Life Insurance Basics

When comparing life insurance quotes online, people often come up with more questions than they had prior to doing their research.

Some of the most common questions are:

  1. What is Life Insurance?
  2. Why Do I Need it?
  3. How much life insurance do I need?
  4. What type of Life insurance is best for me?
  5. How long do I need life insurance?
  6. And so on.

Let’s answer some basic questions to take some of the confusion out of the buying process. If your questions are not answered here, feel free to visit our FAQ page or contact us if you need help.

Before we get started, here’s some interesting information about the origins of life insurance:

“It is believed that the first life insurance policy ever sold dates all the way back to London in 1536. The policy was bought by Sir William Gybbons and it was a one year insurance policy. Gybbons survived the one year period but 3 days later he was accidentally run over by a wagon in town and died from his injuries.

The insurance company refused to pay the claim because the death occurred after the one year period. However, Gybbon’s wife sued the insurance company and won! So as you can see, there is a long history of life insurance and much has changed over the last 500 years.”

What is Life Insurance? Life Insurance Simplified

life insurance basicsIn its simplest form, life insurance is a contract between you and the insurance company. The insurance company agrees to a pay a selected beneficiary (your loved one(s) a sum of money (the “death benefit”) if you die. Your commitment is to pay the premiums to keep your policy in good order.

In a recent LIMRA (Life Insurance and Market Research Association) study, 85% of consumers agree most people need life insurance, but less than 54% of Americans own a life insurance policy.

So where is the disconnect? Why don’t more people own life insurance? The answer lies within the new values of Americans that place other financial priorities above buying life insurance:

According to the LIMRA study:

  • 29% of Millennials said saving for vacation was more important
  • 23% Gen Xers said paying for recreational activities were more important such as; going out to eat, movies or shopping
  • 49% of those 65 and older said paying for expenses such as Internet, cable and cell phones were more important

You see, most people know they need life insurance but they put off buying it because they feel other “material” things are more important.

Who wants to talk about death anyway? It’s an uncomfortable conversation right?

This brings us to our next most popular question:

Why Do I Need Life Insurance?

Most of us live our lives as though we will never die. We never planned to be in a head on car crash, never thought we would get cancer or never intended to have a heart attack, but stuff happens.

You need life insurance if…

  • You are a parent that wants to make sure your children are provided for and their college expenses will be covered.
  • You want to be certain your spouse can pay the mortgage and household bills without you.
  • You do not want to burden your loved ones with end-of-life expenses such as medical bills, burial costs or estate taxes.
  • You have debts that you do not want to pass on.
  • You have a family business that you want to protect.
  • You have elderly parents with medical bills, loans or debt

How Much Life Insurance Do I Need?

Every person is unique and everyone has different needs. As a rule of thumb, if you are working and have a spouse or family, the recommended insurance coverage is 8 to 10 times your annual salary.

But what if I don’t have a family?

If you have someone in your life you care about – your mom, dad, brother, sister or your cat – and don’t want to leave them with your financial obligations (we all have them). When you die, you will need a policy as well. How much?

Simply add your liabilities and then subtract them from your assets to determine your coverage amount. Here’s an example:

Final expenses+(Loans+Credit Cards+mortgages)-Assets=Coverage Amount

I have no financial dependents, everything is paid for. I just want to pay for my funeral and leave a little cash for my family

Some people just want to make sure their funeral expenses are not a financial burden for those they leave behind. They also might want to leave a legacy or cash for their family. If this is your goal, the calculation is very straightforward:

Legacy (cash)+Final Expenses=Coverage Amount

What if I have no financial dependents, no family and no liabilities?

You need to get a life!

Just kidding. You might be young and single now but there might come a day where you will meet someone special and even have a family. Then you will probably need life insurance. It’s not critical to buy some now while you’re a loner, but the best time to buy a policy is when you are young and healthy. It’s really cheap too!

What Kind Of Life Insurance Should I Buy?

How Long Do I need it?

There are basically 2 types of life insurance: Term and Whole Life.

Term insurance provides coverage at a level, fixed cost for a specific number of years. Most life insurance companies offer term options of 10, 15, 20, 25 or 30 years.
The most common term is 20 years. I don’t know why but 90% of the people who have bought insurance from me, have bought 20 year term.

With that being said and since I have been in the insurance business for more than 20 years, many of those people who bought 20 year term 20 years ago, have come back to me wanting to buy another policy. Even though their kids are fully grown and their mortgage is almost paid down, they still feel the need to have some life insurance. So keep this in mind when thinking about how long you need a policy.

If you’d like to get a personalized quote for term insurance, you’re in the right place. Simply fill out the form on this page. Your info is private and there is no obligation.

Whole Life or Permanent Insurance?

The debate about whether whole life insurance is a good insurance option has been going on for many years. Most financial Guru’s hate whole life insurance and recommend you only buy term.
This topic could be a very lengthy so I won’t go into it here. I will simply tell you how whole life or permanent insurance works and if you would like to talk about it more, you can call me.

Permanent insurance is designed to provide permanent coverage for as long as you live; hence the name, whole life insurance. As long as you pay your premiums on time your coverage will not expire no matter how long you live.

Permanent life insurance also includes a “cash value” component that allows you to build up savings in the policy over time. This cash value can be used take out loans or borrow and pay for things like a car, a vacation, or anything you choose.

The amount you borrow will reduce your cash value and death benefit. But many people like the freedom of being able to build a forced savings plan and the ability to access their cash all included within one policy.

If you’d like to get a personalized cost estimate for permanent insurance, you’re in the right place. Contact us at: 914-633-1717.

The trade off for lifetime coverage and these fancy features is that permanent insurance costs significantly more than term insurance (4 to 5 times more). For most people this means that an affordable permanent policy will have a lower death benefit compared to a term policy with the same premium.

Now that you know the life insurance basics and got your quotes – you did run some quotes, didn’t you?  You have an idea how much it will cost. Pick up the phone and speak to one of our agents at: 914-633-1717