• Uses of Life Insurance
• Business Uses
• Determining Your Needs
• Types of Life Insurance
• What is Return of Premium (ROP)
Term Life Insurance Policy
• Whole Life Insurance
• Universal Life Insurance
• Variable Life Insurance
• Variable Universal LIfe Insurance
• Second-to-Die or Survivorship
• Beneficiary Designations
• Settlement Options
We will cover the following topics. Please scroll down for complete information:
Life insurance has many uses for both individuals and businesses. Some common uses include:
• Individual Uses
• Funeral - Life insurance proceeds can ensure that there is enough money for proper funeral and burial expenses.
• Debt - Personal bills, credit card debt, student loans, and personal notes can be covered by life insurance in the event of an individual's death.
• Mortgage Protection - The proceeds of a life insurance policy can pay off the balance of a mortgage or provide an income stream to pay monthly mortgage or rent payments.
• Income Replacement - In the event of an individual's death, life insurance proceeds can provide a supplemental income stream to ensure that the surviving family members are able to maintain the same standard of living.
• Education - Life insurance proceeds can ensure that the education costs of the insured's children are covered.
• Taxes - Federal estate and state inheritance taxes can be pre-funded using life insurance to preserve the value of an estate.
• Donations/Gifts - An individual can use a life insurance policy to fund a donation to a charity or leave a gift to a family member.
• Key-Person - A life insurance policy can be used to protect a business from the loss of income and profits caused by the death of a key employee. For more information go to Key-Person Insurance in the advanced life section.
• Business Continuation - Life insurance can be used to fund a buy/sell agreement or stock redemption plan to determine enable a partner or group of employees to buy the business interest of a deceased partner. For more information go to Business Continuation Planning in the advanced life section.
• Business Loans - Life insurance protection on a key employee or business owner can be used to pay off the debts of a business in the event of that individual's death.
• Employee Benefits - Life insurance protection for employees is commonly included in company employee benefits plans.
There is no magic formula to determine how much life insurance you should have; however, there are a number of factors that should be considered when estimating how much life insurance you should carry. They include:
• Final Expenses - These could be unpaid hospital bills, funeral expenses, unpaid debts, probate costs, and estate and inheritance taxes.
• Readjustment Fund - This may be used to cushion the immediate lifestyle adjustment that a family must make when a loved one dies. The family may be forced to move, or the surviving spouse might have to look for a new job. In addition, a working spouse may find it difficult to return to work immediately after the death of a partner. The readjustment fund allows for adequate bereavement due to loss.
• Supplemental Income - After the readjustment period, there should be a consistent income stream to help pay for the family's living expenses, such as mortgage payments, monthly bills, and daycare.
• Educational Funds - Adequate funds should be available for the childrens' education. This might include elementary school, high school, and college.
• Retirement Fund - There should also be adequate funds available to ensure that the spouse can retire comfortably.
These are some factors that you should consider carefully when estimating how much life insurance you need. Everyone's life insurance needs are different but, in general, an individual's needs are greatest from the time they start their careers or a family until they reach retirement, at which time many individuals' needs for life insurance diminish. It is important to remember that you should review your life insurance needs annually to account for changes in your family's lifestyle.
Term Life Insurance
Term life insurance provides protection for a specified period of time. A death benefit is paid to the beneficiary if the insured dies within a specified period of time while the policy is still in force. Many term life insurance plans can be converted to permanent life insurance plans without evidence of insurability.
A return of premium term life insurance policy typically offers a level death benefit with fully guaranteed* level premiums for the first 15, 20, or 30 years, though this may vary by company and state. Under the return-of-premium feature, the cumulative premiums paid, not including substandard and rider charges, will be returned at the end of the level term period if the policy is in force at that time. Often, a portion of the cumulative premiums will be returned upon surrender after the policy has been in force for a specified number of years. Most return of premium life insurance policies allow for conversion to permanent insurance offered by the same company during the covered period without further evidence of insurability.
*guarantees subject to the claims-paying ability of the underwriting insurance company
• The policy can be surrendered at anytime for the cash surrender value.
• The policy owner can take out a loan and use the cash value as collateral.
• The policy can be changed to a reduced death benefit amount that is paid up.
• The cash values may be used to pay premiums for a certain period of time.
• The cash surrender value can be used to supplement retirement income.
Whole life insurance policies are valuable because they provide permanent protection and accumulate cash values that can be used for emergencies or to meet specific objectives.
The cash values of whole life insurance policies may be affected by a life insurance company's future performance. Some factors that influence a life insurance company's performance are expenses, mortality experience, and investment performance.
Whole life insurance is permanent life insurance and provides protection for life. As long as premiums are paid, a death benefit is paid to the beneficiary. The premiums for whole life insurance policies are designed to remain level over time. In addition, these policies accumulate cash values on a tax-deferred basis. The rate of return on whole life insurance cash values is dependent upon a number of factors including the results of an insurance company's investment performance. Cash values can be used for a variety of options: