Life Insurance Anderson provides financial protection for the people who depend on you. It can be used to pay off a mortgage, cover funeral costs and other final expenses, and help your family maintain their standard of living after you’re gone.
Choosing the right policy depends on your needs and priorities. Here are some things to consider:
There are a few main types of life insurance. Term life policies, which last for a fixed period of time, generally cost less and do not include a savings component like permanent policy options. Permanent policies, such as whole and universal, last a lifetime and typically have a savings element that grows with dividends. These policies can also be boosted with riders that offer additional coverage, such as accidental death benefits.
When purchasing life insurance, it’s important to consider your personal and family financial situation. You want to make sure the coverage you choose will provide your loved ones with enough money to pay off any outstanding debts and cover funeral expenses. A general rule of thumb is to purchase a life insurance policy that will cover 10 times your annual income.
Life insurance premiums are based on your age, health, family history, lifestyle and any other factors that may indicate risk, such as smoking habits or driving record. A qualified agent can help you determine what type of policy and coverage amount is right for you.
Once you’ve purchased your life insurance, it’s important to understand your policy. Read through your contract carefully to find out how the policy works, what the coverage amounts are and any other terms or conditions that apply. Also, make sure you’re clear on who the beneficiaries are. Your beneficiary is the person or entity that receives your policy payout after your death. You should name primary and contingent beneficiaries in your policy, so that the secondary beneficiary will receive a portion of the payout if the primary beneficiary dies before you.
You should also review your policy to ensure you’re getting the best value for your dollar. There are a number of ways to compare policies and prices, such as the death benefit and cash value accumulation options, premiums paid, and any riders offered by each policy.
Benefits
A life insurance policy provides a lump sum payment, called the death benefit, to beneficiaries upon your death. This money can help your family pay for things like funeral expenses, debts and children’s college educations. The amount of coverage you need depends on your financial goals and other resources. You also want to consider how long you need the policy to last, which is known as the term.
There are different types of life insurance policies, including term, whole life and universal. Term policies have a fixed period of time, typically between five and 30 years, during which the death benefit remains the same and the premium is level. Whole life and universal life policies have a permanent death benefit and cash value that accumulates over time. They may have a fixed or variable interest rate. During your lifetime, you can access the cash value through loans or withdrawals. Outstanding loans, if not repaid, will reduce the death benefit and cash surrender value of the policy.
You can designate more than one beneficiary for a life insurance policy and assign them a percentage of the death benefit. Beneficiaries can be individuals, such as spouses, children or parents. You can also name an entity, such as a trust. It is important to review and update your beneficiaries regularly. This is especially important after major events such as births, deaths, remarriages and divorces.
In most cases, life insurance proceeds are not subject to taxes. However, depending on the type of policy and the size of your estate, it may be necessary to discuss taxes with an attorney or tax professional. The tax treatment of life insurance can depend on how it is paid out and who owns the policy at the time of your death. Having a separate person or entity, such as a trust own the life insurance policy can help keep the payout out of your estate and avoid paying taxes.
Taxes
Typically, beneficiaries don’t pay taxes on the death benefit they receive from a life insurance policy. However, there are specific situations where the beneficiary may have to pay income tax on some or all of the death benefit.
Whole life insurance policies with cash values can accumulate tax-deferred, and you can borrow against the cash value without paying taxes (as long as you pay back the loan). However, if the policy terminates or lapses before you’ve paid back the loans, the portion of the payout that represents investment gains will be taxable.
Life insurance premiums aren’t tax deductible, but if you’re purchasing a group term life insurance policy through your employer or an association, the premiums may be tax deductible as compensation. The taxation of life insurance can get complicated. It’s important to work with your financial professional to understand how different types of life insurance are taxed.
Beneficiaries inheriting a life insurance payout don’t usually have to pay income taxes, but the amount of the death benefit that is inherited could be subject to estate or inheritance taxes depending on the size of your estate and what type of policy you have. You can reduce the risk of your loved ones having to pay estate or inheritance taxes by naming beneficiaries other than yourself, and by setting up a trust to own your life insurance.
Prudential Financial and its representatives do not provide legal or tax advice. Please consult your tax or legal advisor for individual situations. This reference guide provides general information only. Massachusetts Mutual Life Insurance Company, its subsidiaries and affiliated financial professionals do not offer legal or tax advice. This material is intended to provide general background only.
Riders
Riders are coverage add-ons that can help tailor a policy to your unique circumstances. Typically, they come at an additional cost, but they can also increase the size of a payout. Some riders provide living benefits, allowing you to access some or all of your death benefit while alive, which can be helpful in specific situations.
The types of riders available depend on the insurer and the type of life insurance policy, but some common ones include a guaranteed insurability rider (which allows you to add additional coverage to your existing permanent life policy without having to undergo medical underwriting), an accidental death rider, a waiver of premium rider, a family income benefit rider, an accelerated death benefit rider, a child term rider, and a return of premium rider. Some riders, like the disability and long-term care riders, are only offered with permanent life policies.
Some of the most useful life insurance riders are for health-related circumstances, such as a terminal illness diagnosis or the need for continuing care or long-term care services. These riders allow you to access a portion of your death benefit while you are still alive, which can be used to pay for ongoing treatment.
However, it’s important to weigh whether these kinds of riders are right for you, as they can significantly increase your life insurance premium. For this reason, it’s often best to get guidance from a financial professional who can discuss the pros and cons of each type of rider with you. They can also advise you on how much life insurance you should buy and whether any riders are worth the extra expense for your specific needs and risk factors.
Policy review
A policy review is an evaluation of an existing life insurance policy to assess its suitability, coverage, and effectiveness in meeting a client’s financial goals and objectives. It also provides the opportunity to explore cost-saving strategies and to identify any issues or shortcomings in the policy. In addition, a policy review can allow advisors to assess whether the current policy still meets a client’s needs after a significant change in their personal or financial circumstances.
For example, a policy review might be conducted after a major life event, such as a marriage or divorce, or the birth of a child. In these cases, a financial advisor may recommend that the client add coverage to ensure the continued security of their spouse or children. A policy review can also help clients stay informed about changes in estate tax laws and insurance regulations that might affect their life insurance policies.
During a policy review, an advisor will examine the current terms and conditions of a client’s life insurance policy, including its beneficiary designations, investment allocations, premium payments, and cash value growth. In addition, an advisor will evaluate alternative policies that might meet a client’s needs, such as term life policies or hybrid life insurance policies, and consider the impact of adjusting premium payments.
A key component to a successful policy review is open communication and the involvement of all stakeholders. A good process includes inviting all groups who have a stake in the outcome of a policy, such as those to whom it applies, those who will monitor it, and those who oversee its implementation. This collaboration eliminates the possibility that any policy will go through the review process without being vetted by all relevant parties and prevents problems down the road.