Life Insurance - The Basics

There are many financial experts that consider life insurance to be the foundation of sound financial planning. It can be an important tool in the following situations:

1. Replace income for dependents

Because people depend on an individual’s income, life insurance can be a vital tool used to replace that income if the person dies. The most common example; is parents with young children. Insurance to replace income can be especially useful if the government- or employer sponsored benefits of the surviving spouse or domestic partner will be reduced after their companion dies or if the government or employer sponsored benefits are not sufficient enough to meet the needs of the family.

2. Pay final expenses

Life insurance can be used to pay funeral and burial costs, probate and other estate administration costs, debts and medical expenses not covered by health insurance.

3. Create an inheritance for heirs

Even those who have no assets to pass on, can create an inheritance by buying a life insurance policy and naming their heirs as beneficiaries.

4. Pay federal “death” taxes and state “death” taxes

Life insurance benefits can pay for estate taxes so that heirs will not have to liquidate other assets or reduce their inheritance to cover these taxes. Changes in the federal “death” tax rules between now and January 1, 2011 will likely lessen the impact of this tax on some people, but be aware that some states are offsetting those federal decreases with increases in their state-level estate taxes.

5. Make significant charitable contributions

By making a charity the beneficiary of their life insurance policies, individuals can make a much larger contribution than if they donated the cash equivalent of the policy’s premiums. Making a contribution in this manor can allow an Individual to make a more significant impact on the charitable organization of their choosing.

6. Create a source of savings

Some types of life insurance can create a cash value that, if not paid out as a death benefit, can be borrowed or withdrawn on the owner’s request.  Considering most people make paying their life insurance policy premiums a high priority, buying a cash-value policy type can create a kind of “Automatic” savings plan. Furthermore, the interest credited is tax deferred (and tax exempt if the money is paid as a death claim).

Two Types of Life Insurance

When shopping for a life insurance policy, the most simplified way to get started is to understand that there are essentially two kinds of policies: term life insurance and permanent life insurance. Term life insurance lasts for a specific amount of time (the “term”) and expires at the end of the policy. Permanent on the other hand, is coverage that would not expire and is designed to stay in place for your entire life. There are more insurance plans that fall into these two categories, each with their own benefits and drawbacks.

Permanent Life Insurance- How Coverage Works

As it sounds, permanent life insurance is designed to stay in place for your entire life. This policy type offers a death benefit but it can also be used to accumulate savings or as an investment vehicle. Permanent coverage typically costs more than a term life insurance policy.
You have three primary types of permanent insurance to select from. Whole Life Insurance offers set or fixed premiums for as long as the policy is in effect. As you pay the premiums, the policy can build up cash value.  Depending on the insurance company, you may be able to receive dividend payments from the policy.
Universal Life Insurance is another type of permanent policy, that offers more flexibility than whole life coverage. The policy is linked to an interest-bearing account.  There are options available to adjust your death benefit or premiums within certain limits. Generally, you can withdraw or borrow against funds held in the account as long as your premiums are still c. Just keep in mind that any unpaid loans will reduce the amount of death benefits payable.
Finally, you may choose a Variable life insurance policy. These policies offer a broader range of investment choices. Variable life insurance may prove a better choice for those more comfortable taking on a higher degree of risk. The value of the policy is tied to market performance. This means your benefits and premiums may decrease or increase over time. You can also borrow against this type of policy, but outstanding loans will diminish your death benefit.

Life Insurance Policy Types

1. Term Life

Term insurance is the simplest form of life insurance. It pays only if death occurs during the term of the policy, which is usually from one to 30 years. Most term policies have no other benefit provisions. There are two basic types of term life insurance policies—level term and decreasing term. Level term means that the death benefit stays the same throughout the duration of the policy. Decreasing term means that the death benefit drops, usually in one-year increments, over the course of the policy’s term.

2. Whole Life/Permanent Life

Whole life or permanent insurance pays a death benefit whenever the policyholder dies. There are three major types of whole life or permanent life insurance—traditional whole life, universal life, and variable universal life, and there are variations within each type.

