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Insurance Two Arrows

An Introduction to Life Insurance
by Jay Kantrowitz and the Wealtheffect Staff

  
 

Life insurance - a necessary evil		  
  Types of life insurance  
  Which insurance company is right for you  
 
1.
No one wants to think about death, however it should be addressed, particularly if you have a family to protect. The economic consequences may force your loved ones to sell assets, perhaps even cherished assets. These assets, often sold at a discount to their true value, might be used to pay off liabilities such as mortgage, credit card and other loans as well as taxes. Dependents such as a spouse or children may be financially devastated. Keep in mind that in most situations death benefits paid to a beneficiary are not subject to federal income tax. Death benefits may be subject to estate taxes. 		 
 
2.
a) Term-life insurance provides coverage for a specific period of time -the beneficiary will be paid only if the insured individual dies while the policy is in force. Term insurance is relatively inexpensive compared with whole-life insurance policies because the policy is renewable for a limited time only and does not build cash value. Term rates will vary based upon the period of time the premium remains level. For example: a 5-year level premium term policy will initially cost less than a 10-year level premium term policy. Some companies will offer up to a 20-year level premium term policy. Some insurance companies will offer renewable policies up to age 80. The rates after the initial level premium period will increase substantially.
b) Whole-life, universal-life, variable-life or permanent insurance provides coverage for life. These policies also have an interesting component called cash value. The cash value of a permanent type of policy will vary based upon several factors; such as interest rates, dividends, mortality cost and in the case of a variable policy, the market value of the underlying investments that the policy holder chooses. This cash value offers a variety of options, allowing you to withdraw this cash, take a loan against it or use it to pay future premiums. Accordingly, a whole-life policy (which can cost as much as ten times a term-life policy) is both a form of insurance and of investment. Although permanent insurance has investment features, the basic purpose of the policy is to provide permanent life insurance protection. 		 
 
3.
With so many companies to choose from, here are a few worthwhile resources: 		 
 

An insurance agent or company with whom you've dealt successfully in the past, or which has been referred to you by someone you trust.		  
 

An insurance agent or company with whom you've dealt successfully in the past, or which has been referred to you by someone you trust.		  
 

Insurance rating services such as Duff & Phelps, Moodys, Standard & Poors and A.M. Best. 		 
 

The State Insurance Department where you can make certain any potential choice is licensed and in good standing.		  
 

Web sites of insurance companies which can provide a great deal of (biased) information.		  
 

Online rate quotes. At sites such as Insweb, Quicken and Quotesmith, you can access quotes from multiple insurers. These sites, however, don't provide quotes from all insurance companies. When dealing with online quoting you should realize that a quote is only quote. Just because a company quotes a premium does not mean they will issue the policy. Insurance companies will underwrite your medical insurability, financial situation, lifestyle and habits.		  
 

Many people say that by buying a life-insurance policy, you're betting you'll die and the insurance company is betting you won't. The reality, however, is that you are simply protecting your loved ones against something you can't bet on, while the insurance company isn't betting at all (for more on this, go to Understanding Insurance). 		 
 
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