Q.
Is it the rule of thumb that you need life insurance
coverage equaling 5 to 10 times your income?
A. Yes. However, needs vary based on family status,
savings and lifestyle. You should review your coverage
on those terms.
Q. Does term insurance provide
protection for temporary needs?
A. Yes. Term insurance is ordinarily purchased to
provide temporary coverage for a known period of time.
Term insurance generally provides a lower initial
cost.
Q. Are there advantages to buying
life insurance at a early age rather that waiting
until after marriage or children?
A. Yes. The premiums are lower when you are younger.
Q. Is permanent insurance
initially more expensive than term insurance?
A. Yes. While it is true that the initial premium
can be higher than that of term insurance, there are
additional features and benefits built into permanent
life insurance that make it a greater value for the
dollar spent.
Q. Should I buy term life or permanent life
insurance?
A. Your life insurance needs are dependent upon your
particular situation. Term life insurance is more
appropriate and cost effective for temporary needs
which may be a period of five to thirty years. On
the other hand, permanent life insurance is a better
fit for permanent or long term needs. There would
be some instances where it would be more suitable
to have a combination of both term life and permanent
life insurance.
Q. What is the difference between whole life
and universal life insurance?
A. Whole life and universal life are both types of
permanent life insurance; however, universal life
has flexible premiums and an adjustable death benefit.
Another difference between these two types of insurance
is that the cash value of a universal life insurance
policy is dependent on the current interest rates.
If interest rates go up, so will the cash values.
Whole life insurance premiums are fixed level and
the death benefit is not adjustable. A whole life
insurance policy's cash value is not very interest
dependent.
Q. Should I purchase life insurance on my
spouse?
If your spouse contributes to the family's annual
income then at the very least an adequate protection
would be needed to supplement his or her income should
he or she die. If your spouse is a homemaker and does
not have an income, then life insurance protection
may be needed to cover daycare and other costs associated
with the loss of one parent. Use our life insurance
needs calculator for additional help on estimating
the amount of life insurance your spouse needs.
Q. What is the tax treatment of life insurance
death benefit proceeds?
Life insurance death benefit proceeds are generally
not subject to income taxation provided they are paid
in a lump sum; however, if a settlement option is
used other than the lump sum option, then the interest
earned on the principal death benefit is taxable.
Although life insurance proceeds are generally exempt
from income taxation, they are subject to estate and
inheritance taxes.
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