In the case of traditional whole life, both the death benefit and the premium are designed to stay the same (level) throughout the life of the policy. The cost per $1,000 of benefit increases as the insured person ages, and it obviously gets very high when the insured lives to 80 and beyond. The insurance company keeps the premium level by charging a premium that, in the early years, is higher than what is needed to pay claims, investing that money, and then using it to supplement the level premium to help pay the cost of life insurance for older people.

By law, when these “overpayments” reach a certain amount, they must be available to the policyholder as a cash value if he or she decides not to continue with the original plan. The cash value is an alternative, not an additional, benefit under the policy.

3. Universal Life

Universal life, also known as adjustable life, allows more flexibility than traditional whole life policies. The savings vehicle (called a cash value account) generally earns a money market rate of interest. After money has accumulated in the account, the policyholder will also have the option of altering premium payments—providing there is enough money in the account to cover the costs.

4. Variable Life

Variable life policies combine death protection with a savings account that can be invested in stocks, bonds and money market mutual funds. The value of the policy may grow more quickly, but involves more risk. If investments do not perform well, the cash value and death benefit may decrease. Some policies, however, guarantee that the death benefit will not fall below a minimum level. Another variant, universal variable life, combines the features of variable and universal life policies. It has the investment risks and rewards characteristic of variable life insurance, coupled with the ability to adjust premiums and death benefits that is characteristic of universal life insurance.

How Much Life Insurance to Buy

Before you apply for life insurance, you should analyze your financial situation and determine how much money would be required to maintain your beneficiaries’ standard of living or meet the need for which you’re purchasing a policy.
For example, if you are the primary caretaker and have children who are three and five years old, you would want enough insurance to cover your custodial responsibilities until your children reach adulthood and able to support themselves. You might research the cost to hire a nanny and a housekeeper, or to use commercial childcare and a cleaning service, then perhaps add some money for education. Add up what these costs would be over the next 15 or so years, add more for inflation, and that’s the death benefit you might want to buy—if you can afford it.
 
It’s prudent to reevaluate your life insurance needs annually or after a significant life event; marriage, the birth or adoption of a child, or major purchases, such as a house. You may need to update the policy’s beneficiaries, increase your coverage, or even reduce your coverage.
Qualifying for Life Insurance
Insurers evaluate each life insurance applicant on a case-by-case basis, and with hundreds of insurers to choose from, almost anyone can find an affordable policy that at least partially meets their needs. According to the Insurance Information Institute, In 2018 there were 841 life insurance and annuity companies in the United States,.
Many life insurance companies sell multiple types and sizes of policies, and some specialize in meeting specific needs, such as policies for people with chronic health conditions. There are also brokers like CBIS who specialize in life insurance and know what different companies offer. Applicants can work with CBIS free of charge to find the insurance they need our compensation is provided by the Insurance company and does not impact the cost of Insurance; pricing remains the same if you utilize a broker or purchase direct from the insurance company. This means that almost anyone can get some type of life insurance policy if they look hard enough and are willing to pay a high enough price or accept a perhaps less-than-ideal death benefit.
Insurance is not just for the healthy and wealthy, and because the insurance industry is much broader than many consumers realize, getting life insurance may be possible and affordable even if previous applications have been denied or quotes have been unfavorable.
Keep in mind that, the younger and healthier you are, the easier it will be to qualify for life insurance, and the older and less healthy you are, the harder it will be. Certain lifestyle choices, such as using tobacco or engaging in risky hobbies such as skydiving, Aviation, racing, can also make it harder to qualify or lead to higher rates.
Additional Uses for Life Insurance
Most people use life insurance to provide money to beneficiaries who would suffer a financial hardship upon the insured’s death. However, for wealthy individuals, the tax advantages of life insurance, including tax-deferred growth of cash valuetax-free dividends, and tax-free death benefits, can provide additional strategic opportunities.
Funding Retirement – Policies with a cash value or investment component can provide a source of retirement income. This opportunity can come with high fees and a lower death benefit, so it may only be a good option for individuals who have maxed out other tax-advantaged savings and investment accounts.
Avoiding Taxes  The death benefit for Life Insurance is usually tax free. Wealthy individuals sometimes buy permanent life insurance within a trust to help pay for estate taxes due upon a person’s death. This strategy is vital for preserving the value of the estate for their heirs. Tax Avoidance is a law-abiding strategy for minimizing one’s tax liability and should not be confused with tax evasion, which is illegal.
Borrowing Money  Most permanent life insurance accumulates cash value that the policyholder can borrow against. Technically, you are borrowing money from the insurance company and using your cash value as collateral. Unlike with other types of loans, the policyholder’s credit score is not a factor. Repayment terms can be flexible, and the loan interest goes back into the policyholder’s cash value account. The death benefit can be reduced by outstanding policy loans, however.
 
