Insuring Your Family’s and Business’s Stability
The people we love are our most important assets. Life insurance, whether for a set period or for a lifetime, can provide you with the peace of mind that comes from knowing the people who mean the most to you will have economic stability when you are no longer here to provide for them.
How Does Life Insurance Work?
Life insurance can seem complex but understanding it might be easier than you think. Because there are many different types of life insurance, we’ll keep this simple by focusing on a commonly chosen policy type: term life insurance.
The first thing you’ll need to do to get a life insurance policy is to request a quote. A quote includes the estimate (from an insurer) of the amount money you’ll be charged in monthly premiums for the amount of coverage you seek. A quote is not a formal offer, simply an estimate. The actual amount you pay for coverage could be more or less than your quoted premium rate. You won’t get your final amount until your application goes though underwriting. To get an accurate quote you’ll want to be transparent with your needs and history. You can request a quote online or by calling one of our licensed agents. You will be asked personal questions about your lifestyle which does directly relate to the premium you’ll pay.
Things You May Be Asked During Your Application Process Include:
- How much money you and your spouse make annually
- Your personal medical history
- Information about family medical history
- Questions about financial assets like retirement accounts, homes, and cars
- If you have any hobbies that involve high levels of personal risk
- Whether or not you have any upcoming travel plans that include visiting high-risk locations
- History of any mental health conditions requiring medical attention
- Your driving record
- Personal identifying information (or PII)
How Do You Price Life Insurance?
When your application is finished your information is factored into actuarial tables that will help us to calculate your risk and insurability. This process is called “underwriting.” Once we get this figured out, you’ll be placed into something insurers call a “rate class.”
Rate classes are a system used by insurers to determine how much you’ll pay for life insurance. Individuals are placed into figurative groups or “classes” based on their projected mortality risk. Because of this, it is best to provide the most accurate medical information possible during your application process.
These can vary slightly in name by insurance company:
- Preferred Plus (the least costly rates)
- Standard Plus
How the purchase works
When your life insurance application is complete, you’ll receive a final offer from the insurer. Usually, at this point a first payment of your premium is needed to initiate the policy. After the initial payment, you’ll need to continue to make payment for the life of your policy. These are typically paid on a monthly, quarterly or annual basis.
Now that you understand the basics of how life insurance works, you can move on to the next step of securing coverage and helping to provide peace of mind to your loved ones.
Cash Value Life Insurance
In addition to predictable premiums, some permanent life insurance policies, like whole life and universal life, come with interest earning cash value. In fact, permanent life insurance policies are sometimes referred to as “cash value life insurance” policies. Life insurance with cash value is designed to grow in total value at a guaranteed rate of return (provided that you make your premium payments on schedule). Usually you’re allowed to borrow funds from the cash value of your policy. The funds you accrue with a permanent life policy are tax deferred in many instances. Premiums are usually higher because of the savings capability offered. Fortunately, the premium due on the permanent policy will always remain the same, while the term life premiums can go up significantly each time renewed.
Which Type of Permanent Life Insurance is Right for Me?
Whole Life Insurance
Whole Life insurance is permanent life insurance coverage typically selected by people who want a fixed rate of premium for the rest of their life. Whole life policies can generally be more expensive than some other types of life insurance, you gain long-term financial predictability for of premium. Whole life insurance carries cash value which typically grows on a tax-deferred basis. If you have a larger budget to work with for life insurance, this is usually a good choice. This type of coverage might be also good fit if you are worried about a family history of illness or disease because you will not be asked to complete additional medical exams once your policy is in place.
UNiversal Life Insurance
Universal life insurance is a type of permanent life insurance coverage similar to whole life insurance but it offers more flexibility in premiums. Universal life has interest earning cash value much like whole life insurance but whole life policies also have the added benefit of adjustable death benefits which allows you to make changes to the policies death benefits if your needs change. For this reason, universal life insurance may be a better fit for younger people looking for a permanent option and those who are unsure of their future needs.
What is Term Life Insurance?
A term life insurance policy covers the policyholder for a specific amount of time, which is known as the term and vary according to what the individual chooses. Terms typically range from 10 to 30 years and increase in 5-year increments. Term life insurance policies tend to be the most popular as their usually the most affordable. They typically provide an amount of coverage for much less than permanent types of life insurance.
How Does Term Life Insurance Work?
Depending on the type of policy, term life insurance can have fixed premiums for the entire term or life insurance on level terms. This type of policy is common for young people, families and people who only want protection for a specific people of time because of the affordability and fixed payments.
Term life insurance doesn’t accrue cash value like several other types of life insurance, but with many term policies, beneficiaries do receive the full face amount. For example, if a policy’s face amount is $100,000, the beneficiary receives the full amount. The benefits paid on a term life insurance policy are tax free, according to current tax laws.
Level Term Life Insurance
A popular type of term life insurance is level term life insurance (or term level life insurance) which offers life insurance on level terms or a fixed premium payment for the duration of the term, typically 10-30 years. If you have a longer term then you generally have a higher monthly premium because the carrier will average out the cost of insuring someone who is younger with someone who is older. This type of plan make it easier for people to budget since it is a “set it and forget it” type plan.
Why You Need Life Insurance
Life insurance proceeds can help survivors pay for funeral costs, cover monthly bills and living expenses, and pay off outstanding debt, including credit card bills and mortgages. Without life insurance, family businesses face huge financial risks. Contact Ascent Financial today to learn how life insurance can ensure your children’s education and secure the retirement needs of your spouse.
Death benefit protection
A life insurance policy can help pay for medical bills, funeral costs and other immediate expenses. This will help to give financial support to your family when they need it most. Life insurance policies can also help supplement lost income for the future to give your loved ones a chance of continuing their current lifestyle.
Some life insurance policies (universal and whole life) the premium earns interest and is tax-deferred until withdrawn. This can help to fund financial emergencies, retirement income or college expenses.
Income tax benefits
Typically, the death benefit on a life insurance policy transfers to beneficiaries free of federal income taxes. Additionally, earnings from accumulated value are not taxed until withdrawn.
Having life insurance with an estate plan can offer benefits such as protecting assets, evading family conflict and providing trusts for beneficiaries.