Life insurance is a key part of any financial plan.
What would happen to your family if you were no longer there to take care of them?
What dreams do you have for them? What dreams do they have for themselves? Are those dreams possible without you in the picture?
Life insurance is unlike any other financial product. What other assets can you to transfer to your loved ones completely income tax free, inheritance tax, and transfer tax free?
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There are two basic types of life insurance, term and permanent (sometimes known as cash value):
Term insurance is the most affordable insurance and is designed for temporary needs. Some of the most common types available are: Annually Renewable Term, 10-year level, 15-year level, 20-year level, and 30-year level. It is protection for a specific period of time and generally doesn't pay anything out unless you die during the stated level period.
Do you have a specific need with a specific time period?
What happens if you outlive the coverage and still have a need?
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 know 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 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 form 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 company's financial results or experience, which can be influenced by mortality rates, expenses, and investment earnings.
One of the most important assets that you have is your ability to earn a living. Think about it: All of your plans for the future -- from buying a home to putting your kids through college to building a retirement nest egg -- are based on the assumption you will continue to earn a paycheck until you retire. But what would happen if your paychecks stopped?
Disability insurance provides you with an income should you become sick or injured and unable to work. It helps protect against family financial catastrophe by giving you an income to meet daily expenses.
According to a study conducted by America's Health Insurance Plans, National Association of Insurance Commissioners, and the U.S. Commerce Department, the chances of a disability occurring can be high. There is a 1 in 3 chance that a disability will last 3 months or more, 1 in 5 chance that it will last 1 year or more, and a 1 in 7 chance that it will last 5 years or more.
There are multiple sources of Disability Income Protection.
Worker' Compensation -- Worker' compensation is available if you become disabled and might provide up to 2/3 of your income. However, it will only pay you benefits if your illness or injury is related to your work. In fact, based on the National Safety Council, Injury Facts 2004 Ed., 90% of disabilities occur outside of the workplace.
State Disability Insurance Programs -- Some states provide short-term disability coverage, funded through payroll taxes, that would provide you with benefits for up to six months.
Social Security -- This is a federal government administered program that covers most workers. It can be difficult to qualify for social security disability and roughly 60% of initial social security applications are denied. In addition, the payments can be very modest.
Employer-Sponsored Coverage -- The two main forms of employer-sponsored disability coverage are short-term disability and long-term disability. Short-term disability will provide you a percentage of your income for 3 to 6 months. Long-term disability coverage will begin following those 90 to 180 days and continue on to your ge 65.
Individual Disability Insurance -- Individual Disability Insurance is coverage that you purchase on your own. It is not tied to your employer and will provide you coverage even if you change your employer.
Long term care insurance provides you with benefits when you require assistance with the "Activities of Daily Living"(bathing, dressing, toileting, transferring, continence, and eating). The benefits of Home Care could be received while you are at home or in an Assisted Living Facility or Nursing Home.
One important feature of a long term care insurance contract is the Elimination Period.
The elimination period is the length of time you must satisfy before you can begin receiving benefits. The elimination period could be 30, 60, 90, 180, 365, or even 730 days. Once you have satisfied your elimination period, then you can begin to receive benefits.
Benefits are paid as either reimbursement or indemnity. Under a reimbursement contract, you must submit the bills to the insurance company and they send you a check. Under an indemnity contract, the company sends you a monthly check for the entire benefit amount regardless of the expenses you incurred.
Benefits are usually payable for 2, 3, 4, 5, 6 years or lifetime. There could be more options depending on the carrier.
It is extremely important to sit down with a professional to review your long term care needs before purchasing a policy. You need to make sure that the coverage's stated in the policy are what you expect them to be and that you include important riders.
For more information on various Insurance products, contact The Hancock Group at (814) 944-8849.