Finding the right policy that fits your needs doesn’t have to be difficult. CBIS specializes in evaluating your needs and tailoring a solution to fit those needs keep in mind CBIS is legally bound to act in your best interests. If you are ready to begin evaluating your options please complete the information below:

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Mid-Size & Group Insurance

These policies are normally through an employer or association and offer coverage to all eligible persons within the group. After the Affordable Care Act came into being, important reforms targeting plan quality and employee costs were introduced.

Enrolment in group plans was made easier, and because of the pre-tax funding of premiums such plans are cheaper than taking out individual health insurance. There can be multiple plan choices offered, and groups can use their size to negotiate better benefits for life insurance, vision and dental care, as well as long-term and short-term disability insurance.

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Insurance Forms and Applications

As with all things medical involving insurance, the forms and applications are necessarily complicated and involved. It is important to get expert advice when filling these in as an error could result in you not being able to claim the benefit to which you’re entitled. Make sure that the insurance company that you deal with has a good support system which allows you to ask questions and query problems you may encounter with the administration.
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Medicare Supplements

Medicare is limited in its scope. With an ageing population and massive funding issues Medicare tries to cover hospital insurance, outpatient coverage, and prescription coverage. There are huge gaps in the coverage – copayments, coinsurance, deductibles, medical expenses incurred travelling outside of the United States – are amongst the things which are not covered. “Medigap,” as it is known, is designed to fill these deficiencies in your cover.
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Dental

Dental insurance is often covered together with vision insurance in a single plan. Both of these are separate from normal medical insurance. These plans cover emergency care and maintenance – most do not cover cosmetic surgery.

The deductibles on dental insurance can be expensive. It is entirely dependent on the premiums that are paid and there are benefit caps and no limits to your out-of-pocket costs for adult dental care.Paediatric dental care is treated far more sympathetically with limited out-of-pocket costs and unlimited insurance benefits.

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Short-Term insurance

Short-term insurance is used for the millions of people caught in the coverage gap, who have incomes that are too high for subsidies or who missed open enrolment. Do be aware that there are 10 states which do not allow short-term plans.

This insurance can be used in the 14 states who have not accepted federal funding to expand Medicaid, and by people whose household incomes fall under the federal poverty level. If you’re premium is unaffordable and you don’t get premium subsidies you should consider a short-term health insurance plan.

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Life Insurance

Life insurance is one of the most important policies for families and businesses alike. Having your main breadwinner taken from you leaves an immense financial burden which life insurance addresses.

There are many forms of life insurance from fixed term policies, through to whole of life insurance and many variations in between. There are also critical illness policies which pay out the life insurance before death in the event of a fatal illness being diagnosed.

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Small Group Insurance

As the name suggests, these are insurance policies taken out by small groups of individuals to take advantage of the reduction in overall risks, benefits and deductibles. these policies are usually geared towards businesses with 100 or fewer full-time employees.

Often, small group insurance is far more affordable than the equivalent individual policy. This is because the insurance company can negotiate better rates with hospitals, clinicians and other services. There are also legal limits set for premiums – for example premiums for older employees cannot be more than three times those for younger employees.

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Individual health insurance

Not everybody has health coverage through their job. This is where buying individual health insurance comes in. Individual health insurance is coverage that you purchase on your own, on an individual or family basis, as opposed to obtaining through an employer. Individual health insurance can be purchased through the exchange, or off-exchange (directly from the health insurance carrier). If you’re a young adult of 26 years of age or older, unemployed, a part-time employee, or self-employed – even retired – individual health insurance is essential. Even a broken bone can have serious consequences on your finances. You need to have at least the bare minimum cover for accidents, or long-term illness If you are ready to start reviewing options please click the link below if you would like to know more we have provided additional information below:
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