What is Life Insurance? About Beacon Point
While it isn’t a pleasant topic to discuss, the best life insurance policies can be helpful to your beneficiaries in the event of your death. The payout from a policy can cover a number of things including debts, estate taxes, business costs, or college tuition costs.
Life Insurance is important because it allows the people you choose as beneficiaries to be paid out after your death. The beneficiaries are usually children, family members, or a spouse. Having a strong life insurance policy is essential if you have people who depend on you financially.
Types of Life Insurance
Money cannot lessen the grief that death causes, but it can help your loved ones maintain a stable livelihood. Here are the types of policies, and how to choose the best life insurance for you:
Whole Life Insurance
Just as the name suggests, this is a permanent policy. Whole Life insurances includes a “cash value” account that increases in value over time. If you build up enough cash value, you may have the ability to take out a loan against the policy if you need the money for large expenses.
- Coverage for your entire life
- Expensive option
Term Life Insurance
Term life insurance is one of the most common policies that people get. This type of policy lasts for a certain number of years. If you don’t die within the pre-decided time frame, the policy expires and you don’t receive a payout.
- Cheapest option
- Possibility of outliving your policy
Universal Life Insurance
With this policy, you receive a pre-decided death benefit and your payments do not change. Usually, these types of policies do not come with a cash value. If you forfeit your policy by missing a payment, you don’t receive anything.
- Cheaper than whole life
- Possibility of forfeiting policy by missing a payment
Variable Universal Life Insurance/Variable Life Insurance
With these two types, your cash value is tied to your investment accounts. These accounts may be at risk because of the market. If you have a cash value, you may be allowed to take loans or make partial withdrawals.
- Can gain a lot in cash value if you are smart about investing
- Inconsistent cash value based on market changes
Indexed Universal Life Insurance
In this policy, the policy’s cash value is tied to a stock market index. Depending on the formula detailed in the policy terms, your gains may fluctuate.
- Access to cash value which will grow over time
- Unable to take full advantage of potential gains from stock market
Contact our team at Beacon Point Insurance Group if you have any additional inquiries about the different types of insurance.
Underwriting for Life Insurance Policies
The term “underwritten” refers to the life insurance company’s evaluation of how high-risk you are. This evaluation informs how much you are expected to pay. Here are the types of underwritten policies:
This means you are healthy and only have one or two health issues. This policy is usually the cheapest. To see if you qualify for this type, the insurance company will ask that you complete a medical exam that includes questions about your personal health, as well as questions about your family’s health history.
This type doesn’t require a medical exam, but you will be asked a few questions. Depending on your answers, you could be approved or disapproved.
With a guaranteed issue policy, you aren’t required to take a medical exam and you cannot be turned down. This is the most expensive type and you may only have access to low coverage amounts.
If you die within a few years of activating the policy, your beneficiaries won’t receive the maximum benefit. This type of policy is most often sought after by individuals who aren’t able to get another type of policy.
Situational Insurance Types
Credit Life Insurance
Credit life insurance only pays the balance of a loan like a home equity loan. When you take out a loan, your bank may suggest that you buy a credit life insurance policy. This means that if you die before paying off the loan, your family won’t be responsible for paying off the lender.
Mortgage Life Insurance
This policy covers the balance of your mortgage so your family isn’t responsible it if you die.
Joint Life Insurance
Joint life insurance supplies coverage for two lives. This type of insurance is most common for spouses. When one of the two spouses die, the beneficiary, which is usually the surviving spouse, gets paid out. At this point, the policy expires. If both people die, the money is typically given to the children, if there are any.
Accidental Death and Dismemberment
With this type, a death benefit is only payed if you die in an accident like a car crash. Accidental death and dismemberment insurance also includes payouts for loss of limbs, hearing, sight, or other health problems.
How to Decide How Much Coverage You Need
It’s challenging to come up with a single strategy for deciding the amount of life insurance that you need. This depends on many variables including your income, the number of dependents you have, your lifestyle, and your debts.
Generally speaking, your best bet is to choose a policy that is worth between 5-10x your annual income. If you want a more specific answer, you should consult a financial planner.
How Life Insurance Can Help You Depending on Your Situation
Different types of life insurance benefit you in different ways. Depending on your lifestyle and needs, you may benefit more from a specific type of policy.
Family’s Primary Income
If you are the breadwinner if your family, having a life insurance policy can replace your income when you die so your family doesn’t struggle to make ends meet. Term life insurance is the best option in this case.
A policy could handle support payments made as a divorced parent. Term life insurance is also the best life insurance option in this case.
