What Is Life Insurance?
A life insurance policy is a contract with an insurance company. In exchange for premium payments, the insurance company provides a lump-sum payment, known as a death benefit, to beneficiaries upon the insured's death. Typically, life insurance is chosen based on the needs and goals of the owner.
In addition to providing income to cover everyday living expenses, your family needs insurance to cover any outstanding debts, like the mortgage, credit cards and car loans. Other expenses include funeral and burial costs that can easily run into the tens of thousands of dollars.
Insurance Verses Assurance
The specific uses of the terms "insurance" and "assurance" are sometimes confused. In general, in jurisdictions where both terms are used, "insurance" refers to providing coverage for an event that might happen (fire, theft, flood, etc.), while "assurance" is the provision of coverage for an event that is certain to happen. In the United States, both forms of coverage are called "insurance" for reasons of simplicity in companies selling both products. By some definitions, "insurance" is any coverage that determines benefits based on actual losses whereas "assurance" is coverage with predetermined benefits irrespective of the losses incurred.
Reasons to Buy Life Insurance
To Pay Final Expenses. ...
To Cover Children's Expenses. ...
To Replace the Spouse's Income. ...
To Pay Off Debts. ...
To Buy a Business Partner's Shares. ...
To Pay Off Estate Taxes.
Types of Life Insurance
Life-based contracts tend to fall into two major categories:
- designed to provide a benefit, typically a lump sum payment, in the event of a specified occurrence. A common form—more common in years past—of a protection policy design is term insurance.
- Term Life provides life insurance coverage for a specified term. The policy does not accumulate cash value. Term insurance is significantly less expensive than an equivalent permanent policy but will become higher with age. Policy holders can save to provide for increased term premiums or decrease insurance needs (by paying off debts or saving to provide for survivor needs).
- Mortgage Life insures a loan secured by real property and usually features a level premium amount for a declining policy face value because what is insured is the principal and interest outstanding on a mortgage that is constantly being reduced by mortgage payments. The face amount of the policy is always the amount of the principal and interest outstanding that are paid should the applicant die before the final installment is paid.
Whole life insurance provides lifetime coverage for a set premium amount (see main article for a full explanation of the many variations and options).
- Accidental death insurance is a type of limited life insurance that is designed to cover the insured should they die as the result of an accident. "Accidents" run the gamut from abrasions to catastrophes but normally do not include deaths resulting from non-accident-related health problems or suicide. Because they only cover accidents, these policies are much less expensive than other life insurance policies.
- Such insurance can also be called accidental death and dismemberment or AD&D. In an AD&D policy, benefits are available not only for accidental death but also for the loss of limbs or body functions such as sight and hearing.
- Accidental death and AD&D policies very rarely pay a benefit, either because the cause of death is not covered by the policy or because death occurs well after the accident, by which time the premiums have gone unpaid. To know what coverage they have an insured should always review their policies. Risky activities such as parachuting, flying, professional sports, or military service are often omitted from coverage.
- Accidental death insurance can also supplement standard life insurance as a rider. If a rider is purchased, the policy generally pays double the face amount if the insured dies from an accident. This was once called double indemnity insurance. In some cases, triple indemnity coverage may be available.
Group life insurance
Group life insurance (also known as wholesale life insurance or institutional life insurance) is term insurance covering a group of people, usually employees of a company, members of a union or association, or members of a pension fund. Individual proof of insurability is not normally a consideration in its underwriting. Rather, the underwriter considers the size, turnover, and financial strength of the group. Contract provisions will attempt to exclude the possibility of adverse selection. Group life insurance often allows members exiting the group to maintain their coverage by buying individual coverage. The underwriting is carried out for the whole group instead of individuals.
Universal life coverage
- Universal life insurance (ULl) is a relatively new insurance product, intended to combine permanent insurance coverage with greater flexibility in premium payments, along with the potential for greater growth of cash values. There are several types of universal life insurance policies, including interest-sensitive (also known as "traditional fixed universal life insurance"), variable universal life (VUL), guaranteed death benefit, and has equity-indexed universal life insurance.
- Universal life insurance policies have cash values. Paid-in premiums increase their cash values; administrative and other costs reduce their cash values.
- Universal life insurance addresses the perceived disadvantages of whole life—namely that premiums and death benefits are fixed. With universal life, both the premiums and death benefit are flexible. With the exception of guaranteed-death-benefit universal life policies, universal life policies trade their greater flexibility off for fewer guarantees.
