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The final expenses that have to be settled immediately include:
aaaaa.
Clean-up Fund - This is a fund needed to pay
off debts incurred by the breadwinner during aaaaaaaaahis
lifetime. This is also the fund needed to pay whatever liabilities
created due to death aaaaaaaaasuch
as hospital bills, funeral expenses, mortgage and estate taxes.
aaaab.
Family Dependency Period Income - This is to
provide the family’s basic necessities while aaaaaaaaathe
children are still young. This is needed until such time that
the youngest child reaches aaaaaaaaaage
21.
aaaac.
Life Income for the Widow or Widower - This is the
retirement fund needed by the widow aaaaaaaaaor
widower when he/she is left alone to support his/her own needs.
aaaad.
Emergency Fund - This is a fund for unexpected
but important expenses.
aaaae.
Educational Fund - This is a fund for the educational
expenses of the children for the aaaaaaaaaelementary,
high school, college or post graduate courses.
2. Retirement Income
aaaaThe
living benefits and maturity benefits of a life insurance
policy can answer the need for a retirement income during
old age, where the breadwinner becomes less economically productive.
With such benefits, the breadwinner can retire gracefully
and peacefully, knowing that money is available for purposes
of leisure, travels, hospitalization and long-term care expenses.
3. Guaranteed Savings
aaaaWith
a secured savings element in permanent life insurance policies,
specifically in the form of cash values, the breadwinner can
be assured of a fund that he/she can resort to in the event
of sickness, disability, or emergency situations.
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OTHER
SERVICES OF THE LIFE INSURANCE |
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1. Business
Insurance
aaaaThe
use of life insurance in business is basically for business
continuity and employee benefits.
aaaaa.
Business Continuation Insurance Plan –
an insurance plan that enables the owner/s of a aaaaaaaaabusiness
to provide for the continued operation of the business if
the owner or a key aaaaaaaaaperson
dies.
aaaaaaaaaaaaaae.g.
sole proprietorship buy-sell agreement, partnership buy-sell
agreement, aaaaaaaaaaaaaacorporation
buy-sell agreement and key person or key man life insurance
aaaaaaaaa*key
person – any person or employee whose continued participation
in the business is aaaaaaaaanecessary
to the success of the business and whose death would cause
the business aaaaaaaaasignificant
financial loss
aaaab.
Employee Benefits – employers generally
provide employees with group insurance as part aaaaaaaaaof
their total compensation package, either the employers pay
all or a percentage of aaaaaaaaathese
benefits
aaaaaaaaaaaaaae.g.
group life, group health, group retirement
2. Estate Planning
aaaaLife
insurance is considered as one of the best tools in creating
an estate plan—that addresses how best to preserve an
individual’s assets after the individual dies. It can
protect a person’s estate from the “Agents of
Erosion” such as cost of administration or transfer,
liquidation losses and estate taxes.
aaaa•
estate tax – a tax on the right of the
deceased person to transmit his estate to his lawful aaaaaaaaaheirs
and beneficiary
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LIFE
INSURANCE: The Uncommon But The Best Solution |
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aaaaWith
life insurance, a new source of income is generated to meet
the family’s needs in case of the breadwinner’s
premature death, retirement, or other cases of emergency.
However, only a few are aware of the importance of life insurance.
It is a solution not commonly adopted by people in making
their own financial plans. Therefore, we need life insurance
underwriters to educate the people, inform them that life
insurance is the best solution because:
It’s
a Successful Form of Savings.
aaaaLife
insurance forces a person to save regularly and persistently
year after year. It helps an individual overcome the weakness
in saving because everything is definite – the amount
of money to be saved and the time when it has to be saved.
It’s a Profitable Investment.
aaaaLife
insurance guarantees safe and successful investment because
of the insurer’s ability to diversify these investments.
The returns on these investments are then shared with the
policyholders either in the form of incentives (e.g. dividends)
or lower premiums.
It’s an Instant Estate.
aaaaA
life insurance policy can help you create an estate instantly
without having to worry about time. In addition, by purchasing
a policy, an individual has just added another personal property
to his current estate. With life insurance, an individual
can have the most liquid asset because the policy can easily
be converted into cash when an unexpected event occurs.
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TYPE
OF INSURANCE: Permanent Insurance (Source
http://www.life-line.org) |
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Permanent insurance provides lifelong protection.
As long as you pay the premiums, the death benefit will be
paid. These policies are designed and priced for you to keep
over a long period of time. If you don’t intend to keep
the policy for the long term, this may be the wrong type of
insurance for you.
Permanent
policies are known by a variety of names: whole, ordinary,
universal, adjustable, and variable life. Most have a feature
known as cash value or cash-surrender value. This feature,
not found in most term insurance policies, provides you with
some options:
• You can cancel or surrender the policy in total or
in part and receive the cash value as a lump sum. If you surrender
your policy in the early years, there may be little or no
cash value.
