Finding Life Insurance

If you’re considering life insurance for you or your loved one, here’s how to get started on a search.

Life insurance protects family members and other dependents in the event of death. Basically, it’s a contract between an individual and an insurance company in which the insurance company agrees to provide dependents with a certain amount of money upon the individual’s death. This contract, and the payment it represents, is considered personal property.

Some types of life insurance provide you and your family with living benefits, which can play an integral role in a financial portfolio. A holder of such benefits may expect to pay premiums – periodic payments of a fixed amount.

When does someone need life insurance? You should consider purchasing a policy or updating an existing policy if:

  • You have begun the caregiving process for an elderly parent
  • A child or grandchild has been born or adopted
  • There is a concern about funding a child’s education or having enough retirement income
  • You have recently purchased a new home or reaffirmed a mortgage in the past 4-6 months
  • You are recently married or divorced
  • You or your spouse have recently received an inheritance
  • Your health or your spouse’s health has deteriorated

Premiums are based on individual factors, including age, gender, medical history, and the final dollar amount of the selected policy. Generally, insurance companies require a medical exam before application for life insurance. This is especially true when the prospective insurance candidate is older or is applying for a policy worth more money.

The four basic types of life insurance are:

Term life insurance

  • These policies provide protection but do not build cash value
  • The least expensive type of coverage (especially when you are younger)
  • Usually pays your beneficiary a fixed amount of income if you die during the life of the policy
  • Often issued for 1-20 years. Usually renewable (review the policy guidelines).

Whole Life Insurance

  • These policies provide protection and build cash value, often in the form of dividends
  • Premiums fixed for duration of policy
  • The cash value can be used while the individual is alive, to supplement existing retirement funds or to fund a child’s education
  • Any withdraws or loans will decrease the overall cash benefit

Universal Life Insurance

  • Policies provide protection and build cash value at slightly faster rate. Net premium payments earn at guaranteed interest rates.
  • Flexible because you have the ability to adjust the death benefit and premium payments
  • Withdrawals or loans against the cash benefit are allowed at any time
  • Policy may allow you to skip a premium payment. Note, however, that the administrative and death benefit costs are then deducted from the cash value of the policy.
  • Rates are subject to change but can’t fall below guaranteed minimum

Variable Life Insurance

  • These policies typically provide less protection. If investments perform poorly, the death benefit will likely decrease. Still, these policies can build cash value at a much faster rate
  • You decide how policy values are invested
  • You may withdraw or borrow against the policy at any time
  • This type of policy is sold by “prospectus” – a written statement disclosing the terms of a securities offering or a mutual fund.Strict rules govern disclosure, so read a prospectus very carefully before purchasing a policy

Regardless of the type of policy, there are two types of life insurance policy assignments:

  • Absolute assignment, in which all ownership rights will be transferred to another individuals
  • Collateral assignment, in which certain ownership rights are transferable. This is most helpful in cases where the policy will serve as security for a loan or other debt

Additionally, there are two types of beneficiary designations:

  • With revocable designation, the insured individual can change the designation of the policy
  • An irrevocable designation means that After the policy is designated, the insured individual can never change this designation

In reviewing life insurance policies, there are several questions that you should ask yourself. These include:

  • Is this policy intended to serve as anything other than a measure of protection for family members? Is the policy expected to provide funding for a child’s education or additional money for estate taxes?
  • How much money can you afford to pay for a policy?
  • Have you investigated at least three insurance companies? Note: Your local library will have publications created by independent agencies that rate insurance companies. Check these to verify aspects of an insurer’s consumer history and the competitive nature of an insurer’s prices.
  • Is my first choice of insurance company a member of the Insurance Marketplace Standards Association (IMSA)? (The IMSA is a voluntary organization that sets standards of ethical conduct for insurers—if the insurer is a member, you may usually assume that its policies and guidelines are fair.)
    Be sure to ask questions when you do not understand something and read the guidelines of multiple policies before thoroughly reviewing your final choice.

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