Life Line

To help you make the right insurance decisions for you and your family, read through these 10 important questions and answers. They'll help you make an informed decision when it comes time to make a life insurance purchase.

1. How much life insurance do I need? Determining how much life insurance you need requires a careful examination of your current and future financial obligations (i.e., a combination of (a) what would it cost to help your surviving family members meet immediate and ongoing needs like funeral costs, taxes, food, clothing, utilities, mortgage payments, etc. and (b) future obligations like college and retirement funding) and the resources that your surviving family members could draw upon to meet those obligations (i.e., your spouse's income, savings and investments, other income producing assets, and any life insurance you might already own). The difference between the two (your financial obligations minus the resources your family has to meet those obligations) is the approximate amount of additional life insurance you need. If this sounds confusing, don't worry. You're not alone. That's why most people turn to a life insurance professional when they want to figure out how much insurance they need. But if you don't feel you're ready to speak with an agent or want a preliminary sense of your needs before meeting with an agent, visit our Life Insurance Needs calculator. It'll walk you through the various questions you need to ask yourself and provide you with a rough estimate of how much insurance you need to protect your family.
   
   
2. What type of policy should I buy, term or permanent? It's impossible to say which is better because the kind of coverage that's right for you depends on your unique circumstances and financial goals. But generally speaking, term offers the greatest coverage for the lowest initial premium and is a great solution for people with temporary needs. Permanent insurance may make more sense if you anticipate a need for lifelong protection and like the option of accumulating tax-deferred cash values.
   
   
3. What are the various kinds of permanent insurance? There are four main types. Whole life insurance is the most traditional form of "permanent" insurance. With it, the face amount (the death benefit) and the premium (the amount you pay for protection each year) are fixed at the time you buy your policy and stay the same even as you age. You also get a guaranteed rate of return on your cash values. Of course, any guarantee relies on the claims paying ability of the issuing insurance company. By contrast, the cash value in universal life is linked to interest rates, and the cash value of variable life and variable universal life is linked the performance of the underlying investment options you choose to invest in and fluctuate with market conditions. These two types of insurance products are offered via a prospectus, as such, you should always request a copy of a current prospectus, as it contains information you need such as the investment objectives, risks, and charges and expenses of the investment. The cash value of universal and variable policies is not guaranteed, although some policies set a minimum death benefit. With universal policies (universal life and variable universal life) you can reduce or increase the amount of the death benefit and vary the amount or timing of premium payments, subject to certain limitations. If you're having a hard time understanding the differences between these policies, don't despair. You can learn more about permanent life insurance at our ‘phat are the different types? page. Or better yet, contact an insurance professional in your community who can take the time to walk you through your various options.
   
   
4. What are accelerated death benefits and how do they work? Many policies contain a provision that allows a terminally ill person to collect a portion of his or her policy's death benefit, typically 50% to 75%, while that person is still alive. The money can be used to get one's family finances in order, pay for uncovered medical expenses, or simply do certain things for your family or friends while you still can. It's important to note that the amount you take out while still living will be subtracted from the death benefit payments to your beneficiaries along with an interest charge to account for early payment of benefits.
   
   
5. By using medical tests are insurers trying to eliminate any applicant likely to develop a serious health condition? Medical tests provide accurate and current information about an applicant's health, thus enabling insurers to charge premiums that reflect the level of risk an applicant represents. Because some health conditions are easily managed through proper medication, therapy or lifestyle changes, medical information makes it possible for insurers to cover applicants with certain health conditions. More serious or incurable conditions present a very significant risk that some insurers simply may not want to assume.
   
   
6. What should I consider in naming life insurance beneficiaries?
   (a) Always name a "contingent," or secondary, beneficiary, just in case you outlive your first beneficiary.
   (b) Select a specific beneficiary, rather than having the proceeds of your life insurance paid to your estate. One of the great advantages of life insurance is that it can be paid to your family immediately. If it is payable to your estate, however, it will have to go through probate with the rest of your assets.
   (c) Be very specific in wording beneficiary designations. Saying "wife of the insured" could result in an ex-spouse getting the proceeds. Naming specific children may exclude those born later. If your child dies before you, do you want the proceeds to go to that child's children? Changing the beneficiary designation is easy, but you have to remember to do it. Due to the various issues involved, an agent can be an excellent source of information to help you properly set up your beneficiary designation.
   
   
7. Does it make sense to replace a policy? Think twice before you do, because in many situations it may not be to your advantage. Before dropping any in-force policy, consider:
   (a) If your health status has changed over the years, you may no longer be insurable at standard rates.
   (b) Your present policy may have a lower premium rate than is required on a new policy of the same type (if, for no other reason, that you have grown older).
   (c) If you replace one cash-value policy with another, the cash value of the new policy may be relatively small for several years and may never be as large as that of the original one.
   (d) You will be subject to a new contestability period.
   
   You should ask insurance agents for a detailed listing of cost breakdowns of both policies, including premiums, cash surrender value, and death benefits. Compare these as well as the features offered by both policies.
   
   If you decide to surrender or reduce the value of the policy you now own and replace it with other insurance, be sure that:
   (a) the agent making the proposal puts it in writing;
   (b) you pass any required medical examination; and
   (c) your new policy is in force before you cancel the old one.
   
   
8. What happens if I fail to make the required premium payments? If you miss a premium payment, you typically have a 30- or 31-day grace period during which you can pay the premium with no interest charged. If you own a term policy and fail to pay your premium within the grace period, your insurance company will typically terminate the policy. If you own a permanent policy and fail to pay your premium within the grace period, your insurance company, with your authorization, can draw from your policy's cash value to keep the policy in force. In some flexible-premium policies, premiums may be reduced or skipped as long as sufficient cash values remain in the policy. However, this will result in lower cash values and a shortened coverage period.
   
   
9. Should I just buy basic life insurance coverage or is it worth considering the "bells and whistles? that some policies offer? Whether you should consider adding a rider to a policy you're considering really depends on your specific needs, objectives and budget. Here are a few riders that you at least should take a close look at and consider. A disability waiver of premium rider stipulates that if you become totally disabled for a specified period of time, you don't have to pay premiums for the duration of the disability. Why might you want to consider such a provision? Disabling illnesses and injuries are much more common than you probably realize. If you become disabled and your income declines or disappears for a period of time, a disability waiver of premium can ensure that your life insurance policy will remain in force. An accidental death benefit is another common rider. It will pay an additional benefit in the case of a death resulting from an accident. Many companies offer accelerated death benefits, also known as living benefits. This type of rider allows you, under certain circumstances, to receive the proceeds of your life insurance policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home. Ask your agent for information about these and other policy riders.
   
   
10. How do I go about finding a good insurance agent? To locate a qualified insurance agent or other financial professional, seek recommendations from friends and professionals such as your lawyer or accountant. Ask about the person's experience and background, and make sure he or she specializes in the service and products you need. You also may want to ask the person if he or she has received any special certifications such as Chartered Life Underwriter (CLU) or Chartered Financial Consultant (ChFC). These designations mean the person has taken advanced courses and may have specialized training and knowledge from which you could benefit. Above all, you want to select an agent or advisor who listens well and will take the time to understand your unique goals and desires.