CONCEPTS AND PERSONAL USES
Life insurance has long been a major tool in basic estate planning. Life insurance can provide an income tax-free death benefit far in excess of the premiums paid.
Concepts - insurance is based on two fundamental principles:
- Risk Pooling - Risk is transferred from an individual to a group, each sharing the losses and has the promise of a future benefit.
- Law of large numbers - The larger the number of individual risks that are combined in a group, the more certainty there is as to the amount of loss incurred in any given time frame.
- Life Insurance is based on actuarial or mathematical principles, guarantees a specified sum of money upon the death of the person who is insured.
- The true significance of insurance is its promise to substitute future economic certainty for uncertainty and to replace the unknown with a sense of security.
If you own property in excess of your estate tax exemption amount, you may have a taxable estate. If you own a life insurance policy or name either yourself or your estate as beneficiary, you may have exposed the policy's death benefit to estate taxes. For this reason, when estate tax is a concern, an insurance policy on your life is usually best owned by someone else.
Term Life Insurance
Term insurance is usually the least expensive form of insurance coverage and is very affordable to purchase when you're young. As you get older, your risk of dying increases, so the cost of term insurance increases exponentially. As with most other insurance coverage, you pay premiums annually, semiannually, or quarterly for the term. For this premium, you receive a predetermined amount of life insurance protection. Term insurance is very inexpensive and is generally used for a temporary insurance need. However, it only provides for death protection and there is no cash value built up from paid premiums. Statistics show that the majority of term policies lapse without collection of death benefits.
Renewable- Most term policies are renewable up to age 70 without evidence of insurability.
Convertible- These policies have a provision to convert to permanent insurance without evidence of insurability for a specified time frame (may be less than the full term).
Waiver of Premium- If the insured becomes totally disabled; the premiums are waived during the period of disability.
Types of term insurance
- Annual Renewable Term- Level face value with increasing premium payments.
- Level term- Level face value, but premiums remain fixed for period of term.
- Term to age 65 or 70- Exponentially increasing premiums.
- Decreasing term- Level premium payments, but decreasing face value.
Whole Life Insurance
Financial AdvisorLife insurance was initially designed to protect the income of families, particularly young families in the wealth accumulation phase, in the event of the head of household's death.
Personal FinanceBy Cathy ParetoLife insurance protection comes in many forms, and not all policies are created equal, as you will soon discover. While the death benefit amounts may be the same, the costs, structure, ...
TradingIf you're looking for life-long security, choosing between these two is the key.
InvestingFind out the reasons why term life insurance may not be for everybody, and why you may want to avoid it in favor of a permanent life insurance policy.
RetirementWealthy clients have an enviable problem — managing, preserving and growing wealth. Properly structured life insurance can help with these goals.
Managing WealthWhat Is It? Life insurance is income protection in the event of your death. The person you name as your beneficiary will receive proceeds from an insurance company to offset the income lost as ...
Personal FinanceDifferent stages of life call for different amounts of life insurance coverage. Find out what you need, when and why.
Financial AdvisorLearn the difference between term life insurance and whole life insurance. Understand when it is beneficial to buy each type of life insurance.
ETFs & Mutual FundsWhat life insurance is: A contract with an insurance company that provides your beneficiaries with a certain amount of money when you die. Pros: Beneficiaries are safeguarded from the financial ...
TradingBy Cathy ParetoInsurance is an integral part of any personal financial plan. The type of insurance and the amount of coverage you obtain all depends on your unique financial and family circumstances, ...