Life insurance gives you peace of mind that your loved ones won’t face financial hardship after your death. It can also help pay off a mortgage or fund children’s education.
The insurer will use the statements in your application to decide on your underwriting classification and premium rates. This information also calculates a policy’s cash value, which you can borrow against. Click the www.lifeinsuranceupstate.com to learn more.
Life insurance provides financial security for your loved ones during your death. It can also help pay for estate taxes, funeral expenses and other debts. You can use a life insurance calculator to estimate how much coverage you need, or speak with a financial professional for more personalized analysis.
Your life insurance policy is a legal contract between you and the insurer. It includes a statement of coverage and a summary of key features. It may also contain a free-look period, which allows you to examine the policy and, if not satisfied, return it within a set time frame for a full refund. Term life policies offer temporary protection for specific periods of time, such as one, five or 20 years. These policies do not build cash value, and they expire when the term ends or when you stop paying premiums. Whole life and universal life insurance provide long-term coverage that can grow in value over the years.
Some life insurance policies offer riders that allow you to customize your coverage or increase the coverage amount. For example, you can add an accidental death rider or a critical illness rider to your life insurance policy. There are additional fees and charges associated with riders, which vary by insurer and policy type.
If you are considering purchasing a life insurance policy, it is important to consider the insurer’s financial strength rating and complaint history. Ratings are issued by agencies such as AM Best and give you a glimpse into an insurer’s ability to pay out claims in the future. You can also look at insurers’ complaint ratios, which are reported to the National Association of Insurance Commissioners. NerdWallet recommends selecting a company with low complaint ratios and an A- or higher financial strength rating.
Premiums
Life insurance premiums are the financial fuel that powers your coverage. Whether you choose a term policy with a set duration or a permanent plan with a cash value component, your premium is the cost of maintaining your coverage and providing death benefits to your beneficiaries. The amount you pay can depend on a variety of factors, including your age, health and lifestyle, as well as the type of policy you choose. Some insurers offer flexible premium payment options, such as monthly, quarterly, semi-annual or annual payments.
A life insurance company reviews your application for coverage to decide if you are a good risk and at what rate to charge you as a premium. This process is known as underwriting. Insurers must take into account your age, gender, health and hobbies to determine the risk of your death and calculate your premium. Hobbies like adventure sports, for example, may increase your chances of serious injury or death, which is why your premiums will be higher if you participate in them.
The most important factor in determining your life insurance premium is your age. The younger you are when you secure a policy, the lower your premiums will be because of your longer life expectancy. Your premiums will also be lower if you have no preexisting conditions that could significantly shorten your life expectancy.
Other factors that influence your life insurance premiums include your weight, height and tobacco use. A smoker has a higher risk of dying prematurely, so their life insurance premiums are typically much higher than those of non-smokers. Your family’s medical history also plays a role, as does your occupation and other hobbies.
Taxes
Many life insurance policies earn cash or interest over time. This money can be withdrawn or borrowed from the policy without any taxes imposed (as long as it is not used to cover premium payments). This feature makes whole life insurance policies a popular choice for individuals looking for tax-efficient ways to increase their wealth.
A whole life insurance policy also offers the ability to transfer ownership of the policy to another individual or entity. This is known as a transfer-for-value transaction, and it can be used to reduce federal income tax obligations. However, there are certain circumstances when the IRS may impose taxes on a transfer-for-value transaction.
The death benefit, or face value of a life insurance policy is generally not taxable. This is true whether the death benefit is paid out to the beneficiary as a lump sum or in a stream of payments. This is true for both term and whole life insurance. However, if the payment structure is structured as an annuity or other periodic payments and includes both proceeds and interest, then these payments can be subject to taxes.
For example, if Seung transfers her whole life insurance policy to her daughter in 2022 with $50,000 in outstanding loans and gains of $75,000, the transferred amount will be taxable as part gift/part sale since the total of gains (including loan interest) exceeds her basis.
If a beneficiary is the owner of the policy at the time of death, the policy proceeds will be exempt from federal estate taxation. This is true for both whole and universal life insurance. However, beneficiaries should consult with their tax advisor to determine the best method of ownership to avoid any unnecessary taxes.
Riders
A life insurance rider is a provision that allows policyholders to tailor their coverage to fit specific needs. They may increase the size of their death benefit, change policy provisions, or offer additional coverage. Some riders come at no extra cost while others can increase premiums significantly. It’s important to understand the different types of riders and how they impact your policy before deciding whether they are worth it for you.
Some common riders include a long-term care rider, which provides benefits to help pay for nursing homes and home health services. Other riders provide funds to assist a policyholder with a chronic or terminal illness, such as an accelerated death benefit rider. Some riders can also be added to a whole life policy to allow the insured party to access some of their death benefit while still living, as well as increase the amount of money paid out to beneficiaries if they die due to an accident.
When considering adding a life insurance rider, it’s important to evaluate the financial and personal circumstances of the insured person. It’s also wise to consult a financial professional who can walk through the different options and costs.
It’s best to purchase life insurance riders when purchasing the base policy, as adding them later can be costly and require a new medical exam. This is because the insurance company will want to verify that the insured has not developed any conditions or illnesses since the original medical exam. This can be especially difficult for people who have developing health issues, such as heart disease or cancer, or for those with a family history of these conditions. It’s also important to consider how the use of a rider might affect your overall plan, as some riders limit or exclude coverage under certain circumstances.
Beneficiaries
Choosing beneficiaries is an important part of owning life insurance. Beneficiaries receive the death benefit (also known as the “policy proceeds”) when the insured passes away, and they can be anyone you choose, including family members, friends, charitable organizations or trusts. Beneficiaries can also be minors, but in this case, you must name a guardian to manage the funds until they are 18 or 21, depending on your state laws.
The primary beneficiary is the first person in line to receive the death benefit. You can also designate a contingent beneficiary who would receive the policy’s payout if the primary beneficiary is unable to do so for any reason. Many people choose to name several primary beneficiaries and allocate a percentage of the death benefit for each.
When naming beneficiaries, make sure to spell their full names correctly. This will help the insurance company verify the correct information. You can change your life insurance beneficiaries at any time, and it’s a good idea to do so periodically. Changing your beneficiaries is usually easy and simple, but be aware that you must notify the life insurance company of the change, and some companies require documentation to verify the new beneficiary’s identity before making the change official.
Significant financial decisions like determining what coverage you need and naming beneficiaries are best made with the guidance of knowledgeable, objective professionals. Find a local Thrivent financial advisor to help you explore your options and plan ahead for the future. Thrivent and its financial professionals do not provide legal or tax advice, but they can guide you in understanding your options.
