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Life Insurance FAQs

Who Needs Life Insurance?

Your need for life insurance varies with your age and responsibilities. It is a very important part of financial planning. There are several reasons to purchase life insurance. You may need to replace income that would be lost with the death of a wage earner. You may want to make sure your dependents do not incur significant debt when you die. Life insurance may allow them to keep assets versus selling them to pay outstanding bills or taxes.

Consumers should consider the following factors when purchasing life insurance:

Medical expenses previous to death, burial costs and estate taxes;
Support while remaining family members try to secure employment; and
Continued monthly bills and expenses, day-care costs, college tuition, and retirement.

What is the Right Kind of Life Insurance?

All policies are not the same. Some give coverage for your lifetime and other cover you for a specific number of years. Some build up cash values and others do not. Some policies combine different kinds of insurance, and others let you change from one kind of insurance to another. Some policies may offer other benefits while you are still living. There are two basic types of life insurance: term insurance and permanent insurance.

Term Insurance

Term insurance generally has lower premiums in the early years but does not build up cash values that you can use in the future. You may combine cash value life insurance with term insurance for the period of your greatest need for life insurance to replace income.

Term insurance covers you for a term of one or more years. It pays a death benefit only if you die in that term. Term insurance generally offers the largest insurance protection for your premium dollar. It generally does not build up cash value.

You can renew most term insurance policies for one or more terms, even if your health has changed. Each time you renew the policy for a new term, premiums may be higher. Ask what the premiums will be if you continue to renew the policy. Also, ask if you will lose the right to renew the policy at a certain age. For a higher premium, some companies will give you the right to keep the policy in force for a guaranteed period at the same price each year. At the end of that time, you may need to pass a physical examination to continue coverage, and premiums may increase. You may be able to trade many term insurance policies for a cash value policy during a conversion period even if you are not in good health. Premiums for the new policy will be higher than you have been paying for the term insurance.

Permanent Insurance

Permanent insurance (such as universal life, variable universal life, and whole life) provides long-term financial protection. These policies include both a death benefit and, in some cases, cash savings. Because of the savings element, premiums tend to be higher.

How Much Life Insurance Do I Need?

Ask yourself the following questions:

How much of the family income do I provide?

If I were to die, how would my survivors, especially my children, get by?

Does anyone else depend on me financially, such as a parent, grandparent, brother or sister?

Do I have children for whom I would like to set aside money to finish their education in the event of my death?

How will my family pay final expenses and repay debts after my death?

Do I have family members or organizations to whom I would like to leave money?

Will there be estate taxes to pay after my death?

How will inflation affect future needs?

Some insurance experts suggest that you purchase five to eight times your current income. However, it is better to go through the above questions to figure a more accurate amount.

Tips on Buying Life Insurance

Make sure you feel confident in the insurance agent and company.
Decide how much you need, for how long, and what you can afford to pay.
Learn what kinds of policies will provide what you need and pick the one that is best for you.

Do not sign an application until you review it carefully to be sure the answers are complete and accurate.

Do not buy life insurance unless you intend to stick with your plan. It may be very costly if you quit during the early years of the policy.

When you buy a policy, make the check payable to the company, not the agent.

When I bought my life insurance policy, the agent said it would be "paid up" after ten years, but it’s been that long and I’m still getting bills. Why?

Your contract (insurance policy) may provide for guaranteed interest rates and/or dividends the insurance company will pay on your premiums. But your premiums must make very high earnings before they will "pay up" your policy. The company must stand behind items that are guaranteed in the contract. Promises of "paid up" life insurance are illegal when based on non-guaranteed values. If you have documentation of the agent promising this, your state insurance department may be able to help. Documentation would include any writing containing the promise -- even an informal, handwritten note or a similar notation by an agent.

Who can take out a policy on my life?

Only someone who has an "insurable interest" can purchase an insurance policy on your life. That means a stranger cannot buy a policy to insure your life. People with an insurable interest generally include members of your immediate family. In some circumstances, your employer or business partner might also have an insurable interest.

Insurable interest may also be proper for institutions or people who become your major creditors.

Must my beneficiary have an insurable interest?

No. If you buy a policy on your own life, you become the owner of the policy. As the owner, you can name anyone as beneficiary, even a stranger!

What about companies that advertise “no physical exam?”

The insurance may be more expensive than if the company required a physical. Although there is no physical, you will probably have to answer a few, broad health questions on your application.

Some life insurance ads claim “you can not be turned down.” What's the catch?

Such ads are for "guaranteed issue" policies that ask no health history questions. The company knows it is taking a risk because people with bad health could buy their policies. The company balances the risk by charging higher premiums or by limiting the amount of insurance you can buy. The premiums can be almost as much as the insurance. After a few years, you could pay more to the insurance company than it will have to pay to your beneficiary. Such policies may offer only the return of your premiums if you die within the first couple of years after you buy the policy.

