Life Insurance

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Why do I need Life Insurance?

Life insurance is one essential part of any financial planning. One of the many reasons people buy life insurance products is to replace the income that would cease after the death of a wage earner in the household. The proceeds generated by a life insurance policy also help to ensure that one’s dependents are not overly burdened with debt after you die. A properly purchased policy could mean the difference between your dependents being forced to sell assets to pay outstanding bills or taxes and holding on to important items like one’s home or business. One of the most important features of life insurance is that death benefit amount is not subject to income tax for the beneficiaries. In addition, the death benefit amount for a life policy owned by a C corporation may also be included in the alternative minimum tax calculation.

How much Insurance do I need?

Before purchasing life insurance, an individual should compile a personal financial summary and review their family's needs. There are a many factors to consider when making a determination on how much protection you should carry. These include but are not limited to:

  • The immediate needs at the time of death, such as funeral costs, final medical expenses, and any estate taxes
  • Moneys for a readjustment period, which might include financing a move or providing a window of time for a family member to secure a job
  • Ongoing financial requirements, such as reoccurring bills and expenses, day-care costs, unpaid college tuition or underfunded retirement accounts.

While there is no perfect substitute for a careful financial evaluation of the amount of coverage needed, one standard rule of thumb used, is to buy life insurance that equals five to seven times the annual gross income of the earner.

Choosing a Plan

There is little doubt that purchasing life insurance is not like buying any other product. Every time you pay the premium, you are buying the future financial security of your family that only a life insurance policy can provide. While it has many uses, a few of the highlights include, helping to ensure that, when you pass, your dependents maintain the financial resources they need to protect their most valued assets, like their home and the needed income to run a household.

Choosing which life insurance product is a decision that important, but can often seem complicated. As with any major purchase, it is critical that you understand the needs and options available. At Williams Insurance, one of our experienced professional Life Insurance Agents, can guide you through which products are right for you. We have been helping Fullerton CA Residents and the surrounding areas make conservative safe decisions for over 80 years.

There are many types of Life Insurance policies but main types we suggest are Term and Permanent. A Term Life policy provides protection for an agreed upon period of time. Meanwhile, a permanent life policy provides lifelong protection. To learn more about the intracacies of term and permanent life insurance have a conversation with one of our Agents.

Additional Points

1. What will happen if I neglect to make my required payments?

If you forget to make a premium payment, you normally are given a 30 day grace period in order for you to pay the premium. Once the grace period expires, your life policy coverage will lapse. In certain cases, depending on your policy, you may be allowed to reinstate it upon receipt of evidence of insurability. On a permanent life policy, sufficient cash value of your policy could give you an opportunity, with your authorization, to draw from the policy’s cash surrender value to keep that policy in force. Since there is no cash value from which to draw, this would not apply to a term policy. In regards to flexible premium policies, premiums may be reduced in some cases, or even skipped if you maintain sufficient cash values in your policy. Be aware, this will result in lower policy cash values.

2. What if I become disabled?

You can often add Provisions or riders that provide benefits to a policy that will waive premium in the event of you becoming disabled. One such rider is a waiver of premium for disability. If you become totally disabled for a period of time specified in the policy, you will not be required to pay premiums until your disability ends.

3. Are other riders available?

Here are a few specific riders offered by some insurance companies:

  • "Accidental death benefit", in case of death resulting from an accident, an additional benefit is paid.
  • "Accelerated benefits", also called "living benefits." In the event you are diagnosed with a terminal or catastrophic illness, you may request advance payment of your life benefits to help pay for long term care or special needs care.
  • "Child rider", adds coverage for your children, typically from $1,000 to $20,000 of the death coverage.
4. When will the policy be in effect?

When you purchase the policy, find out the effective date. Many times this is a different date than the date of issue.

5. How do accelerated death benefits work?

You may be eligible under certain circumstances to receive a part or all of your death benefit to help cover major medical expenses and long term care. Any benefits paid out early will be deducted from the amount paid out to your beneficiaries at the time of death.

6. By using medical tests are insurers trying to eliminate any applicant likely to develop a serious health condition?

Medical tests permit insurers to charge accurate premiums that mirror the level of risk the company is assuming. Some medical conditions are easily managed by medication and treatment and allow the company to accept risks that may not otherwise qualify without testing.

7. What should I consider in naming life insurance beneficiaries?
  • Select specific individual beneficiaries. It is recommended not having the proceeds from life insurance paid out directly to your estate. You will want your proceeds to be paid to your family immediately and not go through probate. So name individuals rather than your estate.
  • Always name at least one contingent beneficiary in the event you outlive your primary beneficiary.
  • Use very clear wording in your beneficiary designations. Remember you may have children born later. In the event one of your children dies before you, would you want the life proceeds to go to that child's children or elsewhere? You can always make changes to your beneficiaries, just remember to do it.
8. Does it make sense to replace a policy?

Consider your situation before cancelling a current life policy. Always verify your new life policy is in effect and no premium is due prior to cancelling.

  • If your health condition since you applied for life insurance, you may no longer be eligible for the best rates.
  • Even if both policies pay "dividends," it may be years before the new policy's dividends equal those of your present one.
  • If you are considering replacing one cash-value policy with the same cash-value policy, the cash value may be relatively small on your new policy for numerous years and could not ever be as great as your original one. There could similarly be a time wherein a surrender duty is related on your first policy.
  • You should request a comprehensive list of price analyses of both policies, including payments; cash surrender value and death benefits. Parallel these as well as the structures presented by both policies.
  • If you decide to return or decrease the worth of the policy you now possess and exchange it with similar insurance, always verify your new policy effective before you cancel the policy you wish to return.
9. As a single person, do I need insurance?

The answer is usually yes. Here are some options you may wish to study:

  • Disability income insurance — particularly of importance for self-sustaining individuals without substantial resources, which could take the place of a large part of your salary you, could lose if you become disabled and unable to work. Review your long-term disability coverage offered through your work. It is a good idea to contemplate an individual policy intended to replace not less than 60 percent of your salary.
  • Medical insurance — if you are not covered at work for health insurance, consider an individual policy to protect you against high medical and hospital costs. You can keep the cost of medical insurance down by choosing a high deductible plan. Think about how much you can afford to pay out-of-pocket.
  • Life insurance — even if you are single with no children, life changes. If you purchase coverage while you are younger and healthy, you can guarantee the lowest cost for your coverage, and also guarantee insurability.