Answers to Life Insurance Questions You Didn't Even Know To Ask
Updated: Mar 22
Don't know where to start with Life Insurance? Think you need more life insurance? We've got answers for you.
We get questions all the time about life insurance. How do I know if I need it? How much do I need? What does it cost?
Luckily for you, we've got answers to help. They're not a "one size fits all" situation either. They're answers customized to your life and your situation.
We've even got answers to the "How do I get Started?" question.
So let's get through some of these questions to help you become a more informed life insurance client/connoisseur.
Question 1: How do I know if I need Life Insurance?
Let's answer this with a question: If you died tomorrow, what would happen to your family/loved ones financially?
They wouldn't just have to cover your funeral, burial costs, and outstanding medical bills. What about any other outstanding debts? How would they pay for their own ongoing living expenses such as food, utilities, and a mortgage?
Life insurance is a safe, simple way to guarantee that the people who depend on you now will be taken care of after you’re gone. Beneficiaries receive a tax-free cash payment that ensures their standard of living and way of life does not suffer.
Don’t make a tragic situation even worse by failing to plan now. If you are the primary earner in your household, life insurance is not an option--it’s a responsibility.
Question 2: How do I know how much Life Insurance coverage I need?
There is no “one size fits all” policy that is right for everyone, because no two people have exactly the same needs. An elderly widow who only wishes to pay for her own burial expenses would require a much different policy than a 40 year old who is the primary earner in a family with children.
While experts disagree on the exact formula for income replacement, most estimate that, at a minimum, a person needs coverage equal to six times their annual income.
Ultimately, the only “wrong” answer is no coverage at all.
Question 3: I have Life Insurance coverage at work. That's enough, right?
That's a good start, but it's likely not enough. The experts at Life Happens, a nonprofit organization dedicated to educating the public on the importance of life insurance in financial planning, offer these four disadvantages of relying on your workplace's group insurance alone:
If your job situation changes, you may not be able to maintain the same coverage. Whether that means being laid off, moving from full-time to part-time or leaving the company… in many cases, an employee can’t retain their policy when circumstances change.
Coverage may end when you retire or reach a specific age. Many people tend to lose their insurance coverage when they continue working past a specified age or when they retire. This could mean losing your insurance when you need it most. (Related: Term vs. Whole Life Insurance: What’s the Difference?)
It’s a benefit… not a guarantee. Your employer can change or stop offering life insurance coverage without your consent, since the contract is between your employer and the insurer. With many employers in cost-cutting mode, employee benefits might (unfortunately) be among the first things on the chopping block.
Your options are limited. This type of coverage is not tailored to your specific financial needs. Furthermore, your employer might not offer the option for you to purchase extra coverage as you need, leaving you exposed.
Individual life insurance plans can offer superior benefits, and regardless of your employer or employment status, you can tailor them to meet your individual needs and circumstances.
Question 4: What's the difference between Term, Permanent (Whole), and Universal Life Insurance Coverage?
Term Life insurance is the most affordable type of life insurance, because it only provides coverage for a limited period of time. Policies vary, though, and can range from five years up to thirty years. As long as the policyholder dies within the time period specified in his or her policy, the insurer is obligated to pay the benefits in full.
The risk with buying term life insurance is that the policy holder may “outlive” the coverage. When this happens, the policy terminates, and you are given the option to renew. However, the new premiums will most certainly be higher, because you have aged. Still, term life insurance is an attractive option for many people, because it allows them to buy coverage at a lower cost and when it’s needed most.
Permanent (Whole) life insurance, on the other hand, offers lifetime protection as long as you continue to pay your premiums. All age groups can take advantage of the security and peace of mind that permanent life insurance offers. Retirees can guarantee that their loved ones will be provided for after they are gone, and young people looking to start a family can take advantage by buying early and locking in a great, low rate.
Universal life insurance, is protection that offers payment flexibility and the ability to adjust the coverage amount over time. It offers low-cost protection like term life insurance and a savings element like whole life insurance. It can help your family financially with immediate cash for funeral expenses or can be used in other ways, such as business situations, to create a charitable gift, or to help generate an inheritance. Universal life insurance is ideal for people who need, College savings, Estate planning, Business planning, and/or Additional retirement savings.
In some instances, a combination of both term life and permanent whole or universal coverage is desirable.
Question 5: Can I use Life Insurance while I'm living?
While the primary reason for purchasing life insurance is to provide financial security for your loved ones after your death, many policies offer benefits that can be used by the policy holder during their lifetime.
Accelerated Death Benefit
Terminally ill patients can forgo their death benefit in exchange for a payment equal to the life insurance policy’s face value.
Take advantage of group rates and the convenience of direct billing by taking your life insurance plan with you when you retire or switch careers.
Waiver Of Premium
This feature allows you keep your coverage even if you become seriously ill or disabled and are unable to pay your premiums.
By paying in excess of your regular premiums, some policies allow you to increase the amount of your death benefit. Likewise, cash accumulation can also be used to increase the loan amount available to policy holders while they are living.
Question 6: Can I borrow money against my Life Insurance policy?
The ability to borrow money is one of the biggest differences between term life and permanent life insurance. Only permanent insurance allows the policy holder to take out a loan against the cash value built up in the policy. Policy holders are required to repay this loan including interest, and any outstanding balances owed at the time of death will be deducted from the death benefit.
Term life insurance policies, on the other hand, do not have a loan option available, because they do not accrue cash value. This is why these types of policies are commonly referred to as “Death Benefit Only” policies.
Question 7: Can the same person have more than one Life Insurance policy?
Currently, there are no laws restricting the number of life insurance policies one person can hold. Individuals are also allowed to purchase policies from as many different companies as they want.
Frequently, a person will purchase an individual life insurance policy to supplement the one they receive through their employer. No policy cancels another policy out, and all effective policies will be paid concurrently at the time of death.
Question 8: What should I consider in naming my beneficiaries?
Who you choose as your beneficiaries is one of the most important decisions a policy holder makes. You will have the option to designate one primary beneficiary or multiple ones. If multiple beneficiaries are designated, you will need to decide how the death benefit is allocated between them. Beneficiaries are not required to be actual people. Legal entities such as a foundations, charities, or trusts can are also eligible.
As a precautionary measure, you will also need to designate “contingent” or secondary beneficiaries in the event that you outlive your primary beneficiaries. You should take the time to review your beneficiaries annually as they can be changed throughout the life of the policy for any reason.
As mentioned previously, the biggest benefit to your beneficiary is that they will receive their life insurance benefits tax-free.
Question 9: Is a physical exam always required to obtain Life Insurance?
Not all life insurance policies require a physical examination. However, policies that pay a high death benefit usually do.
This physical is typically performed in your home by a paramedic or licensed health care worker. Most exams consist of a height and weight check, blood and urine samples, and an EKG.
You will also need to be prepared to answer questions relating to your medical history. In some instances, additional documentation such as a credit history and even your driving record is required.
Question 10: OK, this all sounds great. How do I get started buying a life insurance policy?
You shouldn't have to choose between your budget and your family's security in the future. With flexible coverage options, we can help you build a policy that’s affordable now and adaptable later.
Contact one of our friendly, knowledgeable agents at Ashley Insurance Agency agent today so we can assist you with balancing future needs with your current financial capabilities.
Contact our office at 304-927-2175 or visit us in Spencer at 223 Main St. Downtown.