Why is term life often called “temporary” insurance?

Insurance agents sometimes refer to term insurance as "temporary" because the term policy lasts only for a specific period. It is probably no more "temporary" than your auto or homeowner insurance. Just like term, those types of policies provide coverage for a specific period of time, and must be renewed when that period ends.

Why are some insurance agents reluctant to sell term insurance?

An agent may believe term is risky, but only because you could have a hard time buying a policy in the future if your health deteriorates or you cannot afford the higher premiums. Commissions could also be a reason for an agent who discourages term. The agent often makes less money for selling term than for other forms of life insurance.

What do I get when I buy term insurance?

You have bought and received the company's guarantee that if you die during the term of the policy, it will pay a death benefit to your beneficiary.

Does that mean I've wasted my money if I don't die?

No more than you have wasted money by buying car insurance but never having an accident. You've purchased peace of mind. With term life insurance, if you die during the term, you know the company will pay your beneficiaries.

An insurance agent has suggested I switch term companies every couple of years to take advantage of the company's promotional rates in the first couple of years. Anything wrong with that?

Nothing wrong, but there is always a risk when you switch policies that you could be subject to a new contestability period. You start a new, 2-year contestability period anytime you switch. If you die during that 2-year period, the insurance company can (and probably will) investigate the statements you made on your application. If you've given inaccurate or incomplete answers, the company may (and probably will) refuse to pay the death benefit.

I understand my permanent policy would be “fully paid up” at age 65. What does that mean?

"Fully paid up" means just that. You have made enough premium payments to cover the cost of insurance for the rest of your life.

What happens to the cash value after the policy is fully paid up?

The company plans to use the cash value to pay premiums until you die. If you take cash value out, there may not be enough to pay premiums. The company could require you to resume paying premiums or reduce the amount of the death benefit to an amount that the remaining cash value will support.

I had a policy that was paid up; now I'm told I don't. What can I do?

You may have signed papers that permitted the cash value of your paid up policy to be used to pay for another, larger policy. If you're not sure or can't remember, call the insurance company.

What is a “participating” policy?

That is a policy that may pay you dividends. You have a chance to "participate" in the company's earnings. A life insurance dividend is actually a refund of part of your premium. When a company collects more money in premiums than it needs to pay death claims and maintain the insurance pool for future claims, the company may pay dividends at the end of that year.

An insurance agent has suggested that I buy term instead of whole life. Does it make sense to buy term and invest the difference?

"Buy term and invest the difference" has been a popular sales slogan for term life. The pitch compares term, the least expensive form of life insurance, with other kinds of life insurance.

Example:

$100,000 death benefit at age 35
Annual whole life premium: $1,800
Annual renewable term premium: $250
Difference: $1,550

What are your choices?

Buy whole life. The “difference” is used to keep your premiums lower than the actual cost of insurance as you get older.
Buy term. You keep the difference.

In addition, make sure you consider the following:

As you get older your term premiums will increase to keep up with the cost of insurance;
If you invested the difference, you could use your investment to pay the higher cost of insurance;
If you spent the difference you will have to dip into other savings to pay higher premiums; and
If your health deteriorates you may not be able to buy a new policy

For 10 years I paid the insurance company $1,000 every year. That's $10,000! But when I cashed in the policy they sent me only $5,800. Where did the rest of my money go?

The rest of the money paid for insurance. You were entitled to only the cash surrender value — that is, the amount you had paid to "pre-fund" insurance in your old age. The amount would have been even less if you had borrowed money that had not yet been repaid.

How much cash value is in my policy?

Read your policy. It has a table of cash values that should provide the answer. Call your agent if you are still not sure of the cash value amount.

What happens to the cash value in my policy when I die?

When you die, the insurance company will pay the death benefit. No matter how much cash value you may have had in the policy the moment before you died, your beneficiaries can collect no more than the stated death benefit. Any loans you have not repaid (plus interest) will be subtracted from the death benefit.

The result: your beneficiary could wind up with less than the face amount of the policy.

The exception: some whole life policies pay both the death benefit and the cash value when you die. 

*source: National Association of Insurance Commissioners.

What is the best life insurance plan? 

You can read our blog post and get the answer to the above questions 

What are tax advantages of life insurance? 

Death benefits are generally received income tax-free by your beneficiaries. In the case of permanent life insurance policies, cash values accumulate on an income tax-deferred basis. That means you would not have to pay income tax on any of the policy’s earnings as long as the policy remains in effect. In addition, most policy loans and withdrawals are not taxable (although withdrawals and loans will reduce the cash value and death benefit). Please be advised that any discussion of taxes is for general informational purposes only and does not purport to be complete or cover every situation. Insurance Center Helpline, Inc., its agents and representatives may not give tax advice and this article should not be construed as such. Please seek advice based on your particular circumstances from a qualified tax advisor.

