Life Insurance: Coverage for you and your family

by zhl203 » Tue Dec 08, 2009 04:26 am
Posts: 10
Joined: 08 Dec 2009

When you have family members depending on your income, saving for the future of your loved ones is a good idea. Investing in life insurance will give you enough financial support to take care of the future of your loved ones when you are no longer around. A life insurance plan also makes provision for a cash value where a part of your premium is put into a savings account. Hence, while you invest for a secured future, you can make savings too.

What is life insurance?

Life Insurance means insuring your life to save for the future of your family. If you have family members depending on your income you may invest in life insurance. This is a contract between you and your insurance company where your insurer agrees to pay a certain amount of money to your beneficiary in the event of your death.

What are the types of life insurance?

  • Term Life Insurance:

    For those who are running on a budget, you can opt for a simple life insurance. Term life insurance allows the beneficiary death benefits for a specific period or 'term'. This term may be 1 or more years and the benefits are paid only in the event of death of the policy holder within the term of the policy.

    There are certain term life insurance that can be renewed for more than one additional term. However, if you do so, your premiums may go higher. You may even sometimes be allowed to trade your term life insurance for a whole life insurance policy.

    Term Insurances are of 5 types:

    1. Annual renewal term insurance: Allows you to renew your term insurance every year till you reach a specific age which often freezes at 65.
    2. Renewable term insurance: With expiry of the term of the policy (generally 5-20 years), you can automatically renew the policy even if your health condition has worsened. It is similar to the annual renewable policy but this one is for a longer period of time.
    3. Level premium term insurance: Ensures that your premiums will not go higher for the term (between 5 and 20 years) of your policy.
    4. Decreasing term insurance: Allows your premiums to stay level throughout while decreasing your cash benefits each year. Such policies are usually used to cover items whose costs decrease with time.
    5. Convertible term insurance: With this policy you may convert your term insurance into any other type of life insurance policy that the company offers.

  • Whole Life Insurance:

    A whole life insurance covers a policy holder for his entire life. There is no date of expiry like in a term life insurance and the death benefits will be received by the beneficiary mentioned in the policy only in the event of the death of the policy holder. If you buy a whole life insurance you will have to pay a higher premium as compared to a term life insurance. The reason for this is that a certain portion of the premium paid for whole life insurance is put away into a savings program.

    When you compare the total premiums paid for whole life insurance and the total premiums paid for term life insurance it is seen that whole life insurance is less expensive. Even if you pay higher premiums for whole life insurance, the fact is that the premiums remain the same throughout the tenure of the insurance. But in the case of term life insurance, you may be paying lesser premiums in the beginning, but as you renew your term policy, premiums will increase. Hence, the total value accrued in term policy is bigger than a whole life insurance.

    Certain clauses in a whole life insurance allow you to pay premiums for a lesser period of time. The greatest advantage in this policy is that the premiums develop cash values that may be claimed or used for purchasing rider policies for more protection. Few of the whole life insurance benefits are:

    • Guaranteed death benefits
    • Guaranteed cash values
    • Fixed annual premiums

    A whole life insurance also known as "straight life" or "ordinary life" insurance, is not just an investment for your future alone, but also for the future of your family.

    To understand the basic difference between term life insurance and whole life insurance click here.

  • Universal Life Insurance:

    Universal life insurance is a flexible policy that provides security for you and your family. To know more please click here.


How to save money on life insurance policy?

When you shop for life insurance coverage, there are certain ways by which you can save money on your policy. You must look for a policy that meets your needs and the right kind of benefits received. If you think that buying a policy with a low premium will save your money think again. If you buy inadequate insurance, it will be a sheer waste of money. However, you can maximize your life insurance dollars using some of the tips provided here.
  1. Seek financially sound companies: Look for companies that are financially strong so that when your beneficiary(s) make a claim, he may receive the benefits of life insurance without hassle.

  2. Shop around: Get life insurance quotes from more than one insurance provider. You may even ask an insurance agent or an insurance broker to get you few insurance quotes from different carriers. You may then compare the quotations and find a policy that suits your needs as well as pocket.

  3. Seek group insurance: Employer provided group life insurance is often given at subsidized rates so you may find a less expensive policy here. Even if you have to pay premiums out of your own pocket this might be a good idea for the subsidized rate they provide. However, premiums paid by you will probably be through payroll deduction which is convenient. But a comparison of group and individual rates depending on your age, health must be done to assess which is the best policy for you.

  4. Change in lifestyle: Maintain a healthy lifestyle. Smoking may rate you as a risk option and you may have to pay higher premiums. Exercise regularly and consider making more lifestyle changes if necessary.

How to decide on the type of life insurance to choose from?

You may go for term life insurance if:
  • You need to make a short term investment and not a permanent one. With term life insurance benefits you can ensure the education of your children if you can invest in time. If there is a debt that you have to pay off, you may invest in term life insurance. Term life insurance covers you for a term of 5 to 20 years.

