Life Insurance Is...
I Need Life Insurance Because...
Term Life Insurance vs Whole Life Insurance
Deciding How Much Life Insurance I Need
A Rider Is...
Choosing a Beneficiary
Settlement Options

Life Insurance Is...

A contract between the owner of a policy (most commonly the insured) and a life insurance company that guarantees a predetermined cash payment to a designated beneficiary upon the death of the individual insured.

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I Need Life Insurance Because...

Life insurance provides protection for those that depend upon you financially. There are several uses for life insurance proceeds.

Five of the most common uses:

Income Replacement --Life insurance proceeds can supplement a surviving family’s income in order to maintain the same standard of living.

Mortgage Protection -- The proceeds of a life insurance policy can pay off the balance of a mortgage or provide income for the monthly mortgage or rent payment.

Debt -- In the event of a person’s death there are often many debts left behind. A life insurance policy can be used to pay off personal bills, student loans, credit card debt, auto loans, and other personal notes.

Funeral -- Life insurance proceeds can provide for proper funeral and burial expenses.

Education -- Life insurance proceeds can be used to cover the education/college tuition costs of the insured's children.

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Term Life Insurance vs Whole Life Insurance

Term Life Insurance: Term life insurance, which is usually the least expensive form of life insurance, pays a death benefit to your beneficiary or beneficiaries if you die while the insurance is in force. If you live past that period and don’t renew your policy, or if you stop paying the premium, the coverage ends and no payment is made. Many term life insurance policies can be converted to permanent life insurance plans without evidence of insurability.

Three types of term life insurance:

Yearly Renewable Term -- The premiums are initially low; however, the premiums increase substantially as the insured gets older. These plans have diminished in popularity due to the introduction of guaranteed level term life insurance. However, this is still the most common form of life insurance offered by a group policy.

Decreasing Term -- The death benefit amount decreases every year, but the premium remains level. In effect, you pay less for more protection in the early years, when you may be cash-short, and more in later years, when cash reserves may be greater. It is the form most often used by lenders to help cover a mortgage because the decrease in the death benefit roughly parallels the reduction in the outstanding mortgage.

Guaranteed Level Term -- Your premiums and your death benefit amount are guaranteed to remain level for a specified period — usually 5, 10, 15, 20, 25, or 30 years. At the end of the guaranteed level period, your premiums will increase either for a one-year period, or for another specified duration and subject to a guaranteed maximum. At that point, you may have to re-qualify for coverage by providing proof of eligibility — an extremely important factor to consider in deciding which policy is right for you.

Whole Life Insurance: Whole life insurance is life insurance that is kept in force for a person's whole life as long as the scheduled premiums are maintained. Whole life policies build up cash values which can be surrendered for the cash surrender value, take out a loan and use the cash value as collateral, change the policy to a reduced death benefit amount that is paid up, cash values can be used to pay premiums for a certain period of time, or cash values may be surrendered to supplement retirement income. Most whole life policies are guaranteed as long as the scheduled premiums are maintained. The variable in a whole life policy is the dividend which could vary depending on how well the insurance is doing. If the company is doing well and the policies are not experiencing a higher mortality than projected, premiums are paid back to the policy holder in the form of dividends. Policyholders can use the cash from dividends in many ways. The three main uses are: lowering or vanishing premiums, purchasing more insurance, or purchasing term insurance.

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Deciding How Much Life Insurance I Need

This answer to this will depend very much on your individual circumstances and the type of life insurance policy you are considering. The single most important reason to own life insurance is to provide support for your dependents should you or your spouse die prematurely. The idea is to allow surviving family members to maintain something close to the standard of living they enjoyed prior to you or your spouses death. There are a number of factors that should be considered when estimating how much life insurance you should carry in order to achieve your goals. You should ensure that any lump sum after your death should pay off any final expenses which may include unpaid hospital bills, funeral expenses, probate costs, and inheritance/estate taxes. You will also want to cover any uninsured debt such as mortgages, outstanding auto and credit card repayments. Once you have covered these immediate expenses you will want to consider how much supplemental income your family will need in order to pay the family’s living expenses, monthly bills, daycare, and education costs. plus the lump sum to be used by your remaining family. As you go through life, your circumstances will definitely change, so make sure that your life insurance policy reflects these changes.

Everyone's life insurance needs are different. Use our Life Insurance Needs Calculator to help you estimate how much life insurance you require.

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A Rider Is...

A policy rider is a provision or modification to an existing insurance policy that provides additional coverage to an insurance policy. Policy riders are generally sold separately from insurance policies.

Nine types of term life insurance riders:

Accelerated Death Benefit Rider
This rider allows for early payment of a portion of the basic policy’s death benefit upon receipt of medical proof that the insured is terminally ill and if certain conditions are met. These conditions are dependent upon your individual policy.

Accidental Death Benefit Rider
The ADB rider will pay a specified additional amount above the face amount if you are the person insured and you die as a result of an accident. The amount of ADB available at the time of application is usually equal to the lesser of either the face amount or a fixed dollar amount such as $150,000 or $200,000. Experts recommend this rider to young individuals (accidents major cause of death) especially if you’re married with a family and you have little savings so that additional money would be needed if death occurs without warning.

