Here are some answers to some frequently asked questions regarding life insurance.
The first question is always the most common and probably the most important as well. The question I get the most is How much do I need. While there is no perfect answer for this as you are trying to figure out your future needs if you should pass away, a common method of trying to determine how much is known as the DIME method.
D- Death benefit- This is how much you need for your final expenses and any taxes or outstanding liabilities you may have
I- Income- What kind of income do you need after a death of a spouse whether it be an ongoing need or a one time source
M- Mortgage- How much is left on your mortgage
E- Education- How much will you need for your children’s education.
Now as you get older many of these things disappear like once your kids are out of college, that is gone. If you pay your house off, that is gone. That is why Term policies are so valuable. While there is no cash value building it is a set premium and a set death benefit for a fixed number of years. For example you may determine that you need ( by using DIME) $500,000 in death benefit until your kids are out of college and out of the house. Let’s say that is age 25. If your kids your youngest child is five at this time, you need it for a 20 year term. Maybe your youngest is 15. Then you may be looking at a ten year term. Once the possible education expense is gone, you need less, if your house is paid off, you need less. When you look at a term policy, you are covering what you need knowing that when the term is up, your needs will be significantly less.
Should I buy term or permanent life insurance.- Everyone’s needs are different here, but in most cases everyone could use a little of both. You should have enough term to cover your DIME. The permanent is good as you can use it to build up a cash value or for a death benefit after your term expires. Personally I have a term to cover my DIME, and a smaller Indexed Universal Life plan that I have for two reasons. The first is as a retirement vehicle. The second is for after my term is up. The Term plan has over $400,000 in death benefit, the permanent has a death benefit of about $50,000.
WHAT ARE ACCELERATED DEATH BENEFITS-Many policies now come with Accelerated death benefits. Basically, you can get a portion of the death benefit for medical expenses, while you are still alive, though normally terminal. Again, these funds are a portion of the death benefit, almost like an advance of funds.
WHY DO WE NEED A MEDICAL EXAM AND WHAT ARE THEY FOR- The tests are to check your current health and to determine premium. Some medical conditions are easy to manage with medications, other propose a risk that some carriers to not want to take on.
WHAT SHOULD I CONSIDER IN NAMING LIFE INSURANCE BENEFICARIES- First always name a specific beneficiary and not your estate. The death benefit can go directly to the beneficary, but if it goes to your estate it will have to go through probate. Also always name one or more “contingent” benficiaries incase something happens to the primary beneficiary.
DOES IT MAKE SENSE TO REPLACE MY CURRENT POLICY-Again this one depends on several factors. First NEVER cancel your existing policy until you have been approved by the New policy. Sometimes your health is not as good as it was so you fall into a different rate class. Also the fact that you are older now than you were. However, depending on when you got your policy, there are new mortality tables, and since people are living longer, you rate could be lower. Also if maybe you were in a 20 year term and you are half way through it, you now only need a ten year term. It might be a better value.
WHAT HAPPENS IF I FAIL TO MAKE THE REQUIRED PREMIUM PAYMENT-Normally there is a 30 day grace period in which you can make your payment. If it is a term policy, after that the policy will most likely terminate. If it is a cash value plan, often times they are set up where the cash value will pay the premium.
IS A BASIC PLAN GOOD ENOUGH OR SHOULD I ADD ENHANCEMENT RIDERS TO THE PLAN-This again there is no right or wrong answer. It kind of depends on the person. One of the more popular riders is called waiver of premium, which means if you become disabled. Often times they are waived for the duration of the disabilty. This is a good one to consider. Others are return of premium which gives you your money back if you outlive the term. Or a children’s term rider.
HOW DO I FIND A GOOD LIFE INSURANCE AGENT- You need to really do your homework here. You can seek advice from maybe a lawyer or an accountant. Sometimes word of mouth from satisfied friends and relatives is the best way.
Thanks for reading. The LIFE FOUNDATION contributed to the information
Eric Wilson is President of I Sell Health Incorporated. A Chicago Area Insurance Agency. He can be reached toll free at 888-448-5370 or online at www.isellhealth.com