Frequently Asked Questions About Insurance
Products
What is
Term Insurance?
Term insurance provides low cost
coverage for a specified period of time, such as 1, 5,
10 or 20 years. It is usually less expensive than other
types of insurance. If you die within the term period,
the death benefit is paid to your beneficiary. If you
survive the end of the term, protection ends unless the
policy is renewed. This type of policy does not
“accumulate” a cash value.
Term
insurance may be best for you if you . . .
•Need temporary life insurance
protection.
•Need a large amount of coverage
but have a limited budget.
•Need insurance for a specific
purpose, such as insuring a key person in a small
business.
The benefits
to you are . . .
•It’s a low cost way to provide
protection (at least initially).
•It’s flexible. Most policies can
be exchanged for permanent insurance without a medical
exam or additional health information required.
•It’s a good way to supplement
other coverage when you have added financial
responsibilities, such as a mortgage, tuition expenses,
etc.
•In some cases the death benefits
paid to the beneficiary are tax free.
What is Permanent
Insurance?
Permanent life insurance, unlike
term insurance can provide protection for a specified
number of years or your entire lifetime. Permanent
insurance “accumulates” a cash value. Let’s say, you
chose a policy that allows you to pay through age 65.
When you turn 65, Golden State will pay you the cash
value if you surrender the policy. If you die while the
policy is still in force, the death benefit is paid to
your beneficiary.
Another benefit of permanent
insurance is that you can borrow against it. If you want
to keep the death benefit and the policy is paid up, in
some circumstances, you no additional premium payments
would be required.
This money can be used for future
goals -- a down payment, education costs, etc. However,
this money is not immediately available upon the
purchase of the policy. You must pay into the policy for
a period of time to build a sufficient cash reserve that
you borrow against.
Permanent policies also enjoy
favorable tax treatment. Cash value accumulation is
generally tax deferred which means that you do not pay
taxes on any earnings in the policy as long as the
policy remains in force. And because the policy loans
are generally not considered taxable income, money can
be borrowed against the policy without having to pay
tax.
The two most popular permanent
life insurance policies are Whole Life, which pays
dividends* and Universal Life, which is a flexible
policy. At this time, Golden State only offers Whole
Life policies.
*Dividends are not guaranteed.
Permanent
insurance may be best for you if you . . .
•Need long term life insurance
protection.
•Need to accumulate a cash value to
provide funds for life’s major events.
•Need to take advantage of the
tax-favored treatment of cash value life insurance
policies.
The benefits
to you are . . .
•Unlike term insurance, whose
premiums usually increase over the years, permanent
insurance premiums (although initially more expensive
than term) do not increase and the policy builds a cash
value. Remember earnings, and certain withdrawals may
qualify for tax-favored treatment.
•You have access to cash through
policy loans.
•If you cancel the policy, the
accumulated cash value is yours to use as you please.
Just remember that Golden State may impose surrender
charges and the government may impose taxes.
Some
things to think about . . .
•Most permanent policies do not
offer a conversion option. Chose you plan carefully.
•Loans and any unpaid loan
interest reduce the death benefit. This can affect the
amount paid to your beneficiary.
What are
the benefits of purchasing any life insurance plan?
•Income Replacement – Whether you
purchase a term or a permanent life insurance plan, if
you are a primary wage earner in your household, you
need a life insurance plan. In the event of your
premature death, a life insurance plan can provide
income for your family.
•Mortgage Protection – Home
ownership is the American Dream and one of the smartest
investments you can make. But it is also a long-term
debt. If your income contributes to part or the entire
mortgage, paying the mortgage could be a tremendous
burden for your loved ones in the event of your
premature death.
The death benefit from your policy
could be used to pay off the mortgage so that your
family may continue living in their current home.
•Retirement Income for your Spouse
– Your spouse can use the benefit to maintain a
comfortable standard of living.
What type
of Life Insurance policy do I need?
When assessing your need for life
insurance, you should take into consideration whether
your need is temporary or permanent. A good analogy is
to compare the need for insurance to a need that is
common to all of us; the need for shelter.
Most people fall into two
categories – owners and renters. Term insurance can be
compared to renting a home and permanent insurance can
be compared to owning a home. Each has its advantages
and disadvantages.
Only you
know what’s best for your situation.
Permanent Insurance (OWN) Term
Insurance (RENT)
vs.
Guaranteed level premiums Premiums
increase with age.