  • You need a big amount of life insurance with a premium that suits your pocket. A term insurance usually pays only in the event of death of the policyholder. However, if you are alive at the time the policy ends, term life insurance coverage will stop until you renew it. But here, you will not build a savings like in a whole life insurance.
You may opt for whole life insurance if:
  • You need life insurance stretching for the tenure of your life. A whole life insurance would pay the beneficiary the death benefit no matter when the policyholder dies.

  • You feel the need to accumulate a savings on a tax-deferred basis. A whole life insurance has its own savings program that puts aside a certain portion of the amount you pay as premiums into the savings program.
Click here to know more.

Can you pay your mortgage with life insurance?

Yes. With mortgage life insurance your mortgage loan can be paid for in the event of your death in a time when the loan is not paid off fully. This insurance is available for 15 and 30 years where for the first 5 years, the amount of insurance is level and then decreases on an annual basis. The premiums for mortgage life insurance can be paid annually, semi-annually, quarterly or monthly.

How should you choose a life insurance company?

When choosing a life insurance company, take the following into consideration:
  • Identity of companies - Make sure to know the full name, office location and affiliation of the insurance company that you plan to buy from.

  • Product sold - Check out what products the company is selling. Most often the companies provide a wide range of policies. Check for what you need and if they have it you may consider buying from them.

  • Financial Security - Select a company that is strong financially and has been in business for long. Your life insurance is an investment to secure your lifetime. Be sure that your insurance company will make life easy for you and not otherwise.

  • Ethics - Check if your company abides by the codes of conducts and principles of the Insurance Marketplace Standards Association. This non-profit organization promotes ethical conduct in life insurance marketing.

  • Agent - An agent is supposed to help you out with your insurance needs on behalf of the company. You must consider taking help from a reliable person only. If there is any discomfort in dealing with the agent, move to another one.

  • Cost of insurance - Based on your age, type of policy and features, and the amount of insurance to be purchased, compare one insurance company with the others. Find out one which offers a better coverage.

  • Claims - A national claims database will give you the complaints (if any) against an insurance company. You may want to check to find if the company you are considering buying from is listed for consumer complaint.

How does a life insurance company choose you?

Your application for a life insurance policy has to go through the insurance underwriting process before it's approved. The underwriters evaluate the risks associated with your application and forward it to the insurance processing department of the company.

Factors that influence underwriting procedure for Life Insurance
  1. Age of the individual to be insured.
  2. Gender of the person
  3. Pre-existing medical conditions
  4. Medical records of the family
  5. Smoker or non-smoker
  6. Mental health of the person
  7. Occupation
  8. Hobbies or lifestyle habits (activities like race car driving, mountain climbing or bungee jumping might be marked as risky)
  9. Driving records
  10. Credit history
  11. Selection of coverage limits, benefits etc.
  12. Medical reports after thorough health check-up including tests like :
    • > Blood pressure level
      > Blood sugar level
      > Cholesterol level
      > Weight of the individual
      > Urine tests
      > Blood tests
      > EKG/ECG
      > X-Rays
      > Stress tests etc.

Click here to know how the above mentioned factors affect the rates of a life insurance policy.

Your life insurance policy might not come to your assistance in your lifetime. However it'll help securing the future of your loved ones when you won't be there to take care of them. A small amount spent at regular intervals will thus be able to give you the sense of security, as you hand over the risks to your insurer. Top

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My parent bought whole life insurance that pays dividends many years ago. The sales representative told my parent that she can stop paying premium in approximately 12 years because the it policy would be able to pay for itself at that time. And at the same time the policy will make annual distributions to my parent. What does that mean? Is there such thing?

The reason why I'm asking is because they're into the 13th year now and they are still paying the expensive premium. When I called the representative, they told me that the account has accumulated certain cash value and dividend, but the accumulated dividend can only cover approximately 3 years of premium.

I did some research, I understand that the cash value is like equity, but is it truly equity like we really own the money? if yes, when can we cash out the equity? if we cash out, the policy terminates? I understand that when the insured dies, the beneficiary would get paid the face amount, but what happen to the cash value? who gets it? Also, what happen if the insured dies of old age (not due to accident), is it still covered by the policy? what happen to the cash value?

Thanks in advance for your help.

Total Comments: 282

Posted: Thu Jul 08, 2010 10:33 pm Post Subject:

My husband has colon cancer and I am trying to find some life insurance for him. Can you help me?

Posted: Thu Jul 08, 2010 11:48 pm Post Subject:

Not to be harsh, but he should have bought life insurance while he was healthy. Until the cancer has been eliminated and he is fully recovered for 1+ years, he's not going to find any fully underwritten coverage. He may be able to qualify for a "graded" benefit policy with a low benefit (usually $50,000 or less), but it will be expensive and the full benefit is not paid until the third or fourth year of coverage. What state are you in?

Posted: Mon Jul 26, 2010 03:27 pm Post Subject: bacdating of life insurance policies

hi.. is it possible to back date the policy coverage? if possible, is the loss prior to proposal is signed, valid?

Posted: Tue Jul 27, 2010 12:36 am Post Subject:

is it possible to back date the policy coverage?