- "Flexible death benefit" means the policy owner can choose to decrease the death benefit. The death benefit can also be increased by the policy owner, usually requiring new underwriting. Another feature of flexible death benefit is the ability to choose option A or option B death benefits and to change those options over the course of the life of the insured. Option A is often referred to as a "level death benefit"; death benefits remain level for the life of the insured, and premiums are lower than policies with Option B death benefits, which pay the policy's cash value—i.e., a face amount plus earnings/interest. If the cash value grows over time, the death benefits do too. If the cash value declines, the death benefit also declines. Option B policies normally feature higher premiums than option A policies.
Permanent life insurance
- Permanent life insurance is life insurance that covers the remaining lifetime of the insured. A permanent insurance policy accumulates a cash value up to its date of maturation. The owner can access the money in the cash value by withdrawing money, borrowing the cash value, or surrendering the policy and receiving the surrender value.
- The three basic types of permanent insurance are whole life, universal life, and endowment
Senior and pre-need products
- Insurance companies have in recent years developed products for niche markets, most notably targeting seniors in an aging population. These are often low to moderate face value whole life insurance policies, allowing senior citizens to purchase affordable insurance later in life. This may also be marketed as final expense insurance and usually have death benefits between $2,000 and $40,000. One reason for their popularity is that they only require answers to simple "yes" or "no" questions, while most policies require a medical exam to qualify. As with other policy types, the range of premiums can vary widely and should be scrutinized prior to purchase, as should the reliability of the companies.
- Health questions can vary substantially between exam and no-exam policies. It may be possible for individuals with certain conditions to qualify for one type of coverage and not another. Because seniors sometimes are not fully aware of the policy provisions it is important to make sure that policies last for a lifetime and that premiums do not increase every 5 years as is common in some circumstances.
Pre-need life insurance policies are limited premium payment, whole life policies that are usually purchased by older applicants, though they are available to everyone. This type of insurance is designed to cover specific funeral expenses that the applicant has designated in a contract with a funeral home. The policy's death benefit is initially based on the funeral cost at the time of prearrangement, and it then typically grows as interest is credited. In exchange for the policy owner's designation, the funeral home typically guarantees that the proceeds will cover the cost of the funeral, no matter when death occurs. Excess proceeds may go either to the insured's estate, a designated beneficiary, or the funeral home as set forth in the contract. Purchasers of these policies usually make a single premium payment at the time of prearrangement, but some companies also allow premiums to be paid over as much as ten years.
Disability Insurance often called DI or disability income insurance, or income protection, is a form of that insures the beneficiary's earned income against the risk that a disability creates a barrier for a worker to complete the core functions of their work. For example, the worker may suffer from an inability to maintain composure in the case of psychological disorders or an injury, illness or condition that causes physical impairment or incapacity to work.
It encompasses paid sick leave, short-term disability benefits (STD), and long-term disability benefits (LTD). Statistics show that in the US a disabling accident occurs, on average, once every second. In fact, nearly 18.5% of Americans are currently living with a disability and 1 out of every 4 persons in the US workforce will suffer a disabling injury before retirement.
Individual disability insurance
Those whose employers do not provide benefits, and self-employed individuals who desire disability coverage, may purchase policies. Premiums and available benefits for individual coverage vary considerably between companies, occupations, states and countries. In general, premiums are higher for policies that provide more monthly benefits, offer benefits for longer periods of time, and start payments of benefits more quickly following a disability claim. Premiums also tend to be higher for policies that define disability in broader terms, meaning the policy would pay benefits in a wider variety of circumstances thus covering more insurances that the individual was going to purchase. Web-based disability insurance calculators assist in determining the disability insurance needed.
Employer-supplied disability insurance
One of the most common reasons for disability is on-the-job injury, which explains why the second largest form of disability insurance is that provided by employers to cover their employees. There are several subtypes that may or may not be separate parts of the benefits package: workers' compensation and more general disability insurance policies.
Business overhead expense disability ins.
Business Overhead Expense (BOE) coverage reimburses a business for overhead expenses should the owner experience a disability. Eligible benefits include: rent or mortgage payments, utilities, leasing costs, laundry/maintenance, accounting/billing and collection service fees, business insurance premiums, employee salaries, employee benefits, property tax, and other regular monthly expenses.
