is the person who is compensated should the insured die.
  • The Owner - Is the company or person responsible for payment of premiums. It is typically the insured, but it could be a company or the beneficiary.
  • The Insurer - Is the insurance company that issues the life insurance policy who promises to make payment.

Why do I need life insurance?

The primary purpose of a life insurance policy is to protect your family or company against the risk of financial uncertainty. Life insurance can provide for the welfare of your family should you were suddenly to die. What life insurance does for you and your family as it gives you peace of mind and Income replacement. Life insurance can protect your family and loved ones from potential financial disaster. You want to make sure that people in your life, especially your dependents, can remain financially secure after you die. Life insurance is also used to achieve specific business or estate planning goals.

How Much Life Insurance Coverage do You Need?

Your life insurance needs may vary depending on your financial situation and family needs. Nobody wants to leave our loved ones in financial trouble so you should ask yourself what your family would need to make sure they can continue to live the lifestyle to which they are accustomed. Determining how much life insurance you need requires an examination of your current financial position and future financial obligations. You also need to consider what would cost to help your family meet their immediate and ongoing needs. Expenses like food, housing, taxes, clothing, utilities and other future obligations like college and retirement. You must also consider the resources that your family could draw upon to meet their financial obligations.

What type of life insurance policy should you buy?

The choice of life insurance policy and coverage depends on your exclusive circumstances and financial goals. Some things to keep in mind are that term life insurance offers the greatest coverage for the lowest initial premium and a solution for consumers with budget or temporary needs. While Permanent life insurance makes a better choice if you want and have a policy that gives you permanent protection and you’re interested in accumulating tax-deferred cash values.

What is a life insurance policy beneficiary?

The beneficiary is the person or the party that you designated to receive life insurance proceeds upon the death of the insured. The beneficiary is always named when a policy is taken out and can be changed at the request of the policy owner. A policy owner must also name a contingent beneficiary which is the party designated to receive life insurance policy proceeds if the primary beneficiary should die before the person whose life is insured.

What is Surrender Charge?

A surrender charge is a fee charged if the policy is surrendered charge before the agreed upon surrender period of the life insurance policy. It is the amount of money that will be deducted from a life insurance policy's accumulated cash value if you surrender the life insurance policy.

What is Cash Surrender Value?

Cash surrender value refers to the amount payable to the life insurance policy owner upon surrendering the policy. It is the amount that is equal to the current Cash Value minus any surrender charges that may apply monthly contract charges or any outstanding policy loans and interest due on the policy loans.

What is Whole Life Insurance?

Whole life insurance policies are designed to provide you and your family with coverage from date of coverage until date of death. Whole life insurance is sometimes referred to as a cash builder insurance policy, because it builds cash value over the life of the policy. Whole life coverage is both an investment vehicle and a life insurance policy. The investment portion invests the premiums you pay and earns interest while accumulating cash value. While the insurance policy has a stated insurance coverage amount that is paid upon the death of the insured.

What is Term Insurance?

Term life insurance it is usually the cheapest type of life insurance. Term life insurance is designed to provide coverage for a fixed period of time that is usually from one (1) year to twenty (20) years. The premium for the term policy is guaranteed for the duration of the term and if it is a renewable term policy the premium will increase with each renewal. Because term life policy is for a specific period of time and the payout does not increase, the overall cost of term life insurance is usually very low.

What is Universal Life Insurance?

Universal life insurance is another very popular option that is similar to whole life insurance. It is a guaranteed renewable policy with an investment portion and death benefits that can be renewed and changed based upon the policy holder’s needs. The policy owner has flexibility with the policy in that money can be moved between the insurance portion and investment portion of the policy. The premiums can be paid out of interest that is accumulated from the investment savings portion.

What happens if you fail to pay life insurance premium payment?

Most life insurance policies have a grace period. If you miss a premium payment, you typically will have a 30 day grace period in which you can pay the premium. If you own a term policy and fail to pay your premium within the grace period the life insurance company will usually terminate the life insurance policy. If you own a permanent policy and fail to pay your premium within the grace period the life insurance company can use your policy’s cash value if it has cash value to keep the policy in force.