Life Insurance provides financial protection to your family. As the family grows, one of the main concerns is protecting them from financial burdens should you or your spouse pass away. Should you or your spouse unexpectedly pass, is your family financially secure? Most families today are two income households. Are you able to:
- pay the funeral expenses?
- pay the medical bills?
- pay the mortgage?
- pay for your child's schooling?
These are just a few of the important questions that you and your spouse should be asking. The proceeds from a life insurance policy can go a long way towards stabilizing a family’s finances. Immediate expenses can be paid and debts can be met. Long term financial needs, such as educational expenses and mortgages can be paid. The proceeds of life insurance can assist in replacing the deceased’s income and provide financial help to the loved ones left behind.
Life Insurance Options
All life insurance is not the same. Life insurance can be divided into two basic categories — “term” and “permanent”. Term life insurance provides coverage for a specific period of time, while permanent life insurance provides coverage for the insured person’s entire life. Both types pay what is known as a death benefit, which is the amount of money paid out upon the insured’s death. This money is paid to the person or persons designated by the insured. These people are known as the beneficiaries.
Term Life Insurance
Term life is the simplest form of life insurance. It provides a pure death benefit. The policy will cover the insured for a specified period of time (the “term”), such as 10 or 20 years, or until a specified age. If you purchase term life insurance at a younger age, you can usually buy more at a lower cost. Term insurance generally does not build a “cash value.” At the end of the term period, the policy typically terminates without any remaining benefits or monetary value. Term insurance is ideally suited to cover specific needs that may decrease or disappear over time.
There are three major types of term life insurance:
- Level
The death benefit stays the same throughout the policy term and premiums typically remain constant. - Increasing
The death benefit increases by specific amounts and at intervals as specified in the policy. Premiums normally increase along with the benefit. - Decreasing
The death benefit decreases periodically as specified by the policy. Premiums typically remain constant throughout the policy term.
Permanent Life Insurance
Permanent life insurance is designed to provide protection for the entire life of the insured person, as long as the premiums are paid. There are many different versions and variations of permanent insurance.
- Traditional Whole Life
This policy, sometimes called ordinary life or straight life, covers the insured for life as long as premiums are paid. This is the most basic permanent policy. Typically, the premium remains the same throughout the life of the insured. Some variations of these policies permit the premiums to be paid for a shorter period, such as 10 years, 20 years or until age 65. - Universal Life
Sometimes referred to as Flexible Premium Adjustable Life, this policy is more flexible than a traditional whole life policy. Premium payments may vary within certain limitations stated in the policy. For example, premium payments may be increased, decreased or skipped altogether, as long as the policy’s accumulated value remains sufficient to keep the policy in force. Also, the death benefit may be raised or lowered more easily with un versal life than with a traditional whole life policy. Universal Life policies are interest sensitive, meaning the accumulated value earns interest. Reduced interest rates may require additional premiums to maintain the policy in force. Make sure you understand which values are guaranteed by the contract and which are not. Universal life policies are appropriate for individuals who need the guarantees provided by a whole life policy, but want the possibility of earning higher rates of interest on their policy values. - Variable Life
Variable Life differs from traditional whole life and universal life insurance in that the policyowner chooses how to invest the policy’s accumulated value. There are typically a variety of choices for allocating the funds, including stock, bond, and money market accounts. The prospectus should be studied carefully, as it will describe the variable policy and the available investment options. In a variable life policy, the death benefit and accumulated value will vary according to the amount of premiums paid and the performance of the policyowner’s investment choices. If the chosen investments perform favorably, the accumulated value and death benefit may increase. If the investments perform poorly, the policy’s accumulated value and death benefit may decrease and possibly be lost. The policyowner bears this risk.
Applying for Life Insurance
Once you select a specific life insurance policy, the first step in securing coverage is to complete and submit an application. Most policy applications require you to furnish detailed personal and medical information. The information is reviewed by the company, to determine whether you meet their guidelines. They will consider all of the information on your application and possibly details from medical exams or tests, so it is extremely important that all application questions are answered fully and accurately. Your application will become part of your policy contract, and any inaccurate or incomplete responses could lead to your policy being terminated or a claim being denied.
Choosing your beneficiary
When you fill out the application for life insurance, the company will usually ask you to choose a beneficiary. This is the person to whom the benefits will be paid upon your death. A beneficiary is most often a close family member, though non-family members, estates, trusts, etc., can also be designated. The beneficiary can usually be changed later at the request of the policyowner.
Factors that influence premium rates
Life insurance premiums can vary from company to company. Several factors will influence your premium rates. The factors may include:
• Amount of coverage
• Type of coverage
• Age and gender
• Health and lifestyle (tobacco use, alcohol use, regular exercise, good driving record, etc.)
• Dangerous activities (skydiving, scuba diving, motor vehicle racing, rock climbing, etc.)
• Family medical history (heart disease, cancer, etc.)
Collecting Death Benefits
In order to process a death claim, most companies require a properly completed claim form, a certified copy of the insured’s death certificate and the policy contract. If the policy has been lost, the company will typically require the beneficiary to complete a lost policy certification. If the insured dies during the contestable period or from accidental or unusual means, the company may require additional documentation such as police reports, autopsy r ports or medical records. Once the company receives satisfactory proof of loss, it has 30 days to pay the claim before interest will start to accrue.
Questions?
If you have questions, the Consumer Services Division of the Department of Insurance is here to help.
Toll-free:855-408-1212
North Carolina Department of Insurance
3200 Beechleaf Court
Raleigh NC 27604