FAQs about Life Insurance
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Question: What is the original design and purpose for carrying life insurance? Answer: Life insurance in its historical design was created to protect young people with families and children if the breadwinner died ------- Answer: It can work as a financial planning tool for wealth accumulation, help for tax shelter and tax planning purposes, serve as added indirect protection for dependents such as aging parents or grandchildren, cover you in the event of accidental loss of vision or limbs, or crippling, and provide an instant estate in the event of tragedy. ------- Answer: Absolutely. Life insurance delivers peace of mind for you and loved ones. The emotional and psychological benefits are enormous. Their intangible value can be greater than money itself. Such benefits should be considered thoughtfully in a purchase decision. ------- Answer: An important benefit comes at the very time when disaster strikes - at the time of death - when there is little else that is good news. Then you, the policy holder, are remembered for your wisdom, your forethought, and your advance planning. This time is a most important time, where peace and comfort come into an otherwise tragic situation of death. ------- Answer: Create a list of all your family and dependent expenses (every one whom you help financially). Sum it up to find the total. Then see how much things would change in your loss. If your survivors would not have enough, to take care of themselves to your level of satisfaction, then you definitely can benefit from life insurance. ------- Answer: Review your expenses monthly that are needed to support others dependent on you. Add up your fixed expenses, such as mortgage. Then add up variable expenses in your absence. How big would the grocery bill be? Would about child care expenses? What about children’s future education? How about other living expenses, such as automobile, running the house or apartment, etc? Next review what income would be available to support those who would suffer your loss. Is there enough? The shortfall tells you how much life insurance you need. ------- ------- Answer: There is always a tradeoff between security and affordability, balanced with your perception of how much protection your dependents require. There is no one formula that fits everyone. The traditional expert advice is to purchase 6 to 8 times as much total life insurance as your annual salary. This is an affordable level for most people, and provides a healthy degree of coverage that will fit your pocket book and still give dependents protection and peace of mind. ------- Answer: Figure on $100,000 life insurance for every $500 of monthly income needed. Let’s say your household needs $2,500 a month to cover all expenses. 500 divided into 2,500 goes 5 times, marking your total insurance need at $500,000. ------- Answer: The theory behind this rule of thumb is that the $100,000 can be put into a conservative investment, like a money-market account, and the interest on it will be enough to generate the $500 income required, while leaving the original $100,000 principal untouched. At an annual interest rate of 6 percent, the yearly interest is $6,000, which divided by 12 months in a year generates $500 per month. ------- Answer: How much would household expenses be if you were to suddenly disappear? Would they be the same, or would they decrease? How much? Take the difference between what her expenses would be and what her income would be, and see how much more income is required. Let’s say she would need an extra $1,500 a month to survive. Talk it over with her and see if she agrees, and would feel comfortable. If so, then divide 500 into 1,500, to get 3, meaning you would need $300,000 life insurance. ------- Answer: Buying an additional 25% to 50% extra as a “cushion” or emergency reserve is always a good plan, if it fits within your budget and gives you the comfort of knowing that you have provided extra for emergency. This is true, providing you feel this way, and your wife agrees with you that it is what she wants. ------- Answer: There are several reasons why this could be a good plan, based on your situation and perception of need. For example, if you know that the insurance need you calculated is computed based on an unstable and unsustainable current situation. Then income you counted on for dependents could disappear, meaning they would need more. ------- Answer: Inflation lessens the purchasing power of your money. Within 10 years, the $500 monthly income from $100,000 in the bank might only buy $250 worth of food. This is why an extra 25 percent more life insurance is almost always a justifiable investment. ------- Answer: You are the person who decides. If you have consulted those whom you are protecting, and you are happy too, then you have done your duty by them and by your conscience. ------- Answer: We all make judgments about the ability of others to make wise decisions that are in their best long-term interests. However, if you believe this is the case, you have options. Consult with a financial planner, possibly even your life insurance agent. Arrangements for the handling of the proceeds of the policy should be made in advance, so that the money is protected from incompetence and abuse. ------- Answer: