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Life Insurance Information

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Dutchess County including Poughquag, Lagrangeville, Hopewell Junction and Poughkeepsie - What You Need to Know About Life Insurance

Having the right life insurance in place is very important in planning for the future of your loved ones. Life insurance is not about YOU, it is about THEM. Them being your spouse, your children, your parents, or your siblings. Don't leave the future of your loved ones to chance. Buying life insurance for your family is one of the most selfless acts you can undertake in your lifetime. The Pepe Insurance Agency can help you find the right life insurance coverage for you from the best company, and help ensure that your policy continually meets your needs. 

The right life insurance will be unique for you and dependent on your personal and financial needs. As your life changes, your life insurance coverage many need to change in order to adapt to your current needs. Here is a short list of circumstances that might warrant you purchasing life insurance or requiring to buy more life insurance throughout your lifetime. This list below just scratches the surface on the uses for life insurance.

  • You bought a house and now have a mortgage. Family on couch
  • You recently got married or divorced
  • You have a new child or a grandchild
  • You are concerned about retirement income 
  • You are planning for a child or grandchild's education
  • You have a very sizable estate subject to heavy estate taxation
  • You have opened or expanded a business
  • You are on the board of directors and considered a key employee
  • Your child or grandchild requires assistance or long-term care

Keep in mind that as opposed to auto insurance where an insurable interest occurs at the time of loss, there needs to be an insurable at the time of the application with life insurance. In other words, you cannot take out a life insurance policy on your neighbor or your best friend. You must have some significant relation to your beneficiary(ies).

There are many kinds of life insurance, but they generally fall into two categories: term insurance and permanent (or cash-value) insurance. 

Term Life Insurance

Term life insurance is designed to meet temporary needs. It provides protection for a specific period of time (the "term") and generally pays a benefit only if you die during the term. 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. Term life carries the most risk to the policyholder, and thus it is the least expensive form of life insurance. One very attractive feature of term life is the option to convert to permanent insurance after a certain amount of time without undergoing a new paramedical exam.

Permanent (or Cash-Value) Life Insurance 

In contrast, permanent insurance provides lifelong protection. As long as you pay the premiums, and no loans, withdrawals or surrenders are taken, the full face amount will be paid. Because it is designed to last a lifetime, permanent life insurance accumulates cash value and is priced for you to keep over a long period of time. There are two main types of permanent life insurance: whole life and universal life.

Whole Life Insurance

Whole life insurance remains in force for your entire lifetime, usually up to age 100 or 121, provided premiums are paid as specified in the policy. The premiums are not flexible as in universal life and must be paid for the policy to remain active. Whole life is generally sold through mutual insurance companies and distribute dividends to their policyholders. It can be an investment opportunity since whole life policies can also build significant cash value over time. The insurance company provides several important guarantees: a guaranteed interest rate for the cash value account, guaranteed cash value, and guaranteed death benefit. Whole life is the most secure and hence the most expensive type of permanent insurance. 

Universal Life Insurance

Universal life is permanent insurance characterized by its flexible premiums, face amounts, and unbundled pricing structure. Universal life can build cash value, which earns an interest rate that may adjust periodically, but it usually guaranteed not fall below a certain percentage. The cash value and death benefit are not guaranteed. If not enough premium is paid nor not cash value to cover the premium amount, the policy can lapse. They carry much more risk than whole life, and are thus less expensive than whole life insurance. Some companies offer Guaranteed Universal Life insurance, which is basically a term policy that runs to age 95, 100, or 121. It does not accumulate cash value.

Life insurance offers several advantages not available from any other financial instrument, but it also has its disadvantages.

Family on couchAdvantages of Life Insurance

  • Provides an infusion of cash for dealing with the adverse financial consequences of your death.
  • Life insurance enjoys favorable tax treatment unlike any other financial instrument.
  • Death benefits are income tax-free to the beneficiary .
  • Death benefits may be estate tax-free if the policy is owned properly.
  • Cash values grow tax deferred during insured's lifetime.
  • Cash value withdrawals are treated on a first-in, first-out (FIFO) basis.  Cash value withdrawals up to the total premiums are income tax free.
  • Policy loans are income tax-free.
  • Life insurance policy can be exchanged for another life insurance policy without incurring taxation.
  • Some policies are flexible with adjusting to the policyholder's needs. The death benefit may be decreased at any time and the premiums may be easily reduced, skipped, or increased.
  • Cash value life insurance can be considered a tax-favorable vehicle of easily accessible funds if the need arises. 

 

Disadvantages of Life Insurance

  • Policyholders incur another expense to pay policy premiums. Life insurance is purchased for the benefit of others and usually only directly for the insured person.
  • Cash surrender values are usually less than the premiums paid in the first several policy years and sometimes a policyowner may not recover the premiums paid if the policy is surrendered.
  • The application process can  be very lengthy and stressful for some clients, especially ones with pre-existing conditions and taking many medications. 

It's impossible to say which type of life insurance is better because the kind of coverage that's right for you depends on your unique circumstances and financial goals.

So what type of life insurance is best for you? Talk with us at Pepe Insurance Agency today at (845) 724-3031, contact us, or fill out a life quote above.

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