When coverage has been approved in a life insurance policy, it is sometimes possible to "backdate" the policy issue up to 6 months, if it results in a lower premium for the client. The client would have to pay the premiums for the additional months of coverage back to the issue date. It is possible because, guess what? The insured wasn't dead 6 months ago.

Other forms of insurance? NO. Especially liability and casualty.

if possible, is the loss prior to proposal is signed, valid?

If you're asking "Can I get insurance today for a loss that happened yesterday?" the answer should be obvious: NO!!

Insurance works best when you obtain it before the loss actually happens. In fact, it doesn't work any other way.

There have been proposals to change the law in some states that would allow a person to buy auto insurance after the accident, instead of before. But that political prestidigitation is unrealistic.[/quote]

Posted: Mon Aug 02, 2010 03:42 pm Post Subject:

Policy states we can convert the original amount $5K to whole life policy

That provision was intended for a time much earlier in the contract, if your husband's needs changed from wanting the money at age 65 to having a permanent plan of insurance.

If he converts to $5K whole life and takes the balance in cash what are tax liablities?

IRC 1035 Exchange is specifically available for a situation such as this, and is probably what the insurer is recommending. The policy and its proceeds can be exchanged without current income taxation on gain for another life insurance policy or annuity. (You cannot exchange from an annuity to life insurance.)

You would not convert to a $5000 whole life insurance policy, because a policy of that amount of insurance would not permit the introduction of $8140 in cash value. Instead, it could be exchanged into a larger whole life policy, say $10,000 or much more, or into a universal, indexed, or variable universal life insurance policy.

The question that needs to be answered is:
Does your husband need life insurance to age 121 or a lifetime of payments regardless of age?

An annuity will provide for a lifetime benefit to your husband; life insurance will provide a legacy from your husband to others when his lifetime ends. The two objectives are similar, but different.

If the $8140 is exchanged into a new life insurance contract, there is no taxation due on the gain, and when the contract pays its death benefit to a beneficiary, there will be no income tax due on that money either.

If the $8140 is exchanged into an annuity, it will be taxable as ordinary income only when it is withdrawn (or paid as a death benefit if the contract is not annuitized), to the extent that it represents gain over the original cost basis in the endowment policy -- if taken as a series of payments over his life expectancy (the contract is "annuitized"), only a portion of each payment is taxable when received.

However, if the money is placed in the annuity, and withdrawals are taken without annuitizing, the gain will come out first, and 100% of the withdrawal is subject to income taxation. The tax-free cost basis cannot be taken before all the gain has been distributed.

Posted: Tue Aug 03, 2010 01:35 am Post Subject: Sudden change in beneficiary before suicide?

Yesterday, the father of one of my close friends committed suicide. In his suicide note he pretty much stated he did it so that his new girlfriend (the father and mother of my friend were divorced) could get the money from his life insurance policy (it is more than two years old) and his estate. There is even evidence that she encouraged him to commit suicide and it was her idea.

He only recently switched his insurance so that his new girlfriend would be the beneficiary and not my friend. This was less than two weeks ago.

Can we contest that he was not in the right state of mind and that my friend should be main beneficiary? We have a lawyer, but it's not her specialty, and we're not sure what to do! But we don't want to see this woman profit from taking a father away.

Posted: Tue Aug 03, 2010 05:12 pm Post Subject:

There is even evidence that she encouraged him to commit suicide and it was her idea.

There could be something in the timing of the events that law enforcement might be interested in pursuing. If it was determined that a crime had been committed, and the "girlfriend" might be involved criminally, if proved, she would be disqualified from receiving the insurance proceeds.

The change of beneficiary cannot, however, be undone without a clear showing that there was mental incompetency, coercion, or duress -- and this could be more difficult than proving coercion or duress. So if there is no contingent beneficiary, the money could end up going to the owner's/insured's estate, where creditors would have a first go at the money before any legitimate heirs ever see a penny.

This is perhaps one of the few instances where a disputed death claim might be in order. The insurance company is probably not going to do the investigation, but leave it up to local law enforcement to do that.

So you not only need to dispute the claim with the insurer, you also need to drum up support for an investigation by the local law enforcement agency or district attorney's office. If they refuse, despite your best efforts, the insurance company is going to pay the claim to the named beneficiary and the matter will be closed as far as they are concerned -- they've honored their contractual obligation.

If your lawyer does not have experience dealing with insurance companies or criminal matters such as this might be, you need a different lawyer, because you only get one chance to do it right, and once the money "escapes", it will be nearly impossible to recover if facts later bear out the assertions that wrongdoing was involved.

Posted: Tue Aug 10, 2010 07:58 am Post Subject: no insurance at all

Can my 88 years old grandmother be insured of whole life insurance?

Posted: Wed Aug 11, 2010 01:36 am Post Subject:

Yes. But getting a policy will prove difficult. She'll need to qualify medically, which is perhaps more difficult than you might imagine.

Posted: Mon Aug 16, 2010 12:18 pm Post Subject: cancellation of insurance

I want to cancel the life insurance that was charged through my credit card recently but the agent refuse to cancel it. What should I do?

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