Your ability to pay the life insurance premium must be considered also. Does the premium fit into your budget? ------- Answer: Your insurance agent receives a commission, and the insurance company makes a profit based on the commissions paid and underwriting people evaluated based on correct assessment of their mortality risk factors. To get the same amount of life insurance at a lower cost, you can shop around looking for a lower quote on the same dollar amount of life insurance. The differences between insurance companies can be substantial. However, make certain that you are dealing with reputable companies. ------- Answer: You can consider the type of policy that you are purchasing. Does it build up cash value for example, or protect you for your whole life? Does the amount of protection stay level with time, or does it decrease? The type of policy you purchase can raise or lower your premium substantially. ------- Answer: This question has many answers. There are thousands of agents eager for your business. The Internet has thousands of websites advertising their products from A to Z. And the variety of life insurance policies offered today is the largest ever. If you have a computer, or can get access to a computer from a friend or at the public library, go to the Google website (www.google.com), type in life insurance quote, and you will find many good places to investigate. You can view their websites, see their cost tables, check their rankings, and obtain phone numbers to call. ------- Answer: The purpose for life insurance is to protect others who would suffer when you can no longer support them. If your death would harm them, then there is always a bonafide need for life insurance. ------- Answer: The emotional comfort that life insurance provides in the event of an untimely or tragic death can be enormous. For that one reason alone, always carrying some amount of insurance, even if it is small, can make good sense. ------- Answer: It may be tempting to cancel your policy immediately. However, think of this. If you have an undiagnosed medical condition that you are unaware of, such as an aggressive cancer, then you would never want to suffer the loss of BOTH your life and your insurance policy making your life valuable. So the rule is to never cancel any life insurance policy until you obtain a medical checkup from your doctor and having a thorough physical. You might just want to keep that life insurance policy after all. And you would certainly suffer later, to think that you had cancelled it, but wished you could get it back again. ------- Answer: Are you looking the largest policy face value for the least dollar premium? Then you buy term life insurance. ------- Answer: Term life insurance covers the value of the policy should you die within a certain window (term) of time. If you don’t die, then the net value after the term has expired is zero. If you are a young person, your chances of dying are very small. So the cost of a term life insurance policy for a younger person can be very low. ------- Answer: From the financial point of view of protecting dependents, you have no need for insurance. From the point of view of making your life valuable should you meet an untimely early death, you might consider a term life insurance policy, since it is so inexpensive for a large amount for a young person. It is much easier to accept the tragic early death of a loved one knowing that provision was made to lessen the grief by planning ahead with an insurance policy for such a contingency. ------- Answer: For a whole life or cash value policy, you pay premiums for a certain period of time, after which time, you have a policy that insures your life forever until your death. Your beneficiaries are going to eventually be paid the face value of the policy -- unless you failed to pay your monthly premium and you let the policy lapse. You are going to die sooner or later, and regardless of when, the policy face value will be paid to your beneficiaries after your death. Because the likelihood of your death increases with time as you get older, the policy will be paid off sooner. Thus a whole life policy or cash value policy becomes more valuable with time. Should you decide that you want to quit paying premiums, and instead receive the value of the policy as it has increased with time, you can redeem the policy for its cash value at that time. ------- Answer: How agents are paid varies considerably from company to company. Some are paid much of their sales reward up front, and others receive a trailing commission that appears year after year, as long as the policy sold stays in force, providing the insurance salesman remains with the life insurance company. ------- Answer: Insurance is often sold as an investment, to make
it more attractive, and to please customers who are seeking additional
advantages beyond protection of income in event of untimely death. However,
the general consensus of most independent financial planners is that
there are other competitive products in the market, and many of those
competitors have a higher rate of return, giving you a superior place
to invest your savings. Some insurance plans do guarantee an annual rate
of return, can be safer investments, and have mutual reciprocal reinsurance
arrangements to make their promises very secure. |