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Frequently Asked Questions
“Should I
buy Term insurance and invest the difference?”
It depends on what you are buying the insurance for and
what you are investing for. If you are buying the insurance
because you need the protection for a limited period of
time (e.g. 20 years or shorter) you should buy term insurance.
If you need the coverage for the rest of your life and if
you are saving for the long term (e.g. 15 years or longer)
you should buy either whole life or universal life and invest
"the difference" in the policy itself. In either
case you are building up "cash values" for you
to use in the future as you see fit. Accumulating money
within a life insurance policy is very attractive because
as long as you leave the money in the policy the growth
is tax-free. If you buy universal life you manage the investments
under a number of different investment options. It offers
transparency and flexibility as well. The tax-sheltered
features of the investment part of universal life insurance
policies are very attractive to the individual who wants
to be involved with the investment part of his own policy.
If you prefer to be free from making any investment decisions
"whole life" is still an attractive alternative.
“What is meant
by a "living benefit"?”
Some life insurance companies offer an accelerated death
benefit provision, called a "living benefit".
Under this option the life company will advance a portion
of the death proceeds, that otherwise would not be payable
until death, if the insured is terminally ill.
“How much
insurance do I need?”
Life insurance is bought for many different reasons.
The question of how much often comes up when an individual
is trying to decide how much is needed for those he leaves
behind in case of premature death.
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To calculate
how much is needed under those circumstances, try the
Simple Insurance Needs calculator. |
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“For how long
should I be covered?”
For as long as you need to or want to have the protection.
For most people this means lifetime.
“How much
does insurance cost?”
It all depends how old and healthy you are and
how much you want to buy. Your sex and whether or not you
smoke also affects the premiums. Most financial advisors feel
that budgeting up to 5% of your income for life insurance
is realistic.
“How
are commissions determined?”
Commissions are usually based on the first year premiums.
In case of a universal life type of policy the commissions
on the insurance part of the premiums are a different percentage
than the commissions on the investment part. Most policies
pay a small "trailer fee" for anywhere from three
to ten years. The "trailer fee" on the investment
part of a universal life policy may be continued considerably
longer.
“Are
life insurance proceeds payable at death taxable?”
Life insurance proceeds at death are tax free whether payable
to a named beneficiary or even if the beneficiary is the
estate.
“What are
dividends?”
A return of part of the premium on participating insurance
that is based on the insurer's investment, mortality, and
expense experience. Dividends are not guaranteed.
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