National social insurance programs
Workers' compensation (also known by variations of that name, e.g., workman's comp, workmen's comp, worker's comp, compo) offers payments to employees who are (usually temporarily, rarely permanently) unable to work because of a job-related injury. However, workers' compensation is in fact more than just income insurance, because it compensates for economic loss (past and future), reimbursement or payment of medical and life expenses (functioning in this case as a form of health insurance), and benefits payable to the dependents of workers killed during employment (offering a form of life insurance). Workers compensation provides no coverage to those not working. Statistics have shown that the majority of disabilities occur while the injured person is not working and therefore is not covered by workers' compensation.
In most developed countries, the single most important form of disability insurance is that provided by the national government for all citizens. In the U. S. it is Social Security (SS) specifically, several parts of SS including Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI). These programs provide a floor beneath all other disability insurance. In other words, they are the safety net that catches everyone who was otherwise (a) uninsured or (b) underinsured. As such, they are large programs with many beneficiaries. The general theory of the benefit formula is that the benefit is enough to prevent abject poverty.
In addition to federally funded programs, there are five states which currently offer state funded Disability Insurance programs. These programs are designed for short term disabilities only. The coverage amount is determined by the applicant's level of income over the previous 12 months. The states which currently fund disability insurance programs are California, New York, New Jersey, Rhode Island, and Hawaii.
Long Term Care
About one out of three consumers who call the offices of the American Association for Long-Term Care Insurance are frustrated. They want to buy protection. They even met with an agent and applied. But they were turned down by the insurance company. They call looking for our help - can they appeal - will another insurer accept them - why did this happen?
That's why we are sharing the following information about the best age to apply. So this does not happen to you.
If you don't want to read the full explanation, we'll tell you that for most people the best age to apply is in your mid-50s. You can lock in your good health and today there are policies that allow you to buy some coverage now and add to it in future years.
What is Long Term Care (LTC)
Long-term care insurance (LTC or LTCI) is an insurance product that helps pay for the costs associated with long term care. Long-term care insurance covers care generally not covered by health insurance, Medicare, or Medicaid.
Individuals who require long-term care are generally not sick in the traditional sense, but instead, are unable to perform two of the six activities of daily living (ADLs) such as dressing, bathing, eating, toileting, continence, transferring (getting in and out of a bed or chair), and walking.
Age is not a determining factor in needing long-term care. About 70 percent of individuals over age 65 will require at least some type of long-term care services during their lifetime. About 40% of those receiving long-term care today are between 18 and 64. Once a change of health occurs, long-term care insurance may not be available. Early onset (before age 65) Alzheimer’s and Parkinson’s disease are rare but do occur.
Long-term care is an issue because people are living longer. As people age, many times they need help with everyday activities of daily living or require supervision due to severe cognitive impairment. This impacts women even more since women often live longer than men and by default, they become caregivers to others.
As we age, our health changes. And once you reach your 50s it almost never gets better (even if you diet and exercise). If you are 50, chances are that you leave your doctor's office with some new prescription in hand. That drug may help you live a long life. But it's those changes in our health that can make it harder or even impossible for you to health qualify for long-term care insurance.
Here are some important facts to keep in mind:
Insurers offer discounts to applicants who are in good health and these discounts are locked in. You do not lose them if your health changes.
Each insurer establishes its own health requirements. If you have some conditions or take some medications (even common ones) you should speak with a long-term care insurance professional.
Existing health conditions may be acceptable even if you were declined several years ago.
The percentage of applicants who qualify for good health discounts declines as they age.
The percentage of applicants who are declined for health reasons increases as they age.
Premiums for long-term care insurance are based on your age when you apply.
Costs increase on your birthday. The annual rate increases are generally 2-4 percent in your 50s but start to be 6 to 8 percent per-year in your 60s.
Speak with a professional
The American Association for Long-Term Care Insurance does not market or sell insurance but they believe it always pays to speak with a professional because:
- Costs for long-term care insurance can vary among insurers.
- Discounts can vary from one insurer to another.
- Acceptable health conditions can vary.
- Long term care insurance company ratings are important in your decision.
- Covered care and policy benefits can vary.
If you are ready to compare long term care insurance cost call Trinity and request LTC information or discuss Long-Term Care insurance with one of our specialists. There is no obligation for the information and it is (of course) provided free of charge.