LIFE INSURANCE

Life insurance offers an infusion of cash for dealing with the adverse financial consequences of the insured's death. Life insurance enjoys favorable tax treatment unlike any other financial instrument. Death benefits are generally income-tax-free to the beneficiary.

Why do you need life insurance?

  • To pay final expenses
  • To cover children's expenses
  • To replace the spouses's income
  
  • To pay off debts
  • To buy a business partner's shares
  • To pay off estate taxes

7 Major Types of Life Insurance

  • Term Life Insurance
  • Whole Life Insurance
  • Universal Life Insurance
  • Indexed Universal Life Insurance
  • Survivorship Life Insurance
  • Long Term Care Insurance
  • Disability Life Insurance


Life Insurance Coverage

Long term care insurance (LTC) is for anyone who is incapable of performing two of six daily activities and who needs nursing-home care, home-health care, and personal day care due to the inabilities. It is provided either at home or in a facilities such as nursing homes and assisted living. There are six activities of daily living (ADLs), and an individual is qualified to receive the benefits if a person needs assistance with two or more activities.

The six ADLs are: Bathing / Dressing / Toileting / Transferring to bed or chair / Eating / Continence

LTC is designed and focused on individualized services that promote the patient’s or the policyholder’s independence and quality of life. Because of the increase in life expectancy, LTC is encouraged to many elder people.

“ We provide Long Term Care policy through Nationwide Financial.
Find out more about Nationwide’s Long Term Care policy”.

Attachements:

  1. Care Matter II Client Guide
  2. Care Matter II Client Overview
  3. Care Matter II FAQ
  4. Long Term Care Rider

If you’re not sure whether or not you can afford life insurance, but you are sure you want one, a term life insurance is a great option.
Term life insurance promises payment of a stated death benefit during a specified term. Once the term expires, you can renew it, convert it to another form of life insurance, or allow it to terminate. The cost of term life insurance is relatively lower because it has no value other than guaranteed death benefit. In other words, it has no saving component like a whole life insurance does.

The premium of term life insurance is determined based on the age, health, and life expectancy. If the policyholder dies within the specified policy term, the insurance company pays the face value of the policy.
However, if the policyholder dies after the policy the policy expires, there is no benefit.
The policyholder has the option to renew the policy, but the premium will be recalculated based on the condition of policyholder at the time of renewal.

Because the policyholders pose less risk to the insurance company, the premium is lower than other types of life insurance.
Below is a list of key takeaways about term life insurance:

  • Term life insurance pays a guaranteed payment of a stated death benefit to the policyholder’s beneficiaries during a specified term.
  • There is no value other than the guaranteed death benefit. In other words, there is no saving component as found in a whole life insurance.
  • Premiums are based on the policyholder’s age, health, and life expectancy.
  • If the policyholder dies within the policy term, the insurance company pays the face value of the policy.
  • If the policy expires before the policyholder’s death, the insurance company pays $0.
Key Terminology:
  • Death benefit: a tax-free portion of cash paid out to the policyholder in the event that you die. A $500,000 coverage means $500,000 death benefit.
  • Beneficiary: The person or organization receiving the death benefit. It can be your spouse, kids, a trust, or a friend. There can be more than one beneficiary.
  • Premium: Amount you pay for your policy. It can be monthly, quarterly, or annually.

Whole life insurance is a type of a permanent life insurance policy. Unlike term life insurance, you can build up the cash value, earn the guaranteed cash value, and use however you want. Also, if you have participating whole life insurance, you can also earn dividends which increased the death benefit and the cash value of the policy. With the dividends, you also have the option to use it to pay the premium. In addition, while you have the saving component by growing the cash value, interest may accumulate on a tax-deferred basis.

Below is a list of benefits of whole life insurance:

  • Protection for life
  • Level premiums
  • Cash value
  • Guaranteed death benefit

Just like term life insurance, the premium of whole life insurance is calculated based on the policyholder’s age, health condition, life expectancy, and the value of the policy. Therefore, the premium is likely to be much less when the policyholder purchases the policy at 18 than he purchases at 55.

Universal life insurance is another type of permanent life insurance with an investment savings component and comparatively low premium. When compared to whole life insurance, a universal life insurance provides more flexibility. For example, policyholders have more flexibility to adjust the premiums and death benefits.

The cost of insurance varies by policy based on the policyholder’s age, insurability, and the insured risk amount. Collected premiums that is excess of the insurance cost accumulate within the cash value component of the policy.

