Life Insurance FAQs
Life Insurance is necessary to protect the financial well
being of your family. The right policy will transfer the financial
uncertainties resulting form a death to a financially strong
insurance company. Your family will be able to carry on with
their lives and reach their goals without the financial hardship
that could result from a lack of life insurance.
- How much Life Insurance do I need?
Everyone's situation is unique to that individual. Some
financial experts recommend 6 to 10 times your annual salary.
This is an estimate and no substitution for working through
your own unique situation. There are a number of factors
to take into consideration:
Number of children and their ages
Mortgage, college tuition
Current level of investments and savings
What type of legacy/estate do you want to leave to your
How much can you afford to pay for the insurance
- How is my "Health Class" and resulting rate determined?
Each company uses their own criteria to determine your health
class and your resulting rates. In fact it is entirely possible
for the same person to be rated as "Standard" with one company
and "Preferred" with another! Some factors such as smoking
will have an impact on your rating class. For you to get
a "Preferred" rate requires excellent overall health and
a healthy lifestyle. Each company's guidelines determine
limits on weight to height, cholesterol, blood pressure,
and family/personal health history. Please note that all
insurance companies require a medical examination at their
expense prior to determining your health class and final
rates. This health class could be different from rate quoted
prior to the medical exam. This is why it is important to
have a professional insurance broker search the marketplace
and secure the best policy for you.
- I have a health problem. Can I get coverage?
There are many companies available in securing coverage
for you. Even if you have been declined in the past, you
may be able to obtain coverage. It is always best to try
to obtain coverage.
- What is the difference between term insurance,
whole life, universal life and last to die insurance?
Term Insurance is typically the least expensive
of all policies and allows you to obtain the maximum coverage
for the lowest cost for a fixed period of time. In the majority
of cases it is often the best way to go. The rate can be
guaranteed for 5, 10, 15, 20, 25 or even 30 years!
Whole Life is also called "permanent" insurance.
It protects you for your entire life. As long as you continue
paying the premium it will always be there to provide a
death benefit. It can also build up cash value that can
be borrowed from the policy.
Universal Life is also called "permanent"
insurance. With this type of policy, there is the potential
for cash value to build up over time. The real focus is
to provide a guaranteed death benefit to age 100 or beyond!
It is very similar to a term policy that never ends. Many
people find a combination of term insurance and universal
life meets their need for protection for a period of time
and leaving a legacy for their children.
Last to die Insurance is insurance on two
lives that would pay upon the second death. These policies
are used in estate planning to pay estate taxes.
- Does it make sense to replace an existing policy?
It always makes sense to shop the marketplace. If you stopped
smoking or improved your health status you may qualify for
reduced rates. If you do shop around you should never let
your existing policy lapse until the new coverage is in
- When will the policy begin?
If you decide to purchase the insurance, the insurance becomes
effective when you have accepted the policy and the home
office has received all necessary documents and premium
- What is involved in the application process?
The process starts with submitting an application and taking
a medical exam. The medical exam can be scheduled at your
home of office. The exam typically consists of medical history
questions, blood/urine specimen, height/weight reading and
EKG. It is better to have the exam done in the morning.
Once the exam and application are received it usually takes
between 4-8 weeks to get an offer from the insurance company.
- What is the tax treatment of life Insurance?
Life insurance death benefits are generally free of all
federal and state taxes. The proceeds may be subject to
estate taxes unless proper planning has been taken place.
There is way to avoid this with proper planning by using
trusts. You should always contact an attorney who specializes
in estate planning to review the proper way to handle this.
- Should I buy insurance on my spouse?
In most circumstances, yes. If the spouse has an income
from working insurance can replace the possible loss of
wages. If the spouse is a homemaker, the life insurance
will be needed to cover daycare and other costs associated
with the running of a home.
- What is return of premium term life?
This is a form of term insurance where you get all the money
back from the insurance company after the specific term
of the contract ( 10,15,20, or 30 years). These policies
generally cost about 30% higher than term insurance. The
money returned is tax free as it is return of the money
you put in.
Estate Planning FAQs
- What is estate planning?
Estate planning involves the planning of the transfer of
your estate to your heirs. Proper planning is important
as if you do not have a will the state will decision how
your assets are transferred.
- What is a will?
A will is a legal document that set forth how your assets
are transfer after death.
- What is a trust?
A trust is an agreement between 2 parties for the benefit
of a 3 party.
- The basics of the irrevocable life insurance
This trust is set up so that life insurance is not part
of your estate and subject to the estate tax which can be
as high as 47%. For married couples a last to die policy
is generally used to fund the estate taxes due upon the
death of the second spouse. Generally the trust is first
established and then the trust would be the owner of the
policy and the beneficiary of the policy so that it is excluded
from the gross estate. You should always seek the advice
of a lawyer who specializes in estate planning in setting
up the trust.
- Marital deduction
If you are married you can leave an unlimited amount of
assets to your spouse without any estate taxes. When the
remaining spouse dies then estate taxes are due to the IRS.
Taxes are due within 9 months after your death. Life insurance
if properly planned can play an important role in paying
the estate taxes due.