Life Insurance Questions, Answers & Definitions

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What is life insurance, and why do I need it?
Everyone will die someday. Life insurance is a type of insurance that will give your loved ones a way to pay your final expenses, and, if large enough, will provide at least a temporary source of income to your spouse and/or children.

I have enough money to pay for a funeral. Why should I bother paying for Life Insurance?
There are lots of reasons for life insurance. According to insurance statistics, the average family takes five years just to get the bills in line and adjust the style of living to the loss of one person's income. If you are independently wealthy, life insurance will provide a tax free way to pay taxes on your estate. It will also give your family something to live on while waiting for your estate to be released from probate. If you have no family, life insurance can still be a wonderful way to leave a legacy to a favorite charity.

What are the different types of policies available?
Term Insurance: A type of insurance you can purchase very inexpensively. It's available in yearly terms ranging from 10 to 30, at which time it can be converted to any other type of insurance the company offers. However, the conversion price will be based on your age at that time.

Universal Life: A type of insurance with a savings component into which you pay your premium. The company pays interest on the savings and takes the cost of insurance and fees out of it. If funded properly, this type of plan can last to age 100. But, even if you start with a small premium, you will always have the option of adding money or increasing the premium to avoid losing the policy.

Guaranteed Whole Life: Insurance for which you pay a premium from the day you take it out to age 99–unless you choose a paid up option. Neither the premium nor the face value will ever change, and the policy will build cash value that you can borrow against or cash in if you decide you no longer need the coverage.

Variable Life: Very few companies offer this. It is a type of universal that is tied to securities such as stocks and bond. An agent has to be licensed in variable products to sell it to you. Your premium and your death benefit can change if your investments drop in value.

Joint Life: There are two joint life products, First to die and Survivor or "Second to Die." Two or more people are insured on one policy. In first to die, the benefit is paid when the first person dies, and the policy is terminated. In second to die, the benefit is not paid until the last insured person dies. This variation is most often used when people are trying to create a legacy or when they want to leave the heirs with a way to pay estate taxes.

Final Needs (Burial) Insurance: This is the only type of insurance your funeral director can sell you. Usually it guarantees that your final expenses will be paid, regardless of future increases in funeral costs. It is usually easier to get than other types of policies as the underwriting is simplified. If you choose this option, make sure you know exactly what is covered, and also find out if the policy can be transferred if you happen to move to another state.

Graded Benefit Life Insurance: These policies are advertised widely on television and are the most common life insurance marketed through mass mailings. The selling point is that there is NO MEDICAL, and you CAN'T be turned down for any reason. The catch is that the policy does not pay the face benefit for the first 1 to 3 years, depending on the company. If you die in the first year or two, your beneficiary will receive a return of premium plus interest. This type of insurance is intended for a person with severe medical issues that make one uninsurable, such as strokes, heart disease, diabetes, cancer, kidney disease, or Alzheimer's Disease.

Don't wait until you think you might "need" it.
One thing is for sure–none of us knows when the grim reaper will come knocking. But two things ARE certain. The longer you wait to choose your life insurance policy, the more expensive it will be, as the price goes up with age. Also, the older you are, the more apt you are to have chronic illnesses that will result in being denied or rated up. Life insurance is a love letter to the people most important in your life. Don't wait to write yours.

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