Below is a list of key takeaways:

  • The cost of this type of insurance is minimum amount of a premium payment that is needed to maintain the policy active.
  • The cash value portion of a universal life insurance accumulates by earing the interest based on the current market or minimum interest rate. - Policyholders can be exempted from paying taxes when they borrow against the accumulated cash value.

Throughout the policy period, the policyholder will experience increasing cost of universal life insurance since the premium increases as the policyholder ages. However, a sufficient accumulated cash value can fill the gap of increasing cost of insurance.

In an indexed universal life insurance policy, one part of premium is used toward annual renewable term insurance, and the other portion goes to the cash value of the policy after fees are deducted. The cash value is accumulated by interest rate based on increases in an equity index. The gains are then applied based on a participation rate set by the insurance company. Indexed universal life insurance is considered to offer more growth potential but with less risk. Also, even though the cash value increased based on the market index, policyholders are safe with guaranteed minimum interest rate even if the market index dives.

Below is a key list of takeaways:

  • Indexed universal life policies offer greater potential, flexibility, and tax-free gains.
  • It is important to note that there are caps on returns and no guarantees of premium and market returns.
  • Generally speaking, investor with a large upfront investment seeking options for tax-free retirement matches the benefits of indexed universal life insurance.

The potential insureds have to take into the consideration that despite the benefits of indexed universal life insurance, these policies can be expensive to maintain in case premiums tend to rise sharply.

Unlike other types of life insurance policies, survivorship life insurance is different in a way that the policies are written on two lives – a wife and a husband. Because of this reason, the death benefit is paid out only after both policyholders die. When one of the policyholders die, the survived one must continue to pay the premium in order to keep the policy active.

Because of the nature of , the purposes of policyholders who purchase this type of insurance are very unique and specific:

  • * Paying estate taxes – Once both policyholders die, the death benefit received by the beneficiaries can be sued to pay the estate taxes leaving less burden to the heirs.
  • * Caring for a child – When there is no one else to take care of your left child, this policy can provide the necessary money to fund the child.
  • * Leaving a legacy – Survivorship life insurance can leave your name to causes that you want to support even after you are gone.

Advantages of survivorship life insurance:

  • Investment of premium
  • Cheaper premium
  • Easier to buy
  • Builds estates
  • Preserves estates

Disability insurance is a type of insurance that provides income when the policyholder becomes unable to work and earn money due to a disability.

There are two types of disability policies: Short-Term Disability (STD) and Long-Term Disability (LTD):
  1. Short-Term Disability policies (STD) have a waiting period of 0 to 14 days with a maximum benefit period of no longer than two years.
  2. Long-Term Disability policies (LTD) have a waiting period of several weeks to several months with a maximum benefit period ranging from a few years to the rest of your life.
Disability policies have two different protection features that are important to understand.
  1. Noncancelable means the policy cannot be canceled by the insurance company, except for nonpayment of premiums. This gives you the right to renew the policy every year without an increase in the premium or a reduction in benefits.
  2. Guaranteed renewable gives you the right to renew the policy with the same benefits and not have the policy canceled by the company.
    However, your insurer has the right to increase your premiums as long as it does so for all other policyholders in the same rating class as you.
In addition to the traditional disability policies, there are several options you should consider when purchasing a policy:

Additional purchase options
Your insurance company gives you the right to buy additional insurance at a later time.

Coordination of benefits
The amount of benefits you receive from your insurance company is dependent on other benefits you receive because of your disability. Your policy specifies a target amount you will receive from all the policies combined, so this policy will make up the difference not paid by other policies.

Cost of living adjustment (COLA)
The COLA increases your disability benefits over time based on the increased cost of living measured by the Consumer Price Index. You will pay a higher premium if you select the COLA.

Residual or partial disability rider
This provision allows you to return to work part-time, collect part of your salary and receive a partial disability payment if you are still partially disabled.

Return of premium
This provision requires the insurance company to refund part of your premium if no claims are made for a specific period of time declared in the policy.

Waiver of premium provision
This clause means that you do not have to pay premiums on the policy after you’re disabled for 90 days.

Let Cornerstone Insurance Services, LLC help you choose a policy that will fit your individual needs. Protecting your assets, whether personal, business, or both, is our goal. A well-chosen policy can lessen the impact of some of life’s most common, yet unforeseen perils. We’re here to help when you are considering Disability insurance.

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