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Life Insurance Benefits and Considerations

Learn the importance of life insurance, factors affecting premiums, policy types and considerations when choosing coverage. Discover how life insurance can secure your family's financial future.

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Life Insurance Benefits and Considerations

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  1. Life Insurance Personal Finance

  2. Why? • If someone (anyone) will suffer a financial burden if (when) you die • Last expenses • Unpaid bills • Mortgage • Lost income • Education of children • Business continuation • Estate taxes

  3. How Much? • Look at the list on the prior slide and total what your needs would be • Many financial planners use 5x annual income as a reasonable approximation if you have a family • Needs change during your life

  4. Premiums • If premiums are paid with after-tax dollars, the benefits are totally income-tax free (but may be subject to estate taxes) • Premiums are based on: • Age • Sex • Health • Occupation • Type of insurance • Amount of insurance • Tobacco habits

  5. Things to Consider • Beneficiary must have an insurable interest • Policy is usually incontestable after two years • Suicide during the first two years usually isn’t covered • Misstatements of age, health, smoking, etc. on the application can invalidate the policy during the first two years • Waiver of premium benefit is often automatic but can be removed • Accidental death insurance is usually not a good idea • Second-to-die helps with estate taxes • Guaranteed insurability option is good if you think you’ll need more coverage later

  6. Things to Consider • Insurance is only a promise – and a long one at that • Make sure the company making the promise will be there • A knowledgeable and helpful agent is worth something • But remember how they get paid • There is always a 10-day free-look • Insurance is for insurance – not primarily for savings

  7. Types of Life Insurance • Term Life Insurance • Whole Life Insurance • Universal Life Insurance

  8. Term Life Insurance • “Pure” insurance protection • Insures you for a “term” – a period of time • Inexpensive while young • Prohibitively expensive when old • Allows you to purchase maximum insurance for the least cost • It will “run out” at some point • The most typical type of term insurance has level premiums for 10 years

  9. Whole Life Insurance • Insurance with cash value buildup • The cash buildup is always tax-deferred, and often tax-free • Dividends may be paid, but are not guaranteed • Level premiums for a lifetime – guaranteed • Investment risk is with the insurance company • Moderately expensive while young • Comparatively inexpensive while old • Assures that you will always have some life insurance if you continue to pay the premium

  10. Universal Life Insurance • Combination of Whole Life and Term • Less expensive than Whole Life, but fewer guarantees • More expensive than Term, but premiums will hopefully stay level • Investment risk is mostly with the insured • May allow for individual investment selection • Variable Insurance – you can have the premiums invested in stock, bonds, real estate, etc.

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