Guarantee Insurability Rider
A Guarantee Insurability Rider gives you, as the owner of the policy, the right to purchase additional insurance at certain designated future dates regardless of what the health of a person being insured is at that date.

Waiver of Premium Rider
The Waiver of Premium Rider insures that you, if you are the policy owner, will not need to pay premiums if the person being insured becomes disabled. The insurance company then would either waive or pay the premiums due and maintain the coverage in force. The definition of disabled varies depending upon the type of policy purchased and the provider of the coverage. The specific definition of disabled can be found in your Waiver of Premium Rider when you purchase it.

Family Insurance Rider
The family insurance rider pays a selected amount, usually limited to $20,000, on the death of a dependent child or spouse. This rider is designed to provide small amounts of term coverage with only limited underwriting. A stand alone, fully underwritten term policy will usually have lower rates, but will have a minimum coverage amount of $50,000 or more. $10,000 of coverage on your spouse and all your children under a Family Insurance Rider will cost about $25 per month.

Dependent Child Insurance Rider
A Dependent Child Insurance Rider provides coverage for the amount selected, usually limited to $20,000. All children (including legally adopted children) from the age of 15 days to 18 years at the time of purchase can be covered by this rider. Future children will automatically be covered from age 15 days. The dependent coverage rider provides a specified death benefit upon the death of the dependent. Coverage usually continues until the child reaches age 23, or you, if you are the person insured, reach age 65. The death of a dependent often results in a financial hardship due to funeral and burial costs. This rider can provide the benefits needed to cover those expenses.

Spousal Rider
On the death of your spouse, the Spousal Rider will pay the amount of coverage you have chosen. A stand alone, fully underwritten term policy will usually have lower rates, but will have a minimum coverage amount of $50,000 or more. You may not want that much coverage. Experts recommend the Family Insurance, Dependent Child Insurance, and Spousal riders if you feel that burial expenses, medical bills, or other expenses incurred as a result of the death of a loved one will cause a financial hardship. They also recommend these riders if you have one or more family members who are in good but not perfect health, and thus may be rated (asked to pay a higher premium) if they try to buy a policy on a fully underwritten basis, or if you want a small amount of coverage which would either be very expensive or not available under a separate policy.

Guaranteed Re-Entry Rider
The Guaranteed Re-Entry Rider lets you renew your term insurance at certain points throughout your term policy coverage without having to prove insurability (i.e.- undergo a medical examination to prove that your health is the same as when you first got your policy).

Conversion Feature
The conversion feature allows you, the owner of the term life insurance policy, to convert the policy to a permanent life insurance policy (whole or universal) during a specified period of time without evidence of insurability.

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Choosing a Beneficiary

A beneficiary is a person or entity named to receive all or a portion of the death benefit of a life insurance policy. The owner of a life insurance policy may name multiple beneficiaries, and most insurance companies permit the policy owner to change beneficiaries.

There are two types of beneficiaries: primary and contingent. A primary beneficiary is the first in line to claim to the proceeds of a life insurance policy should the insured die. There may be more than one primary beneficiary and the proceeds do not have to be shared equally. The policy owner of a life insurance contract may also name a contingent or secondary beneficiary. The contingent beneficiary has claim to a portion of the death proceeds should the primary beneficiary(ies) be removed or die prior to the death of the insured. There may also be more than one contingent beneficiary.

Many individuals designate a spouse as the primary beneficiary of their life insurance policy and the children as contingent beneficiaries. You should consult with an estate-planning attorney prior to making a minor child a beneficiary of a life insurance policy. In addition, anyone contemplating making their estate the beneficiary of their insurance policy should use extreme caution and consult with an estate planning attorney prior to doing so.

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Settlement Options

Life insurance usually provides for payment of benefits in a lump sum. However, if a family wants to put some or all of its life insurance money away for future spending, a variety of settlement options are available. When a settlement option is chosen, the company keeps the stipulated sum and pays amounts to the beneficiary of the policy in the manner selected.

The policy owner can specify exactly how the life insurance proceeds are to be paid to the beneficiaries, or the choice can be left for the family to make after the insured dies. When one of these settlement options is used, a family knows exactly what its income from the policy will be and exactly how long this income will last.

The policy owner can specify exactly how the life insurance proceeds are to be paid to the beneficiaries, or the choice can be left for the family to make after the insured dies. When one of these settlement options is used, a family knows exactly what its income from the policy will be and exactly how long this income will last.

The six basic settlement options:

Lump Sum Payment -- The death proceeds of a life insurance policy are paid to the beneficiary(s) in one lump sum payment.

Interest Option -- The company holds the life insurance proceeds and pays interest at a rate that is usually higher than the rate guaranteed in the policy. Arrangements can generally be made to withdraw part of the money if desired. The remaining money can be withdrawn later or left to someone named by the beneficiary of the policy.

Amount Option -- A regular monthly income of a desired amount is paid until the money and the interest it earns are depleted.

Time Option -- A regular monthly income is paid for the desired period of time. The amount of monthly income is determined by the money and interest available.

Lifetime Income Option -- This plan is very different from the other options. It provides a monthly income for life. The amount received depends on (1) how much money you want to have coming to you, (2) the rate of interest guaranteed by your policy, and (3) how old you are at the death of the policy holder.

Single Premium Annuity -- The proceeds of a life insurance policy are used to purchase a single premium annuity from the insurance company.

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