Life Insurance Information
Life Insurance - Poughquag, NY
Also serving Lagrangeville, Hopewell Junction, Dutchess County and other areas in New York
Life insurance can be a touchy subject for some. Let's face it: NOBODY wants to talk about life insurance. It is just not the same as talking about auto or homeowners insurance. Life insurance involves death. Thinking about the end of your life and the loved ones you will leave behind is not pleasant. We understand that. But the sooner you have the conversation and make appropriate plans, the sooner you can get back to living your life.
We don't enjoy the conversation with a surviving spouse or child that the deceased did not have life insurance or didn't know that we even offered life insurance. Yes, we do offer life insurance from multiple companies and would be honored to discuss your life insurance needs. Here is how we approach the life insurance discussion.
No hard sell. EVER. If you don't want life insurance, we won't force you to buy it. It's a very personal type of insurance.
We are experienced professionals and will take the time to find the right insurance company for you. Different life insurance companies have different requirements. Someone with several ailments would be better served with a different company than someone who is very healthy. There's no "one-shoe-fits-all" when it comes to life insurance.
What is Life Insurance and How Does it Work?
A life insurance policy is a contract with a life insurance company. You pay a set amount (called a premium) according to specified payment mode (monthly, quarterly, semiannual, annual) of your choice. Upon your death, the life insurance pays a specified amount (called a death benefit) to a specified individual (called a beneficiary).
Why do you need life insurance?
There are many reasons to buy life insurance. In short, it really is all about protecting your family or business ventures financially.
- If you die prematurely, your family can be taken care of financially for a certain number of years.
- If you are elderly and you pass away, your family can use the death benefit to pay for final expenses.
- A grandparent might use life insurance to create estates and trusts for grandchildren.
- It can be used to cover real estate investments if an investor dies.
Types of Life Insurance
There are many kinds of life insurance, but they generally fall into two categories: term insurance and permanent insurance.
Term Life Insurance
Term life insurance is designed to provide protection for a specified period of time, such as 10, 15, 20, or 30 years. The premium stays the same over that whole time period (called level term). If you die within that time period, your beneficiary receives the full death benefit tax-free. If the period of time is over and you have not passed away within that time period, you have a few options if you want to continue with life insurance.
- You can continue paying your current policy, but the premium will increase significantly every year. The level term time period had ended. For example, you take out a 10-year term policy at an annual premium of $500/year.For years 1-10, you pay $500/year. Starting Year 11, it will increase well above $500 (usually a very substantial increase) every single year. This is probably your worst option.
- You can let the policy expire and apply for a new life insurance policy. You will most likely need to undergo a new medical exam at your higher age. Expect the new policy to be more expensive. Why? Because you are older!
- You can convert a portion of your term policy to a permanent policy, such as whole life or universal life. If your term policy is $500,000 death benefit, you may convert up to $500,000 to a permanent product. Your new premium will be at your current age. You should also expect the premium to increase. This is a great option because you do NOT need to undergo a new medical exam with term conversion. This is a very attractive feature of term life insurance.
Term insurance is designed to meet temporary needs. This type of insurance often makes sense when you have a need for coverage that will disappear at a specific point in time. For instance, you may decide that you only need coverage until your children graduate from college or a particular debt is paid off, such as your mortgage.
In contrast, permanent insurance, such as whole life, universal life, and indexed universal life, provide lifelong protection usually to age 100 or 121. These types of policies have a unique component called a cash value account, which builds up cash over time. As you pay your premium each pay period, a portion of your premium goes towards the cost of the insurance and a smaller portion is set aside into the cash value account. The money in the cash value is tied to investment options, such as bonds or stocks. Over a long time period, the cash value account grows in value due to premium payments and the investment options.
You are allowed to take loans from your cash value account. If you do not pay it back, then the death benefit is decreased by the loan amount plus interest.
Note: permanent insurance is more expensive than term insurance for the same death benefit.
Here we discuss three types of permanent life insurance called Whole Life (WL), Universal Life (UL), and Indexed Universal Life (IUL). The difference between these three types is how the cash is invested in the cash value account.
Whole Life Insurance
Whole life is designed to provide lifetime protection. The premium stays the same throughout the lifetime of the policy. You cannot make extra payments into the policy. The life insurance company decides how the money is invested in the cash value account, usually in very safe investment options such as bonds. The insurance guarantees a fixed interest rate for the cash value account. Many whole life policies are participating policies issued by mutual insurance companies, where they issue you return of premium called a dividend. It is the most expensive type of permanent insurance, but it also offers the greatest protection.
Universal Life Insurance
Universal life is similar to whole life in that it is designed to provide lifetime protection. The word "flexible" is used a lot with these policies. The major difference compared to whole life is that you can adjust your premium payments. You are allowed to pay more into the policy, which will go into the cash value account. With whole life, you are not allowed to pay more into the policy. The investments in the cash value are again decided by the insurance company. The interest rate may vary on those investments, but they usually carry a guaranteed minimum interest rate.
Indexed Universal Life
This is similar in structure to universal life. The major difference is that cash value account is tied to well-known index such as the S&P 500 or the Nasdaq 100. This gives you the possibility of greater gains in the cash value account.
How is the Cost of Life Insurance Calculated?
Life insurance companies use rate classes to calculate premium. These rate classes are determined by many different risk factors such as: overall health and medical history; age; height and weight; tobacco usage; prescription drug use; hazardous occupations or hobbies; your driving record; and family medical history of cancer and heart disease. All of these risk factors are taken into account during the underwriting process.
Compared to auto and home insurance, the underwriting process for life insurance is much more extensive and time-consuming. It is NOT unusual for a couple months to pass between application and the time you receive your policy. Many companies are offering no-medical exams and accelerated underwriting. But you need to qualify for those programs. If your health is any way less than perfect, you will need to undergo a medical exam and maybe have your doctor's records sent to the life insurance company.
In short: The better your health and other risk factors, the lower your premium and the quicker you can possible receive a policy.
Bottom Line: Pepe Insurance Agency is here to help you find the right life insurance policy for your situation. We take the time to get your entire medical history and shop around to find the best company for you. Give us a call or request a life quote today!
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