What are the features and benefits of term life?

Here’s a quick list of what our term life coverage provides:

• Coverage for a set period of time, ideal for short- and medium-term needs (we offer 10, 15, 20, 25, 30, 35, 40- year options)
• Can be used for income replacement or mortgage protection for your loved ones
• Can pay for all of your final expenses
• Coverage amounts starting at $100,000 with affordable payments to fit your budget
• Coverage available for those aged 20-75 years old, with affordable term life for seniors
• Options to renew or convert to a permanent policy
• Payouts are tax-free
• Ability to customize or “stack” your coverage with term riders

Can I customize my coverage with life insurance riders?

There are various reasons why  term insurance is one of the most sought-after solutions on the market and one of them is the ability to customize it using riders.

Life insurance riders are add-ons that offer you additional coverage on top of your base policy. Sometimes called laddering, adding riders on your term policy is a way to give you more coverage upfront for a shorter period of time while still maintaining an affordable base term policy.

Term riders

You can stack one of more than one Term Rider on top of a base term policy for 10, 15, or 20 years. Stacking term coverage is considered to be one of the most cost-effective ways to buy term life insurance. 

Here’s an example:

Say you purchase $1 million of 40-year term coverage. After 20 years you pay off the mortgage and now you may end up paying for more coverage than need. Alternatively, you could purchase a 40-year term policy worth $250,000 as a base policy and add a 20-year term rider at $750,000 value to get to the $1 million total coverage. Once your rider expires and your financial responsibilities decrease, your original $250,000 term policy will stay in place, without the extra protection or additional cost.

Child rider

One of the popular riders we offer is known as a Children’s Life Insurance Rider, which covers the lives of your children until they’re 25 years old. This rider provides a death benefit if something were to happen to your child while your coverage is active.

Accelerated death benefit rider

As an added bonus for all our term life policies, an Accelerated Death Benefit Rider is automatically included. Sometimes called ADB for short, this provision allows the policyholder the ability to request a portion of their death benefit in advance if they are diagnosed with a qualified terminal illness. Policyholders can use this benefit to cover medical expenses, funeral planning, or even a last wish or “bucket list” activity to help the family find closure in their time of need.

What is the best life insurance company? 

Reputation: 

In addition to being financially secure, the life insurance company you choose should have a good claims payment history, good customer service, and competitive pricing. You can find insurance company ratings online at resources that include Standard and Poor's, A.M. Best, Moody's, Fitch, and Weiss.

Best Term Life Insurance Companies on the market for 2023

Pacific Life– Best Cost For $1 Million Term Life

Principal – Great For High Issue Age

Protective – Great For Long Level Term Length

Symetra– Best For Term life Insurance Rates

Transamerica – Best For Buyers In Their 50s

AIG/American General– Great For Choices Of Term Lengths

Banner Life/Legal & General America – Great for Long Level Term Lengths

Haven Life – Great Rates For Buyers Under Age 45

Midland National – Great for Living Benefits

Penn Mutual – Great For Older Buyers of 30-Year Term Life

 How much life insurance cost?

 Here are average monthly rates: 

40 years old male, 1 mln. face amount, 20 years term - $48/month

40 years old female 1 mln. face amount, 20 years term     - $40/month

45 years old male $500k face amount, 20 years term    - $45/month

45 years old female $500k face amount, 20 years term - $36/month

There are a few factors Affecting Term Life Insurance Rates

The coverage amount and length of term you choose will affect how much you pay for term life insurance. Life insurance companies also typically look at factors that contribute to how long you’re expected to live. This evaluation of “mortality” is the basis for a buyer’s life insurance quote.

Term life insurance cost factors include:

• Age and gender
• Credit and past bankruptcies
• Criminal record
• Driving record (such as DUIs and reckless driving convictions)
• Health
• Health history of your parents and siblings
• Height and weight
• Nicotine or marijuana use
• Past and present prescriptions
• Plans for foreign travel to certain countries
• Results of medical exam (if required)
• Risky hobbies such as scuba diving or skydiving
• Risky occupation
• Substance or alcohol abuse history or treatment

Good question. There are a lot of insurance agents out there and it may seem like any agent or broker is as good as another. But we are decidedly different.

Let's face it, insurance jargon can be very confusing. We know the ins and outs of the insurance business, and our inside knowledge of many companies and many products will work to your advantage. In fact, different insurance companies often charge vastly different premiums for the exact same coverage. As independent agents we are not employed by one particular company. Instead, we can select insurance products from among those companies that best address your unique concerns.

We promise to focus our attention on your benefit exclusively.