•
If you need to stop paying premiums, you can use the cash
value to continue your current insurance protection for a
specified time or to provide a lesser amount of protection
covering you for your lifetime.
•
You usually can borrow from the insurance company, using the
cash value in your life insurance as collateral. Unlike loans
from most financial institutions, the loan is not dependent
on credit checks or other restrictions. You ultimately must
repay any loan with interest or your beneficiaries will receive
a reduced death benefit.
With all types of permanent policies, the cash value of a
policy is different from the policy’s face amount. The
face amount is the money that will be paid at death or policy
maturity. Cash value is the amount available if you surrender
a policy before its maturity or your death. Moreover, the
cash value may be affected by your insurance company’s
financial results or experience, which can be influenced by
mortality rates, expenses, and investment earnings.
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TYPE
OF INSURANCE: Term Insurance (Sourcehttp://www.life-line.org) |
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Term
insurance provides protection for a specific period of time.
It pays a benefit only if you die during the term. Some term
insurance policies can be renewed when you reach the end of
the term, which can be from one to 30 years. The premium rates
increase at each renewal date. Many policies require that
you present evidence of insurability at renewal to qualify
for the lowest rates.
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CHOOSING
AN INSURANCE AGENT(Source http://www.life-line.org) |
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Your first step in obtaining life insurance
coverage should be to contact a life insurance agent in your
area. Collect the names of several agents through recommendations
from friends, family, business associates, and other sources.
A list of agents can also be found in your local phone book
or by contacting your state's or provinces insurance department.
A
licensed insurance agent in your area can provide information
and advice on coverage options and cost-saving measures. Agents
should be familiar with insurance companies in your city,
state, or province, especially those that will be able to
provide the coverage needed. Agents may represent one company
or several companies. All insurance companies and agents are
regulated by state insurance departments. Keep in mind that
agents who sell variable products must be registered with
the National Association of Securities Dealers and have additional
state licenses.
When
choosing an agent, you should:
• Check whether the agent is a full-time and experienced
agent or one who sells insurance as a sideline, and look for
an agent with specialized training in life insurance.
• Determine if your agent has any professional designations.
Most states or provinces also require agents to take continuing
education courses to remain licensed in a given state or province.
In addition to the courses required by the state or province,
many agents take a series of courses and are awarded with
professional designations. You may notice the following designations
next to your agent's name indicating that a professional designation
has been awarded for successful completion of a series of
courses.
Professional designations that life insurance agents may earn
include Chartered Life Underwriter (CLU) and Life Underwriter
Training Council Fellow (LUTCF). Agents who also are financial
planners may have other designations, such as, Chartered Financial
Consultant (ChFC), Accredited Estate Planner (AEP), Certified
Financial Planner (CFP), or Member of The Registry of Financial
Planning Practitioners. Other designations include Registered
Health Underwriter (RHU) and Fellow Life Management Institute
Program (FLMI).
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CHOOSING
A POLICY (Source
http://www.life-line.org) |
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After meeting with you and carefully reviewing
your family’s needs, the agent will recommend a life
insurance policy that he or she thinks will meet your needs.
Look at the recommended policy with care to be sure it fits
your personal goals. Often, an agent will provide a policy
illustration that shows how the policy will work.
Carefully
study your agent’s recommendation and ask for a point-by-point
explanation. Make sure the agent explains items you don’t
understand. Because your policy is a legal document, it is
important that you know what it provides:
If
your agent recommends a term policy, ask:
• How long can I keep this policy? If I want the option
to renew the policy for a specific number of years or until
a certain age, what are the terms of renewal?
• When will my premiums increase? Annually? Or after
a longer period of time, such as five or ten years?
• Can I convert to a permanent policy? Will I need a
medical exam when I convert?
If your agent recommends a permanent policy, ask:
• Are the premiums within my budget?
• Can I commit to these premiums over the long term?
• How much will I receive if I surrender the policy?
Keep in mind that permanent insurance provides protection
for your entire life. If you don’t plan to keep the
policy for many years, consider another type. Cashing in a
permanent policy after only a few years can be a costly way
to get short-term insurance protection.
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TOP
15 QUESTIONS (Source http://www.life-line.org) |
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It
is expected that during the life insurance buying process,
you will have many questions. You should feel free to ask
your agent for answers to any of your questions. The following
are answers to many common questions that you may have:
1. How much life insurance do I need?
If you are providing financial support for people
who are depending on you, you need life insurance. To determine
how much you need to replace your lost income, deduct the
total income that would be lost upon your death from the sum
required for your family's ongoing financial stability. Beyond
that, it depends on your particular circumstances (e.g., whether
you have considerable net worth or few backup resources) and
whether you want insurance for other purposes, such as educational
funds. The solution to your particular needs may entail a
combination of several policies, and the combination may be
changed as your situation evolves.
