Intro to Life Insurance

Get Answers to Your Questions Before Buying a Term Life Insurance Policy

Life insurance is a long-term commitment. Before getting a life insurance quote or deciding to buy a Term Life Insurance policy, ask yourself these very important questions:

• How much insurance do I need?
• If I were to die, what would my spouse and dependents need in order to live comfortably?

• What am I trying to accomplish with life insurance?
• Am I accumulating funds for education costs?
• Providing a way to pay estate taxes?

• Do I need supplemental income for my retirement or emergencies?
• How much can I afford to pay for a policy?

After answering these questions and consulting with a life insurance agent, your next step is to choose which type of insurance best meets your needs.

Term Life Insurance

You may want to consider Term Life Insurance if:

• You need life insurance for a specific period of time
• You need a large amount of life insurance, but have a limited budget

Term Life Insurance enables you to match the length of the policy term to the length of the need. For example, if you have young children and want to help ensure that there will be funds to pay for their college education, you might buy 20-year term life insurance. Or if you want insurance to repay a debt that in a specified time period, buy a term policy for that period.

In general, term life insurance pays only if you die during the term of the policy, so the rate is lower than for permanent forms of life insurance. If you are still alive at the end of the term, coverage stops unless the policy is renewed. Unlike permanent insurance, you will not build equity in the form of cash value. If you think your financial needs may change, you may also want to look into "convertible" term policies. These allow you to convert to permanent insurance without a medical examination in exchange for potentially higher premiums.

Keep in mind that premiums are typically lowest when you are young and increase upon renewal as you age. Some term insurance policies can be renewed when the policy ends, but the premium will generally increase. Some policies require a medical examination at renewal to qualify for the lowest rates.

Permanent (or Whole) Life Insurance

You may want to consider permanent (or Whole Life Insurance) life insurance if:

• You may need life insurance for as long as you live. A Whole Life Insurance policy pays a death benefit whether you die tomorrow or 100 years from now.¹
• You may want to accumulate tax deferred cash value that could be a source of borrowed funds for a variety of purposes. The cash value element can be used to pay premiums to keep the life insurance in force if you cannot pay them otherwise, or it can be used for any other purpose you choose. You can borrow these funds even if your credit is not good. The death benefit is collateral for the loan, and if you die before it is repaid, the insurance company collects what is due before determining what goes to your beneficiary.

Keep in mind that premiums for Whole Life Insurance policies are generally higher than for term life insurance. However, the premium in a permanent policy remains the same no matter how old you are, while term premiums can go up substantially every time you renew.

1. Death Benefits are generally excludable from the beneficiary’s federal taxable income under most circumstances and under current federal income tax law. You should consult your tax advisors for your specific factual situation.

2. Based on current federal income tax law. Assumes the use of withdrawals to basis and/or policy loans. If the policy is classified as a modified endowment contract (see IRC section 7702A), withdrawals or loans are subject to regular income tax and an additional 10% tax penalty may apply if taken prior to age 59 ½.

3. Assuming policy does not lapse due to insufficient premiums paid. Death benefit is subject to a deduction of unpaid premiums during grace period and any outstanding loan balances past the grace period.