Life Insurance FAQ

How much life insurance do I need? Return To Top

If you were to die, consider what your spouse and dependents would need in order to cover day-to-day as well as larger expenses, to live comfortably and have financial stability. Don't forget to include savings for college and retirement. Also consider the effect of inflation over time; the amount needed, say, twenty years from now is likely to be significantly higher than today.

In addition to protection, what am I trying to accomplish with my life insurance? Return To Top

Some life insurance policies can help you pay for major expenses like college tuition and estate expenses, or provide additional income for retirement or emergencies. Remember that Term Life Insurance pays a death benefit only, while different types of Permanent Life Insurance -- Whole, Universal, and Variable Universal Life — can supplement your income through withdrawals or loans against a policy's cash value.

How much will life insurance cost me? Return To Top

Premium rates for life insurance are typically based on factors such as:

• age, sex, height, and weight
• health status, including whether or not you smoke
• participation in high-risk activities or occupations

The type of policy you purchase will also affect the amount of the premium. Rates for term insurance are typically lower, at least at younger ages. Premium rates for permanent policies like Whole Life are typically higher at earlier ages, but do not increase as you age.

Lastly, paying premiums monthly or quarterly rather than annually will result in higher premiums.

How can I save money when buying life insurance? Return To Top

You can lower your premiums and save money in the long run:

• Buy it now. Premiums for the same coverage increase the older you become. And the longer you wait, the more you risk developing a health condition that could increase your premium further, or make you uninsurable..

• If you want Permanent Life but you're on a budget, consider some Term for now. You can save money initially by buying some Term Life in combination with Permanent Life. Then later, if your budget increases, consider converting the Term policy to Permanent Life.

• Consider group life insurance offered through your employer. It may be available at a low cost. But keep in mind that your group coverage may end or become more expensive when you leave your job.

What if I already have insurance coverage? Return To Top

If you already have a life insurance policy, it's a good idea to review it every few years to make sure it still meets your needs. Check to make sure all beneficiaries and other information are current. Do any of the "ifs" below pertain to you? If so, it might be time to speak with your representative.

If you...

• Were recently married or divorced
• Have a child or grandchild who was recently born or adopted
• Provide care or financial help to a child or parent
• Want to ensure that financial resources are available to provide assistance or long-term care for a loved one
• Purchased a new home recently
• Have children or grandchildren who are about to enter college
• Refinanced your home mortgage in the past six months
• Receive an inheritance
• Retired or your spouse has retired
• Have started a business

What are the tax advantages of life insurance? Return To Top

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 that you would not have to pay income tax on any earnings in the policy as long as the policy remains in effect. In addition, most policy loans and withdrawals are not taxable.

However, if you surrender your policy—or it lapses—you may have income to the extent that distributions and/or withdrawals exceed your policy basis (i.e., total premiums paid less prior distributions).

Can I trade or replace my policy? Return To Top

You can trade or replace your policy, but you should think carefully before you do. Whether you switch policies within the same company or switch from one company to another, your new policy could be subject to new underwriting which may affect how much you have to pay. For example, premium rates are partly based on age, so a new policy is likely to be more expensive. Changes in your health - or the way the new insurer takes your health into account — can also affect your premium.

You may lose some or all of the cash value in your current policy if you switch. Also, there is normally a new "contestability period" during which the insurer can cancel the policy and refuse to pay death benefits if information on the application was materially incomplete or misleading.

If you're planning to increase your total life insurance, it's generally better to keep your old policy and increase its face amount if you can, or simply add a new policy.

Jim Toman Insurance can help you find a good alternative for your specific situation.