Simply put, life insurance is about knowing your family is secure should something happen to you. No one likes to talk about it, but having life insurance is essential for the financial security of your family should you pass away. We take lots of everyday things for granted when it comes to daily life: home mortgage, cars, education, etc. Life insurance ensures your family will be able to continue. When something unexpected happens, how will your family pay for everything else: funeral expenses, estate taxes, etc.?
A lot of people don’t even know where to begin when it comes to life insurance or even getting a life insurance quote. Many people have heard of term life insurance and whole life insurance but don’t truly understand the differences or know which is best for them. Baer Insurance wants to help you begin thinking about these hard questions as well as get you to the appropriate level of life insurance. We want to make sure you understand what is in your life insurance policy, and how to address typical planning concerns. Let’s start with the framework and build around it!
Defining Your Needs Is The Place To Start: Try Our Life Insurance Calculator
Understanding Term Life Insurance and Whole Life Insurance
When you star looking for life insurance quotes, you will run into these terms: whole life and term life as well as “permanent insurance”. Term life insurance is the most common, so let’s start there.
Term life insurance provides life insurance protection for a specific period of time or term. If you die during the coverage period, the beneficiary named in your policy receives the policy death benefit. If you don’t die during the term, your beneficiary receives nothing. Common term policies last for 10, 15, 20 and even 30 years.
Whole life insurance is a permanent policy. What this means is that your loved ones are GUARANTEED protection after you die regardless of age. Whole life insurance has a guaranteed cash value as long as premiums are paid and usually those premiums do not increase with age.
The different kinds of permanent life insurance policies include:
- Ordinary level premium whole life
- Limited-pay whole life
- Current assumption whole life
- Adjustable life
- Universal life
- Joint life (first to die)
- Survivorship (second to die)
You also need to know that the cost of life insurance will depend upon the type of policy, your age, and your health at the point in time when the policy is issued.
A life insurance contract is made up of provisions, options, and riders. Provisions describe or explain features, benefits, conditions, or requirements of the contract. Options are features of the agreement that require you to make a choice regarding some aspect of coverage. Riders are additional coverage (or endorsements) offered by the insurer at the time of application and added to the standard agreement in return for an additional premium. Finally, you need to know the tax consequences of owning life insurance.
- Life insurance premium payments are not tax-deductible expenses.
- In general, the death benefit paid to the beneficiary is not included in gross income for federal income tax purposes, because it is paid with after-tax dollars.
- You must be very careful about who owns the policy and who the beneficiaries are, in order to avoid estate taxes on the proceeds when you die.
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