The Life Insurance FAQ

A life insurance FAQ is often an excellent format to enable life insurance shoppers to educate themselves on what types of life insurance are available, and how to choose accordingly between them.  The life insurance FAQ listed below contains detailed answers to some of the most commonly asked life insurance questions.

» Get Quotes for Life Insurance Now

How Much Life Insurance Coverage is Needed?

Required coverage amounts vary wildly from person to person and situation to situation. However, many insurance professionals state that a general rule for death benefits is to cover 5 to 7 times the yearly salary of the insured.  However, this can easily be too much, or too little. True need is determined by the calculation of such factors like income replacement for surviving spouses, money to pay debts including mortgages, funds for tuition costs, dependent child or adult care, taxes, charitable donations, and other financial issues must all be accounted for in order to calculate how much life insurance coverage is needed.

What is Permanent Life Insurance?

Permanent life insurance is life insurance coupled with a savings component.  Permanent life insurance pays benefits to designees in the event of the policy holder’s death provided that payments of premium have been adhered to as agreed.  Permanent life insurance policies build cash value that can be utilized for a number of different purposes, such as collateral for loans, as cash withdrawals, to pay the premium on the policy, or to provide as a surety bond.  Permanent life insurance is designed to protect an individual with death benefits for the rest of their life.

What are the Different Types of Permanent Life Insurance?

There are three primary types of permanent life insurance. The first and most common is traditional whole life.  This type of insurance provides a guaranteed fixed death benefit for life, fixed premiums for life, and a savings feature that allows to policy to accumulate cash value tax free. The cash value is invested by the carrier and a percentage of the earnings are allocated to the insured.

A second type of permanent life insurance is universal whole life. Universal life insurance offers lifetime death benefits that can be adjusted, as well as flexible premium amounts.  The cash value that accumulates is invested, and returns are reinvested in the plan so that premiums can be underpaid, skipped, or over paid. As long as there is enough cash value in the account to pay the basic cost of life insurance, the policy will remain in effect.

A third type of permanent life insurance is variable whole life. This type of insurance is similar to a traditional whole life policy, but the account earns interest that is paid based upon the performance of the investments of the carrier. Contributions and earning to this type of account grow tax deferred, and the cash value can be directed to many different investment account types, such as mutual funds and money market accounts.

What is Term Life Insurance?

Term life insurance is simple, basic life insurance for a set period of time. A fixed premium is paid for the entire duration of the term, and the benefit is cash paid to beneficiaries if the policy holder should die during the covered period. When the term of the contract expires, with it go the death benefits and the premium payments. Term life insurance is for shorter time periods than permanent life insurance, and so is considered less risky to insurance carriers. This, coupled with the fact that term life insurance only offers insurance and no other benefits mean that term life is very inexpensive when compared to permanent life.

What are the Different Types of Term Life Insurance?

The three main types of term life insurance are easy to identify and understand: a level term life policy features fixed premiums for a set number of years, an annual renewable term life policy renews each year with increases in premium due to age, and decreasing term life policies that feature decreasing death benefits as the insured grows older.

Can a Life Insurance Policy be Used as an Investment?

In general the answer to this questions is no. While permanent life policies do build cash value, they do it a greatly reduced rate of return when compared to other traditional investment vehicles. Because much of the premium is going toward life insurance expenses and not strictly to cash value, a life insurance policy grows much more slowly than a moderately performing mutual fund or aggressive growth fund. However, a permanent life insurance policy is a safe and reliable savings vehicle, as most carrier offer a minimum guaranteed return. 

Can Anyone be Named as a Beneficiary?

Yes, anyone can be named as a beneficiary, including non relatives, business associates, governments, and organizations. However, people cannot insure one another unless the other party is aware and is depended upon for income.

How Can Reduced Premiums be Obtained?

Premiums can only be reduced according to the determining factors that can actually be controlled. This means that premiums can be controlled from a health standpoint by remaining tobacco free, exercising regularly, eating a healthy diet, and losing weight. From a lifestyle standpoint, premiums can be controlled by maintaining a god driving record and credit history, by participating in safe activities, and by working in less dangerous occupations.

Is Life Insurance Available for the Elderly?

There are many different policies available for the elderly. While there may be some age constraints, the elderly can usually purchase term life insurance or permanent life insurance just as easily as anyone else can; they just might pay a lot more for it.  Because of this, policies have been developed that are suited especially to serve senior citizens.  The two major types of policies for the elderly function primarily as final expense benefit vehicles, providing low cash value coverage for reasonable premium payments.

Which Policy is the Right One?

Choosing a life insurance policy is not always easy, and choosing the wrong policy can have far reaching effects. Studying policy types and speaking with qualified insurance professionals can help determine which policy is the right one. Researching insurance carriers can also help with this decision, as even the best life insurance policy is useless if the company selling it is weak or has poor practices.

To find the best life insurance products request a free, comprehensive quote comparision. Secure your future today, Get Started Now.