Top 10 questions about Life Insurance
Life insurance is used to replace in whole or part the economic value of human life for either family purposes or business purposes. In exchange for premium payments, the life insurance company agrees to pay a death benefit upon the death of the insured to the beneficiary named in the application for the policy. Life insurance policies may provide other uses and benefits as well.
We have a Life Insurance Quote tool to connect our customers with Life Insurance providers.
You should contact a licensed life insurance agent for more information about this topic or Contact Us with questions.
Do I need life insurance?
No its not required by statute. However, you need life insurance if you want to provide financial protection for your dependents (or to your creditors) in the event of your death. We at InsuranceShark highly recommend it for everyone. The following are typical examples of family and business purposes to consider when assessing the need for life insurance:
- Dependent children.
- Dependent spouse, parent or grandparent.
- Credit enhancement.
- Key person indemnification.
- Business continuation.
- Employee benefit plans.
How much life insurance do I need?
The amount of life insurance a person needs will depend on their own particular circumstances and the reasons for purchasing the policy. One approach to determine how much life insurance you should purchase is to analyze the various needs of your family in the event of the death of a family member. There are a few good calculators online, we think Financial Samurai does a good job summarizing in its article “How much life Insurance do I really need?” or checkout new tools like PolicyGenius for help. It’s important to note that there are different needs for Life insurance, it may satisfy a number of these needs by providing a fund that can be used to:
- Pay off an individual’s last debts such as medical bills and funeral expenses;
- Meet estate taxes and other expenses in settling an estate;
- Provide life income for the spouse;
- Pay off a mortgage;
- Pay for the children’s education;
- Provide funds for retirement;
- Provide an income for the policyholder’s spouse to give the family time to readjust to a new standard of living;
- Draw interest to provide funds for some special purpose; or
- Provide a monthly income until the children are grown and out of school.
- Another factor that may be taken into consideration in determining how much life insurance you need is the amount of your annual salary.
What are the main types of life insurance products available for purchase?
While there are many types and variations of life insurance products available in today’s marketplace, there are basically two types of life insurance: term insurance and permanent insurance.
Term life insurance provides death benefit protection for a certain period of time such as one or ten years. Death benefits are paid to the beneficiary only if the insured dies during that term period. Generally, term policies do not build up any cash values.
Permanent life insurance can provide death benefit protection for your lifetime and the policy will provide for the build up of a cash value. The cash value may be used in several different ways e.g. you may borrow against the cash value by taking a loan. Permanent insurance includes several different types of policies such as whole life, universal life and variable universal life.
What factors should I consider when selecting a life insurance company?
There are two types of life insurance companies i.e. stock companies and mutual companies. Stock insurers are corporations owned by the shareholders of the corporation. Mutual insurers are owned by their policyowners who may receive a yearly dividend if one is declared by the company’s board of directors. Both stock insurers and mutual insurers offer suitable policies for purchase. Some factors you may want to consider when selecting a company include the following:
- The types of life insurance policies the company sells.
- The company’s reputation for treating policyholders fairly (especially with respect to discretionary items such as the crediting of additional interest or dividends)
- Financial safety
- The company’s history and experience in the life insurance industry.
How is life insurance sold?
Individual life insurance can be sold directly from an insurance company through an agent or broker, through the mail, over the internet, over the telephone as well as from banks or other financial institutions. You may also be able to purchase insurance from a fraternal benefit organization if you are a member. Group insurance may be available through your job or from associations or other organizations in which you participate.
What is underwriting?
Underwriting is the process an insurance company uses when it selects applicants it is willing to insure and determines the cost of providing coverage. There are common factors that insurance companies may use to decide how much to charge you for the kind and amount of coverage you want to buy, such as:
- your age,
- your gender,
- your health and health habits (smoking for example),
- your family health history,
- whether you are engaged in a hazardous occupation, or
- dangerous hobbies (auto racing or sky diving for example).
- medical reports
How do I compare cost?
To compare the costs of purchasing a life insurance policy, it is recommended that consumers obtain quotes for similar policies from different companies. Comparing costs only makes sense if you are comparing similar policies. The key is to have the tools and knowledge to understand similar policies. Comparison of costs can become increasingly complicated when products include such non-guaranteed features as dividends or additional amounts. Make sure that you can afford the amount of coverage you intend to purchase. Premiums for some products can change over time and your circumstances i.e. your ability to pay the premiums over an extended period of time may change as well. When comparing the costs of policies be sure to ask if the premiums, death benefit, or cash values can change over time.
Do I need a sales illustration?
A sales illustration is a detailed projection of future policy values based upon the variables selected by you and your agent in conjunction with the purchase you are considering. The illustration can help to show you how the policy is expected to work. The illustration will show you what costs and benefits are guaranteed and what costs and benefits are not guaranteed. We recommend that our followers request a sales illustration if available, prior to purchase.
Can I change my mind after I purchase a policy?
You will have a period that can be anywhere between 10 and 30 days, depending on the terms of the policy, after you receive the insurance policy to return the policy if you are not satisfied and receive a refund of premium. This period of time is called the “free-look” period, and a “free-look” notice is required to be displayed on the cover page of the policy. Use the free look period to read your policy carefully. If there is something in the policy you do not understand call your agent or contact the company for an explanation.
Should I replace my existing life insurance policy?
Replacing an existing life insurance policy can be costly and may not be in your best interest. When you apply for a life insurance policy you will be provided with a “Definition of Replacement” form which will explain what constitutes a replacement. If you intend to replace your policy, than no later than when you sign an application for a policy to replace your current policy with a new policy, you will receive a copy of a “Important Notice Regarding Replacement or Change of Life Insurance Policies or Annuity Contracts,” and a “Disclosure Statement.” These documents give you information to think about before replacing your life insurance policy or annuity contract. We will discuss factors you should consider for replacing your policy under a separate article.