Life Insurance Frequently Asked Questions

Life insurance can be a useful wealth management planning tool. But many people have questions about how it works. In this article, we will go over 8 life insurance frequently asked questions.

1. What is Life Insurance?

Life insurance is a contract between you and an insurance company. In exchange for premiums the insurance company will pay out an agreed upon lump sum to your beneficiaries.

2. Who Needs Life Insurance?

There are several situations that would make life insurance a good idea. If you have anyone who is financially dependent on you, you should have life insurance. This would include things like having minor children, co-owning a home with a mortgage, or owning a small business. Life insurance protects your family and provides for their future.

3. How Much Life Insurance Do You Need?

These are a few different methods to calculate how much insurance you need. First, you can simply multiply your salary by 10. Second, you can subtract assets from obligations and purchase a policy for the remaining account. If you have children, you also want to factor in college expenses.

4. What Are the Different Types of Insurance?

There are two main types of life insurance, term and permanent. A term policy provides coverage for a set period, like 30 years. This type of policy is typically more affordable. Second, is a permanent life policy. With this type of policy, you are provided with lifelong coverage that comes with a cash value component.

5. How Does the Application Process Work?

First, you need to complete the application. A qualified insurance agent can help you do this. Once you submit the application, the insurance company will schedule a medical exam. After the exam the insurer will give you a premium rate and process the policy for approval.

6. Are Life Insurance Proceeds Taxable?

Typically speaking, life insurance proceeds are not taxable.

7. Who Can You Name as a Beneficiary?

You can name a person or entity as your beneficiary. Beneficiary options could include your spouse, children, a charity, a trust, or a business. If you name a minor as a beneficiary their funds will be managed by a legal guardian until they are of age. There are two types of beneficiaries, primary and contingent or secondary. Your primary beneficiary is the first person in line to receive funds if you die. The contingent beneficiary is the back up if your primary beneficiary is deceased. Additionally, you can name more than one individual as a beneficiary and specify percentages.

8. Can I Take a Policy Loan?

If you have a permanent life policy, you may be able to take a loan against your policy. You will repay the loan along with your premiums. Failure to pay the loan back could reduce your death benefit or lead to a policy lapse.

Purchasing Life Insurance

Now that you have the answers to some life insurance frequently asked questions, you are ready to purchase a policy. Meet with a qualified insurance agent who can help you navigate the process.

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