Parent of Special-Needs Child
Having a life insurance policy in place for when you die will ensure your child gets the financial support they need. Permanent life insurance is best in this case because your beneficiary will receive a payout regardless of when you die.
Homeowner with Mortgage
A term life insurance policy will cover mortgage payments so your family doesn’t need to move.
Individual with Co-Signed Debt
Term life insurance is ideal in this situation because it can cover the cost of your debt in the event that you die before paying it off.
Life insurance is great for business owners because it can pay off your business’s debts and help the heirs to your business pay estate taxes, as well as fund a buy-sell agreement that permits a business partner to purchase your share.
An investor with Maxed Out Retirement Plans
Permanent life insurance, which builds a cash value that you have the ability to access, can help you grow your retirement savings.
Someone Looking to Supply an Inheritance
If you aren’t wealthy, having a life insurance policy can help you leave your heirs with an inheritance. Permanent life insurance is best because it will provide a payout regardless of when you die.
A person with High Net Worth
Life insurance is useful if you have a high net worth because it can supply your beneficiaries with the means to pay inheritance or estate taxes. You should get permanent life insurance if this is your situation.
Life Insurance Costs
Most commonly, the least expensive life insurance plan will come from your employer’s group life insurance plan, if your employer offers it. Usually, employers offer term policies that only cover you for as long as you work there.
The cost of other types varies a lot depending on factors, such as:
- The type of policy that you choose
- how much you purchase
- The underwriting
- How much commission your agent gets paid through the company
Underlying costs are determined using actuarial tables that predict your life expectancy.
You are more likely to pay more for your policy if:
- You smoke
- You are overweight
- You engage in dangerous activities
- You have a high-risk job
Many life insurance policies also have hidden costs like large commissions and fees. More often than not, you won’t discover these hidden fees until after you purchase the insurance.
Not only are their many different types of life insurance, but there are so many life insurance company options.
To make the process easier for yourself, you should consider hiring a fee-only insurance adviser. They can research policy options and advise you on the type to purchase depending on your unique lifestyle. To remain unbiased, this insurance advisor should not be affiliated with any insurance companies.
Contact Beacon Point today to discover the kinds of rates we can offer you and to see how those rates compete with other providers.
How to Evaluate Life Insurance Companies
Since life insurance is a long-term purchase, you’ll obviously want to purchase it from a reputable company that offers you a fair price. The major life insurance companies in this market have solid track records, but there are several smaller providers that are strong options as well.
You can use rating agencies like A.M Best or Standard & Poor’s to see the financial strength of different insurers.
A lot of companies operate in a niche sector, so don’t be afraid to tailor your search that way if you know what type of insurance you want. For example, some companies specialize in life insurance policies for children.
Information to Gather
If you are ready to apply for life insurance, there’s a few documents that you need to gather. You should have documents on hand that outline your current health condition and your past health condition. You should also be prepared to share your family health history.
Insurers typically require your consent in order to get medical records and ask you to take their medical exam. Insurance companies have many sources for collecting information about your health, driving record, and lifestyle.
When you’re ready to purchase your life insurance policy, you should have your beneficiaries in mind. You will also need their dates of birth and social security numbers.
Aside from questions about your health, you will also be asked questions about your criminal history and driving violations.
Tips for Buying Life Insurance
1) Apply When You’re Healthy
Your life expectancy is a deciding factor for insurers who are deciding the policy offer they want to give you. If there are any factors that could potentially shorten your lifespan, you will be paying a higher price. That’s why buying insurance when you are young and healthy is the easiest way to secure a fair price. Even if you don’t have any health issues when you are older, the price will still be higher than it would be if you set up a policy earlier.
2) Compare Life Insurance Policies
Many people choose the first policy that they are offered because they don’t realize how much prices can fluctuate depending on the insurer. Always do your research and explore your options before deciding. Also, don’t just consider the monthly premium. There is a huge price difference between a $30,000 permanent policy and a $30,000 term policy.
3) Don’t Forget About the “Free Look” Period
Once your policy is issued, typically you will have a free look period to make changes to your policy or reject it. Don’t forget to ask your provider how long this period lasts so you can make any changes to your policy if you need to.
4) Review your Life Insurance Plan Habitually
If your financial responsibilities change over time or your income rises or drops, be sure to review your life insurance plan to make sure it is still the best option for you.
5) Know the Cancellation Policy
If you decide that you want to cancel your life insurance plan and opt for another policy from a different provider, contact your insurance representative to find out the cancellation policy. Most providers have costly cancellation fees. This is another reason that it is important to do your research before selecting one provider over another.
