Life Insurance

All life insurance can give you financial confidence that your family will have financial stability in your absence. But generally, the more life insurance you have, the more benefits it will provide to your family when needed. For example, some people receive a nominal amount of life insurance – say $25,000 – through their workplace. While that theoretically sounds like a nice sum of money, in practice it may only be enough to cover funeral expenses and a few mortgage payments. But with a larger coverage amount, your family can realize far more benefits, such as:

• Income replacement for years of lost salary
• Paying off your home mortgage
• Paying off other debts, such as car loans, credit cards, and student loans
• Providing funds for your kids’ college education
• Helping with other obligations, such as care for aging parents

Beyond your coverage amount, different kinds of policies can provide other benefits as well:

There are tax advantages of life insurance, because death benefit payouts are generally tax free; and some policies have features that can help transfer money to heirs with fewer tax liabilities.

Some policies have a cash value that accumulates over time and can be used to pay premiums later, or even tapped into to help live on in retirement.

Life insurance can often be bundled with other types of protection, such as disability insurance to replace a portion of your salary if you’re unable to work.

Many policies have valuable “riders” or contractual provisions that provide benefits before death.

Life Insurance provides coverage for the insured's entire life, provided the premiums are paid as specified in the insurance policy's contract. 

WHOLE LIFE INSURANCE/BURIAL INSURANCE

• Whole life insurance builds cash value, which the policy owner can access through a loan or partial surrender.
• Whole life insurance includes traditional, adjustable, joint and variable life.

TERM INSURANCE

• Term Life Insurance provides coverage on the insured for a specified period of time.
• Term life insurance does not build cash value.
• Term life insurance includes level, adjustable, renewable, increasing, decreasing and convertible life insurance.

With non-level term insurance, premiums may increase or the benefit payable may decrease over time.

Some term policies pay an initial death benefit and an ongoing monthly benefit for a specified period of time.

Universal Life Insurance provides whole life coverage, but allows the policyholder to change the death benefit and vary the amount and timing of premium payments after the policy is issued.

Participating policies may pay dividends at the discretion of the insurer. The policyowner can elect to have dividends paid to them in cash, applied to purchase additional insurance, used to reduce premium, or accumulated with interest.

Non-participating policies do not pay dividends.

ADVANTAGES OF LIFE INSURANCE

Life insurance provides an infusion of cash for dealing with the adverse financial consequences of the insured’s death.

Life insurance enjoys favorable tax treatment unlike any other financial instrument.

• Death benefits are generally income-tax-free to the beneficiary.
• Death benefits may be estate-tax free if the policy is owned properly.
• Cash values grow tax deferred during the insured’s lifetime.
• Cash value withdrawals are treated on a first-in-first-out (FIFO) basis, therefore cash value withdrawals up to the total premiums paid are generally income-tax free.
• Policy loans are income tax free.
• A life insurance policy may be exchanged for another life insurance policy (or for an annuity) without incurring current taxation.

Note: All of the above statements are generally true; however the tax benefits of life insurance have certain limitations which under the wrong set of circumstances can cause the tax benefits mentioned to be lost. Please discuss with your insurance and tax advisor.

Many life insurance policies are exceptionally flexible in terms of adjusting to the policyholder’s needs. The death benefit may be decreased at any time and the premiums may be easily reduced, skipped or increased.

A cash value life insurance policy may be thought of as a tax-favored repository of easily accessible funds if the need arises; yet, the assets backing these funds are generally held in longer-term investments, thereby earning a higher return.

DISADVANTAGES OF LIFE INSURANCE

Policyholders forego some current expenditure to pay policy premiums. Moreover, life insurance is typically purchased for the benefit of others and usually only indirectly for the insured person.

Cash surrender values are usually less than the premiums paid in the first several policy years and sometimes a policy owner may not recover the premiums paid if the policy is surrendered.

The life insurance purchase decision and the positioning of the life insurance can be complex especially if the insurance is for estate planning, business situations or complex family situations.

The life insurance acquisition process can be annoying and perplexing (e.g. Is the life insurance agent trustworthy? Is this the right product and carrier? How can medical underwriting be streamlined?).