Common Questions on Life Insurance:


How much life insurance should I own?

How much is different for each individual. Major factors to consider are sources of income, the amount of that income; if married, your spouses income and how long that is likely to continue; if you have any dependents; Social Security death benefits; and mortgage protection, college savings fund, etc.

Should I buy term life insurance or cash value life insurance?

This is different for each person due to varying situations. Term life insurance will pay out upon death; cash value life insurance has a specified dollar amount you are able to take out prior to death, although it is more expensive. Elements to think about are your income tax bracket, the performance on other investments, and is your need for life insurance for a short period or greater than ten years. If the amount of insurance you need is hefty sum, then a term life insurance policy just may be your best option. In addition, term life has a lower premium than cash value policies.

What tax implications should I consider when it comes to life insurance cash values, dividends, and death benefits?

The accumulated interest portion of the annual increase in the cash value of the life insurance policy is not taxed. General speaking, dividends are considered to be a "return on premium" and are not taxable items. If you have further questions or require confirmation on income, gift tax, inheritance, and estate situations that may affect a life insurance policy you own or are considering purchasing, please consult with your tax adviser.

How do I change the beneficiary on my life insurance policy?

Changing the beneficiary on a life insurance policy, generally speaking, is a fairly easy task. Contact your insurance company and follow their instructions for executing a beneficiary change. Beneficiary change requests must be in writing, on a form provided by your insurer.

In some instances, changing the beneficiary is not an easy task. For example, if you have an irrevocable beneficiary, you are not permitted to make changes without first getting the irrevocable beneficiary's consent. If you reside in a community property state, your spouse must give his or her consent before you can designate anyone else as your beneficiary.

If you are changing your beneficiary due to divorce, make sure you abide with the divorce decree terms. You may be required to keep existing life insurance coverage with your ex-spouse as the beneficiary. If you choose your spouse as beneficiary while you were married, divorce will not automatically alter their beneficiary status. So, one must wait for the divorce settlement papers before taking an ex-spouse off as beneficiary.

In addition, trying to circumvent the system by changing the beneficiary in your will on your life insurance policy does NOT override the beneficiary designation of your life insurance policy. If you want to change the beneficiary, make sure you abide by the instructions established from your insurance company.

Can I designate someone other than a relative as the beneficiary?

It is standard practice for someone to specify his or her spouse, child, parent, or other relative as the life insurance policy's beneficiary, non-relatives can also be designated. As an example, you can designate your trust, business partner, estate, or domestic partner as beneficiary. It is recommended you verify the laws in your state and/or with a licensed life insurance agent.

Before designating a beneficiary, you should be sure that you understand any possible tax implications. The proceeds from life insurance are not taxable income, but there may be other considerations. Consult with an attorney, CPA or tax accountant for more information.

What should I do if my life insurance company has gone bankrupt?

It is likely that you're still at least partially insured, initially so there is no need to panic. Most states have set up "guaranty associations" or "guaranty funds" that provide coverage in the event an insurance company goes belly-up. Similar in fashion to the way the FDIC guarantees bank funds up to $100,000, a guaranty association or guaranty fund normally limits their coverage to $300,000 for auto, home, and life insurance policies. This should alleviate your concerns about being left high and dry without coverage should your insurance company go bankrupt and close. What normally happens is the state insurance regulators will persuade another insurance company to take over the existing policies of the liquidated company. So, you should still have coverage, although you may not have all of the previous benefits from your initial policy.

If you decide to buy a new policy, do some initial research. Although any company can go bankrupt, the odds are in your favor when the Insurance company that are financially stable are less likely to go bankrupt. you can find rating information on insurance companies through several independent rating agencies, such as Moody's , A.M., and Standard and Poor's. If you don't want to do the research yourself, ask your insurance agent or financial planner to do it for you.

Do I need life insurance if I am single?

People who are single often think there is no need for them to buy life insurance, and in some situations, they are correct. However, there are many elements that determine your life insurance need; marital status is only one factor.

 If you have children to support, or do you provide support for a parent or grandparent, your unlikely death could create a serious financial hardship for these dependents. Life insurance will provide a constant stream of income for your loved ones if you suddenly die. You will also keep your mind at ease knowing that your dependents will be taken care of if you're gone.

Another factor, is your debts, do you have a mortgage or other loans, is there a cosigner? If the answer is yes, your death would make the cosigner solely responsible for joint debt. It is recommended that you consider buying sufficient life insurance coverage for these debts in the event of your death. If you have debts for which you are solely responsible, your creditors can make a payment claim against any assets in your estate.

Can I donate my life insurance policy to my favorite charity?

The answer is "Yes". You can donate your life insurance policy to charity. Assist your favorite charity by simply designating the charity as a beneficiary on your policy. When you die, the charity will be given the death benefits. There are disadvantages and advantages which you should consult with a licensed life insurance agent and or tax accountant regarding gift taxes and deductions.

 

>