2. What's the difference between term, convertible
term, and whole life insurance?
Whole life insurance, the most traditional form of
"permanent" insurance, can be kept in force for
as long as you live. The face amount and the premium (the
amount you pay for protection each year) are fixed at the
time you buy your policy and stay the same even as you age.
The policy's cash value grows at a fixed rate of return specified
in the policy and can be used as collateral to borrow against
your policy. While permanent insurance is usually recommended
as the core of an insurance strategy, term insurance is good
for people who need coverage for short periods of time --
younger families, say, who need large amounts of protection
for one year, five years, or more. Lower premiums at younger
ages increase as policyholders age and renew their policies.
Benefits are paid only if death occurs during the period covered.
If you stop paying premiums, the insurance stops. "Convertible"
term policies can be exchanged for permanent insurance without
a medical examination, but with a higher premium. Term policies
generally have no cash value and no residual rights if the
policy is canceled.
3.
What are the three types of permanent insurance?
Whole life (discussed above), universal, and variable
life are all permanent insurance and can provide lifetime
protection and accumulate cash value. Unlike whole life,
the cash value in universal life is linked to interest rates,
and the cash value of variable life is linked to invested
options. With universal life insurance you can reduce or
increase the amount of the death benefit and vary the amount
or timing of premium payments, subject to certain limitations.
Variable life allows you to allocate your premiums among
a variety of investment options offering varying degrees
of risk. The cash value of universal and variable policies
is not guaranteed, although some policies set a minimum
death benefit.
4. How do variable and fixed annuities work?
Annuities are long-term vehicles used to provide
retirement income to individuals without pensions, to supplement
a pensioner's income, or to build assets over a more limited
period. With variable annuities, the value varies according
to the worth of the insured's investment options chosen.
Payments can be fixed or variable. Under a fixed annuity
(also called a fixed-dollar annuity), money is invested
in assets with fixed rates of return. Because annuities
are designed to be held for many years, the interest in
an annuity builds up on a tax-deferred basis, and purchasers
are generally not taxed until regular payments begin after
retirement. Early withdrawals, however, result in substantial
penalties in addition to income taxes.
5. How do accelerated death benefits work?
More than 200 insurers now offer this "living
benefits" option to ease the financial burdens of the
seriously ill or incapacitated. It allows policyholders
to receive all or part of the policy's proceeds prior to
death under certain circumstances. Because payments may
affect tax status and Medicare eligibility, and will be
deducted from the overall benefits paid later to beneficiaries,
policyholders should thoroughly investigate using this benefit
in advance.
6. By using medical tests are insurers trying to
eliminate any applicant likely to develop a serious health
condition?
Medical tests provide accurate and current information
about an applicant's health, thus enabling insurers to charge
premiums that reflect the level of risk an applicant represents.
Because some health conditions are easily managed through
proper medication, therapy or lifestyle changes, medical
information makes it possible for insurers to cover applicants
with certain health conditions. More serious or incurable
conditions present an enormous risk that an insurer simply
cannot assume.
7. What should I consider in naming life insurance
beneficiaries?
-----(a) Always name
a "contingent," or secondary, beneficiary, just
in case you outlive your first ---------beneficiary.
-----(b) Select a specific
beneficiary, rather than having the proceeds of your life
insurance paid to ---------your
estate. One of the great advantages of life insurance is
that it can be paid to your ---------family
immediately. If it is payable to your estate, however, it
will have to go through -------------probate
with the rest of your assets.
-----(c) Be very specific in
wording beneficiary designations. Saying "wife of the
insured" could ----------- -result
in an ex-spouse getting the proceeds. Naming specific children
may exclude those --------- -born
later. If your child dies before you, do you want the proceeds
to go to that child's --------- -children?
Changing the beneficiary designation is easy, but you have
to remember to do it. ------- -Due
to the various issues involved, an agent can be an excellent
source of information to ------- -help
you properly set up your beneficiary designation.
8. Does it make sense to replace a policy?
Think twice before you do, because in many situations
it may not be to your advantage. Before dropping any in-force
policy, consider:
-----(a) If your health status
has changed over the years, you may no longer be insurable
at ------------ -standard rates.
-----(b) Your present policy
may have a lower premium rate than is required on a new
policy of the ------- -same
type (if, for no other reason, that you have grown older).
-----(c) If you replace one
cash-value policy with another, the cash value of the new
policy may ------- -be relatively
small for several years and may never be as large as that
of the original one.
-----(d) You will be subject
to a new contestability period.
You should ask insurance agents for a detailed listing of
cost breakdowns of both policies, including premiums, cash
surrender value, and death benefits. Compare these as well
as the features offered by both policies.
