Life Insurance Anderson policy provides financial protection for your loved ones in the event of your death. It can also provide peace of mind.
A company’s underwriting process determines whether it will offer you a policy and how much it will charge. It may require a medical exam or other information.
A life insurance policy is a contractual agreement between an insurer and an insured individual or entity. It provides a lump-sum benefit in exchange for a premium paid either upon death or after a specified period of time, to the beneficiaries named by the policyholder. This money can help cover financial obligations such as debts, estate taxes and funeral expenses. It can also provide income to a spouse or children in the event of the insured’s death.
Underwriting is the process a life insurance company uses to determine whether to issue or continue an insurance policy and its premium rate. This includes evaluating an applicant’s age, sex, health condition, lifestyle and family medical history. It can also consider an applicant’s occupation, hobbies and any hazardous activities they may be involved with.
A portion of a whole life insurance policy’s premium is used to invest in a side fund that earns interest. This money can be accessed through loans and partial withdrawals and grows tax deferred. These investments are often not guaranteed and are subject to market risks. If a loan is not repaid by the policyholder, the amount of the loan plus interest is deducted from the death claim payout. If a dispute over the death benefit is not settled by interpleader, the money is submitted to court and the judge decides the rightful beneficiary. A common dispute is over suicide.
Purpose
The primary purpose of Life Insurance is to provide a death benefit in exchange for premium payments. This benefit can be used by beneficiaries to replace lost income or cover expenses following the policyholder’s death. Some policies also offer the opportunity to invest and grow money.
Other purposes for life insurance include: funding retirement plans, business or partnership buy-outs in the event of a death of one of the owners, funding child’s college education, minimizing estate taxes, maximizing tax-deferred growth on investment accounts, and protecting future insurability. The amount of coverage purchased should be based on the needs of the intended beneficiaries. It is important to review these needs annually or after significant events in the policyholder’s life.
A small portion of the premium paid to a permanent life insurance policy accumulates as cash value, similar to a savings account. Some permanent policies, called whole life insurance, allow the insured to borrow against this cash value. However, if a loan is outstanding when the policyholder dies, the death benefit will be reduced by the amount of the outstanding loan.
Some life insurance policies allow the insured to name a beneficiary other than their spouse or children. This type of policy is often referred to as Stranger Owned Life Insurance (STOLI) or Corporate Owned Life Insurance (COLI), and it may be sold to a financing entity such as a corporation or a group of investors.
Types
There are many different types of life insurance policies. Term life is the most affordable, and it only lasts for a certain amount of time (typically between 10 and 30 years). Permanent policies last your entire lifetime, but they tend to be more expensive than term. Two common permanent policies are whole life and universal life.
Unlike term, these policies have a cash value component that earns tax-deferred interest. They also allow you to borrow against the policy’s cash value for a variety of purposes, such as to cover medical bills or to pay premiums. The cash value in these policies can vary, but some offer a guaranteed minimum return on the investment. Other permanent policies, such as variable universal life and indexed universal life, offer flexible premiums and a variable cash value that can increase based on interest rates.
Guaranteed issue life insurance, or guaranteed acceptance life insurance, is another specialized form of permanent coverage that allows you to bypass the medical exam and application process. These policies often have higher premiums, but they’re the best choice for those who might be turned down by a traditional policy because of health issues. They’re usually offered by insurers that use accelerated underwriting, which asks a few health-related questions and uses third-party data to make the approval decision. However, they’re not always competitive with fully underwritten policies.
Premiums
A life insurance policy’s premiums go toward covering outstanding liabilities and making payouts to beneficiaries. They also fund operating expenses for the insurance company. Some life insurers use premiums to invest in the company’s growth.
The amount of premium you pay depends on several factors, including your age, sex, health and lifestyle. The riskier your occupation, for example, the more you may have to pay to cover dangerous work-related activities. Certain hobbies and activities, like skydiving or motorcycle riding, can also drive up life insurance rates.
Other important considerations are how much coverage you want and need, the type of policy, and your underlying finances. Generally, larger policies cost more than smaller ones. As your financial obligations decrease over time, you can often reduce the amount of coverage you have and lower your premiums as well.
GEICO’s life insurance calculator can help you determine how much coverage you need based on your current and future obligations. It takes into account your annual income, family size, and immediate and long-term expenses. The calculator also allows you to compare life insurance rates across a variety of providers.
Lapsing
A life insurance policy lapses when you stop paying your premium. Lapsing has major consequences for you and your loved ones. Depending on the type of policy, you may lose the death benefit and other benefits. It also may be more expensive to reinstate the policy or to secure a new one. An experienced financial advisor can provide guidance on these decisions.
There are many reasons for a life insurance policy to lapse. Sometimes people miss payments due to forgetfulness or a change in their finances. The best way to avoid this is to set up automatic payments or calendar reminders. You should also review your life insurance annually to make sure you’re not paying for coverage you no longer need.
Many insurers allow a grace period for policyholders to pay their missed premium. The amount of time varies by company, but is typically 30 days. After the grace period is up, your policy will lapse.
Some permanent policies, such as whole and universal life, have a cash value component that accrues interest and acts like an investment. These policies usually have a feature that allows you to take out a loan from your cash value in order to cover your premium. Once the loan is repaid, your policy will be restored to its original status and the premiums will resume. However, you will be subject to surrender charges.
Reinstatement
Reinstatement of a life insurance policy is the process of bringing an expired or lapsed policy back to active status. While the exact requirements for reinstatement will vary from insurer to insurer, many require proof of eligibility and full payment of any missed premiums. Others may also ask the insured to sign a declaration that they have not filed any claims or made any losses during the period of lapse.
Reinstating a life insurance policy can be beneficial in a number of ways. For one, it ensures that your family is protected in case of an unexpected death. In addition, it can be much cheaper than purchasing a new life insurance policy. However, it is important to remember that a lapsed policy will typically carry higher premiums and fees than an active one.
Most insurers provide a grace period of 30 days following the date when a premium is due, during which time you can pay your overdue premium without being charged interest. After this period has passed, the policy will lapse and must be reinstated for coverage to resume. When reactivating a lapsed policy, you will likely be required to pay back all past-due premiums along with interest. You may also be asked to submit a new application, undergo a medical examination, or answer questions about your current health and finances.
The best way to avoid a lapse in life insurance is to keep up with your payments and understand your insurance policy’s terms. Additionally, you can consider setting up automatic premium payments to make sure that your premiums are paid on time each month.