Life Insurance Frequently Asked Questions Life insurance provides the death benefit after your death to your dependent helping them financially. Lot of questions can arise when choosing a plan. Here are some frequently asked questions to help you make this important decision. What is Term Life Insurance and Permanent Life Insurance? How do I choose a life insurance policy? How much life insurance do I need? Should my spouse have life insurance? How do I choose a life insurance policy? A life insurance agent can recommend a life insurance policy according to your needs, but ensure that it meets your personal goals. Know exactly how the policy is bgoing to work. Get a point-by-point explanation from the agent. The agent should explain each items you don't understand. Your policy is a legal document, so it is important that you know what it provides. If your agent recommends term life Insurance Plan, ask: How long can you should keep the life insurance policy? Know the options for renewal for a specific number of years or until a certain age and the terms of reneal? When will your premiums increase? It can be annually Or after a longer period of time, such as five or 10 years. Can you shift to a permanent policy? Will you need a medical exam when you shift? If your agent recommends a permanent life Insurance Policy, ask: Are the premiums within your budget? Can you commit to these premiums over the long term? How much will you receive if you surrender the policy? Remember permanent life insurance provides protection for your entire life so if you don't plan to keep it for many years, consider another type. Cashing in a permanent life insurance policy after only a few years can be a costly way to get short-term insurance protection. Back To Top How much life insurance do I need? As a first step in purchasing a policy you need to evaluate your family's needs. Gather all your personal financial information and estimate how much money your family will need after you're gone. Include ongoing expenses such as day care, tuition or retirement and immediate expenses at the time of death like medical bills, burial costs, and estate taxes. Your family also may need funds to help them readjust ... perhaps to finance a move or pay expenses while job hunting. If you purchased this amount of life insurance... $50,000 $100,000 $250,000 $500,000 $1,000,000 And your family spent $25,000 for last expenses, $25,000 $25,000 $25,000 $25,000 $25,000 Your family will have this monthly income for 10 years... $263 $788 $2,365 $4,992 $10,247 -or- This monthly income left for 20 years... $163 $488 $1,465 $3,093 $6,349 -or- This monthly income left for 30 years... $132 $396 $1,188 $2,508 $5,147 Assumes 5% interest on lump sum. 28% tax bracket.    Life insurance provides financial protection - if your primary goal is not protection, consider other financial products. There is no substitute for careful evaluation of how much life insurance your family will need, still you can have one rule of thumb that is to buy an amount equal to 5 to 7 times your annual gross income. Review your policy periodically or when your situation changes to ensure adequate coverage. Back To Top Should my spouse have life insurance? You can consider the following in order to determine whether or not your spouse needs life insurance or how much he or she may need: In a dual income household, it is important to protect the earning capacity of both spouses. The loss of one income earner could be a severe financial hardship on the family. If a spouse is a non-wage earner such as a stay-at-home parent, life insurance should still be considered. If the non-earner dies, new expenses such as child care and house-cleaning will be incurred. Burial expenses and final medical expenses are further considerations. Spousal protection can be accomplished with term life insurance or permanent life insurance. Back To Top What is Term Life Insurance and Permanent Life Insurance? Term Life Insurance This is the simplest form of life insurance providing protection for a specific period of time and the benefit is paid only if you die during the term. If you live beyond the specified term, the policy expires without value. It is sometimes called temporary life insurance and these policies generally last for 5, 10, 15, 20 or 30 years. Some term life insurance policies can be renewed when you reach the end of the term. The premium rates increase at each renewal date. Many policies require that you present evidence of insurability at renewal to qualify for lower rates. Some policies are convertible. They guarantee the right to switch or "convert" to one of the company's permanent life policies. Term Life Insurance Advantages Initial premiums generally are lower than those for permanent insurance, allowing you to buy higher levels of coverage at a younger age when the need for protection often is greatest. It's good for covering needs that will disappear in time, such as mortgages or car loans. Term Life Insurance Disadvantages Premiums increase as you grow older. Coverage may terminate at the end of the term or become too expensive to continue. The policy generally doesn't offer cash value or paid-up insurance. What is Permanent Life Insurance If you want lifelong protection, permanent life insurance is the coverage you want. As long as you pay the premiums, the death benefit will be paid. Permanent life insurance policies are designed and priced for you to keep over a long period of time. If you don't need to keep the policy for the long term, consider term life insurance. Most permanent life insurance policies have a feature known as "cash value" or "cash surrender value." This feature, not found in most term insurance policies, provides you extra options. Permanent Life Insurance Advantages * As long as the premiums are paid, protection is guaranteed for life. * Premium costs can be fixed or flexible to meet personal financial needs. * A permanent life insurance policy accumulates a cash value against which you can borrow. (loans must be paid back with interest or your beneficiaries will receive a reduced death benefit.) you can borrow against the policy's cash value to pay premiums or use the cash value to provide paid-up insurance. * A permanent life insurance policy's cash value can be surrendered - in total or in part - for cash or converted into an annuity. (an annuity is an insurance product that provides an income for a person's lifetime or a specified period.) * A provision can be added to a permanent life insurance policy that gives you the option to purchase additional permanent insurance without taking a medical exam or having to furnish evidence of insurability. Permanent Life Insurance Disadvantages * Required premium levels may make it hard to buy enough protection. * Permanent life insurance may be more costly than term insurance if you don't keep it long enough. Back To Top