If you decide to surrender or reduce the value of the policy
you now own and replace it with other insurance, be sure
that:
(a) the agent making the proposal puts it in writing;
(b) you pass any required medical examination; and
(c) your new policy is in force before you cancel the old
one.
9. As a single person, do I need insurance?
The answer almost definitely is yes. You may want
to consider these options:
(a) Disability income insurance -- especially important
for self-supporting singles without sizable -------assets,
this can replace a good part of the income you would lose
if you were unable to work ----because
of accident or illness. If you don't have long-term disability
coverage at work, ask your ----life
insurance agent about an individual policy designed to replace
at least 60 percent of your ----income.
(b) Health insurance -- if you don't have on-the-job
coverage, an individual policy is your first line ----of
defense against ever-escalating medical and hospital costs.
You can keep premium costs -------down
by electing a large deductible, thereby "self-insuring"
as much as you can afford.
(c) Life insurance -- even if you have no dependents
now, you may later. If you buy now when you ----are
younger and healthier, you can "lock in" term
coverage at a reasonable rate, including ---------conversion
features.
10. I have the option of retiring early. How can
I make sure to make the right decision?
Work out a detailed budget: mortgage payments,
daily living expenses, loan repayments, college tuition,
etc. Will you need a new car in the next few years? Determine
your exact income from all sources. You'll probably need
75 to 85 percent of your income to live comfortably in your
retirement. How much can you expect from your company pension?
Remember, Social Security won't start until age 62, and
even then, at a lower rate than it would for normal retirement
at 65. Ask if your company will offset that loss until age
65. Will it offer you an additional bonus for taking early
retirement? Also, look at your health insurance. Health-care
costs can eat up a major portion of a retiree's budget.
Will your company continue your health insurance into retirement?
If so, will it continue to fund premiums as costs go up?
You can't afford to be uninsured in the years before you
become eligible for Medicare. Even then, Medicare covers
only about half of health-care costs, so you will want supplemental
insurance.
11.
What happens if I fail to make the required premium payments?
If
you miss a premium payment, you typically have a 30- or
31-day grace period during which you can pay the premium
with no interest charged. After that, the company with your
authorization can draw from a permanent policy's cash value
to keep that policy in force. In some flexible-premium policies,
premiums may be reduced or skipped as long as sufficient
cash values remain in the policy. However, this will result
in lower cash values and a shortened coverage period.
12. What if I become disabled and can't pay the
premiums?
Provisions or riders that provide additional benefits
can be added to a policy. One such rider is a waiver of
premium for disability. With this rider, if you become totally
disabled for a specified period of time, you don't have
to pay premiums for the duration of the disability.
13. Are other riders available?
Yes. An accidental death benefit, for example,
pays an additional benefit in case of death resulting from
an accident. Some companies provide accelerated benefits,
also known as living benefits. This rider allows you, under
certain circumstances, to receive the proceeds of your life
insurance policy before you die. Such circumstances include
terminal or catastrophic illness, the need for long-term
care, or confinement to a nursing home. Ask your agent for
information about these and other policy riders.
14. When will the policy be in effect?
The date that insurance goes into effect could
be different from the date the company issues the policy.
If you decide to purchase the policy, always check precisely
when the insurance becomes effective.
15. Is a buyer's guide available?
Most states require companies to give consumers
a buyer's guide to help them understand life insurance terms,
benefits and costs. Ask your agent for a copy.
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TIPS
IN BUYING LIFE INSURANCE (Source
http://www.life-line.org)
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Here
are a few tips to keep in mind about your life insurance purchase:
• Take your time. On the other hand,
don’t put off an important decision that would provide
protection for your family. Make sure you fully understand
any policy you are considering and that you are comfortable
with the company, agent, and product.
• When you purchase a policy, make your
check payable to the insurance company, not to the agent.
Be sure to get a receipt.
• After you have purchased an insurance
policy, keep in mind that you may have a free-look period,
usually 10 days after you receive the policy, during which
you can change your mind. During that period, read your policy
carefully. If you decide not to keep it, the company will
cancel the policy and give you an appropriate refund.
• Review the copy of your application
contained in your policy. Promptly notify your agent or company
of any errors or missing information.
• If an agent or company contacts you
and wants you to cancel your current policy to buy a new one,
contact your original agent or company before making a decision.
Surrendering your policy to buy another could be very costly.
• If you have a complaint about your
insurance agent or company, contact the customer service division
of your insurance company. If you are still dissatisfied,
contact your state's or province's insurance department. Most
departments have a consumer affairs division that can offer
help, and some have a toll-free number to respond to consumer
requests.
•
Review your policy periodically or when your situation changes
to be sure your coverage is adequate.
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