Questions to Ask Yourself Before Choosing
How financially stable is this company?
- With life insurance, it is essential that you choose a provider with a strong financial backing. If the company isn’t stable, they may not be around in the future when it comes time to pay the death benefit. This doesn’t mean that you should exclusively look at large companies. Many small or medium sized companies have good reputations and have been in business just as long as larger businesses.
What type of policy do I want?
- When you look at insurance providers, take a look at their product offerings. Make sure they have a strong selection of products and they offer the policy that you think would work best for you. This means delving deep into research about what policy would suit your needs and lifestyle best.
What is this company’s track record?
- Contact your state insurance department to see how well a particular insurance company treats their customer base and delivers on its promises. Insurance departments are responsible for regulating the industry by investigating complaints. Most of these departments will have facts about insurers published on their websites.
Is the provider a mutual company?
- Unlike public insurance companies that are owned by stockholders, mutual companies are owned by the policyholders. If you purchase a permanent life insurance policy through one of these companies, you get a share of surplus revenue. The directors of the company decide annually how much policyholders receive as dividends.
The Cheapest Way to Buy Life Insurance
The easiest and least expensive policy is Term life insurance. With this type of policy, you pay a yearly premium and receive a fixed death benefit that is received by the beneficiary of your choice.
Term life insurance gets you the most benefit per premium dollar. This allows you to use your income for other expenses or to save. For example, a healthy middle-aged man good pay as little as $20 a month for a 20-year, $500,000 policy.
If life insurance is offered to you through your work, you may be able to increase your coverage if your employer gives you the option to. But, you should still explore other policies before settling for the one offered by your employer because it could be more affordable to purchase it separately.
One downside of term life insurance is that it is limited. This type of policy is usually offered in a 10, 20, or 30-year term. If you do not die within that time frame, the coverage ends and your money isn’t returned to you.
Is Cash-Value Insurance Worth It?
With a permanent policy, you usually get a savings/investment element coupled with a death benefit. The two most common types of cash-value insurance are whole life and universal. As mentioned previously, these types usually cost more money.
With whole life, only a part of the premium you pay goes toward the death benefit, meaning that your premium payment is higher than it would be in a term policy for the same amount of coverage.
However, part of your premium payment goes toward the investment or savings account. Permanent policies are more suitable for families who want to leave an inheritance behind.
Avoiding Estate Taxes and Probate
Proceeds from your life insurance policy are not subject to probate unless you’ve listed your estate as your beneficiary. If anyone else is named as the beneficiary, the payout can quickly be transferred without additional costs of delay. The only reason you may have for naming your estate as your beneficiary is if you cannot pay your taxes or debts
If you own the policy at the time of your death, the proceeds from that policy are included in your taxable estate. If the estate is large enough, you will be subject to estate tax liability, which means that the policy proceeds can be taxed. If you aren’t the legal owner of your policy, the proceeds aren’t included in your taxable estate.
When Don’t You Need Life Insurance
There are some instances when you don’t need car insurance or homeowner’s insurance. It's also possible you don’t need life insurance:
1) If you and your spouse have enough assets in place to take care of yourselves
2) Your children don’t need the payout from your policy
3) You don’t need to pay estate taxes
Here are some questions to ask yourself before deciding whether or not you need to have a policy in place:
How many people depend on my income?
- If no one else’s life is affected by your income, you most likely don’t need to purchase life insurance. Without a beneficiary, there is no point in having it.
How much money do my dependents need for living expenses?
- You can determine this by considering the income that you give to your dependents regularly.
Subtract the property worth that they would inherit and anything that they’d receive from public sources or private insurance plans.
Also, make sure to subtract income from other sources like grandparents. If your dependents are self-sufficient or almost self-sufficient, it may not be necessary for you to have a plan.
Get a Quote For Life Insurance Today
Life insurance is great to have for a number of reasons. More often than not, people need to supply their families with a source of income in the event of unexpected death. When you get the best life insurance policy and name your loved ones as the beneficiaries, their futures are secured.
Overall, the type of policy and the cost depend on a number of factors, including:
- The extent of coverage
- Your current health status
- Family health history
- The amount you are willing to spend
Before you purchase a policy, do extensive research about different insurance providers and their track records. Since this is a long-term decision, you have to choose responsibly.
If you have anyone who depends on you financially, you should definitely consider setting up a policy. It can save your dependents from the struggle of not being able to keep up with bills.
At Beacon Point Insurance Group, we strive to make the process as simple as possible for you. Contact our office today to get a quote for life insurance, discover what plans we have available and learn how those plans can work for you.