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: Tue Aug 17, 2010 03:30 am Post Subject:

Have you called (a) the insurance company? or (b) the credit card company?

Why call the agent? The longer he delays, the longer it will be before his commission chargeback occurs.

Posted: Mon Aug 30, 2010 04:03 pm Post Subject: How can I find out who my late mother had life insurance wit

My mother passed away in Oct 05 and she and my father were separated since 1988 and she did not have a will. I know she had a policy but do not know with whom. How can I find out which company as I know I am the beneficiary to one of them.

Posted: Tue Aug 31, 2010 03:44 am Post Subject:

Thanks all for the informative articles. Is there any site where all insurance policies could be compared?

Posted: Sun Sep 19, 2010 04:47 pm Post Subject: whole life vrs term

While whole life claims to have a savings component, the savings doesn`t actuallybegin to build until 2-4 years. The preimium goes to agent commisions and fees during that period of time. Not only that but the cash value will not be returned to beneficiaries if the policy owner dies. They only get the death benefit.

If you borrow from the cash value your death benefit decreases. If you take the cash for an emergency your death benefit decreases. Reading the policy is the only way to know these facts.

With Term, you can be covered for up to 35 years at a level premium depending on how young you are when you purchase. If you invest correctly and steadily you have cash when you get older and it is truly yours. You renew your term for an insurance amount covering you for what you NEED when you are older making the premium very reasonable. The theory of decresing responsibiliy is the basis for my comments.

Why is it not mentioned in your article?

Posted: Tue Oct 05, 2010 08:42 am Post Subject: EIUL

Hi, Sil:

I am a new member, and I found this site because I was doing supplemental research on the subject of Universal Life Insurance. I was introduced to this subject by an agent, who lent me a book, written by Patrick Kelly, called "Tax-Free Retirement."

I would categorize this book as a primer to the concept, but it does not discuss the particulars, so it left me with many unanswered questions. In search of more detailed explanations, I went to the web and found this site.

I would like your advice on the best book or web site that would go into further detail, that actually explains the path that the money, which I invest into a EIUL, would take from premium deposit to calculations of periodic gains and then to tax-free borrowing from the policy at retirement.

Is there such a source which I can refer to in order to fully understand the processes involved in investing in EIULs?

I would appreciate any input you might have in regard to this.

Thank you!

Posted: Wed Oct 06, 2010 10:15 am Post Subject:

tax-free borrowing from the policy at retirement.

Is there such a source which I can refer to in order to fully understand the processes involved in investing in EIULs?

Your first minor mistake is believing that owning life insurance of any kind is an INVESTMENT. It is not (others will argue the point with me). Life insurance is life insurance. Stocks, bonds, mutual funds, real estate, gold, options, futures . . . those are all different types of INVESTMENTS.

As for "tax free retirement" by borrowing money from a life insurance policy -- it only works if you die before the policy does. Take out more money "tax free" than you have put in with your "after tax" dollars, and allow or cause the policy to LAPSE because it has no more cash value and you cannot afford to pay up to $1000 per $1000 of coverage in premiums, and you'll find yourself facing an income tax liability you may also not be able to afford.

If you are not going to FULLY and PROPERLY FUND any variation of universal life insurance policy for maximum cash accumulation, especially in the earliest years, your retirement "plan" will not be likely to succeed.

Because UL without sufficient cash value in the later years is just another variation of VERY EXPENSIVE ANNUAL RENEWABLE TERM, and in the last few years of that kind of policy, the cost of insurance will exceed the face amount of insurance by 2 or 3 times -- that's right, you could end up having to pay $200,000 or more to keep a $100,000 death benefit alive in order to prevent a huge taxable event caused by those "tax free" life insurance loans.

Then you'll really wish you had died some time ago.

Posted: Tue Oct 26, 2010 01:47 pm Post Subject: insurance for a 86 yr old

is there anyway possible i can find life insurance for my mother? She is 86 years old and in good health. I know I should have done this much soon, but just didn't think of it until my daughter asked me about it.

Posted: Tue Oct 26, 2010 05:39 pm Post Subject:

is there anyway possible i can find life insurance for my other she is 86 in good health,i know i should have done this much soon just didnt think of it until now,my daughter asked me about it.

There is something known as "final expense" life insurance. These are limited value policies (usually not more than $25,000, and certainly not more than $50,000), and they are more expensive for two reasons:
(1) the age of the insured and (2) the fact that the insurance company treats them as a "substandard" risk.

If your mother is in California, I can probably assist.

Posted: Wed Oct 27, 2010 12:16 pm Post Subject:

Gosh, millfordct, when you don't plagiarize it, we can't understand it. Whatever language translator you seem to be using is not working.

Posted: Thu Oct 28, 2010 06:20 am Post Subject:

I...I... I can't TAKE IT anymore. I am going to go on a mad, rampaging delete blitz if this keeps up.

To all of our new posters. welcome to our forums. We welcome your comments, questions and knowledge. But, please understand. You must adhere to the Terms of Use. It's simple. There's a link on the bottom of this very page, just click on it. Since you are able to navigate to this site, it's fairly obvious that you know how to scroll to the bottom of this page and click on the link. Thank you.

Repeated violations of Terms of Use requirements are going to get you booted and we don't want to do that. Plagiarism cannot be tolerated; please give full disclosure and credit to all sources and authors as required. It's not that difficult to adhere to legal requirements.

As well, please use proper online forum ettiquette. Do not SHOUT BY USING ONLY CAPITAL LETTERS, make at least a minimal effort to check your spelling and punctuation, and fully explain your questions, concerns, predicaments, mistakes, location and anything else that will help us help you. Nothing frustrates us more than looking at a post and going "What?"
We're here to help... usually.

InsTeacher 8)

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