Life insurance is a legally binding agreement between an individual and an insurance issuer which guarantees a financial benefit when the policy owner dies. This payout is referred to as a death benefit. The benefit amount is paid to a beneficiary specified in the contract, usually a close family member or loved one. In order for the contract to be upheld, premiums must be paid by the policyholder throughout their lifetime. Additionally, the insurance issuer must receive accurate and honest information about the policyholder’s medical history.
Premiums are determined by several factors including the amount of the death benefit to be paid and the policyholder’s life expectancy. When calculating life expectancy, the insurance issuer will consider medical records, occupational hazards, gender, and high-risk activities.
There are numerous reasons why an individual would seek out life insurance, the most obvious being to leave financial assistance to any dependants after death. Unpleasant as it may be to think about, your children, spouse, business colleagues, and other loved ones will be left with the burden of many financial decisions. Life insurance is a practical way to lighten that difficult load and provide support for the future. While the death benefit is the primary reason to establish a life insurance policy, many also enjoy tax benefits, since the death benefit is tax-free.
If you are considering a life insurance policy you must first determine how much insurance you need. Consider debt, mortgage, tuition, and any other obligations you wish to help cover with this policy. Funeral expenses should be factored in, along with income replacement if you have a spouse or dependants who rely on you for financial support.
When you have determined what you need you can begin shopping for policies and comparing quotes. During this time you will need to gather information for the application process. You will need to provide thorough personal and medical information to your insurer when applying. This information will be used to calculate your monthly premium. The higher your risk, the more costly your monthly premium will be. The amount you select for your death benefit will also influence cost. If you have a large death benefit, especially if it accumulates a cash value, you can expect to pay more. A portion of your payments will be going toward the insurance company’s operating expenses as well.
A rider is an additional benefit which can be purchased to customize your insurance policy. Riders allow you to make exceptions for additional coverage in cases like accidental death or accelerated death if diagnosed with terminal illness. Riders are also available to cover long term care or provide a steady flow of income for your family.
American Family Solutions advisors are not Tax Professionals or Certified Public Accountants (CPA). AFS works closely with our client’s Tax Professionals & CPAs to ensure they are utilizing tax deductions & benefits available to them within federal & state tax codes. No legal advice, tax advice, options or recommendations are being made in respect to this proposal. You should consult your tax professional or attorney concerning such advice and opinions.
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At American Family Solutions, we can help you find a life insurance policy that meets your coverage needs. Give us a call today for more information about which life insurance policy is right for you.