FAQ - Frequently Asked Questions*
*The FAQ was authored by Anthony M. Sarlese, CLU and all comments are based on his opinions and experiences.
Question : What is Life Insurance?
Answer : Life Insurance is a contract that insures the life of an individual. If that individual dies, and the policy is still in force, the specified death benefit amount will be paid to a designated beneficiary. In most cases the death benefit is income tax free to the beneficiary.
Question : Why do I need Life Insurance?
Answer : To Insure a Human Asset!
Question : What kind of Life Insurance should I buy?
Answer : Probably term, maybe some permanent. There are three factors to consider when purchasing life insurance: the amount purchased, the length of time needed for the coverage and affordability. The most important factor is the amount purchased. You should have the maximum coverage that is needed for protection. If you have less than is needed, when you die, whoever you are trying to protect will suffer a hardship.
It would be great if you can purchase all cash value permanent life insurance and have the policies paid up when you retire, have more insurance then you need later in life and reward your beneficiary with a windfall. However, in the real world most people cannot afford to purchase the maximum coverage that is needed in cash value life insurance.
Once you have decided on the amount of coverage needed then you should shop the market on what product to purchase. Ideally, you should try to purchase the product that runs the longest and fits into your budget trying never to compromise on getting less then adequate coverage. Term life insurance usually best fits this scenario. Term life insurance provides you with the maximum coverage for the lowest cost.
Some permanent cash value life insurance will be needed after retirement for final expenses and to clear up loose ends, but nothing near the amount needed during the years when a family or business depends on you, unless you have an Estate Tax problem.
Question : Isn't Term Life Insurance like renting?
What do you say to those people who say, when you purchase term life insurance you are renting, and when you purchase cash value life insurance you would be buying the insurance, and buying is always better than renting?
Answer : The argument we have made: the most important thing is to have maximum coverage at the time maximum coverage is needed. Most people cannot afford the maximum coverage in cash value life insurance, but they can afford the maximum coverage needed in term life insurance. When you retire your needs for life insurance diminish considerably. You should purchase some cash value life insurance, but most of the coverage should probably be term insurance, unless you have an Estate Tax problem.
Question : What about Estate Taxes?
Answer : If you are wealthy enough to be concerned about Estate Taxes then a second to die policy would probably fit your needs. This kind of planning, in our opinion, should only be done after age 55. It doesn't make sense to do this before age 55. Too many things could change.
Question : What is a "Second to Die Policy"?
Answer : When the first spouse dies, the surviving spouse in most cases is not subject to Estate Taxes. Estate Taxes in most case are due after the death of the second spouse. A "Second to Die Policy" pays out the death benefit upon the death of the second spouse.
Question : How much Insurance should I have?
Answer : A simple formula that works in our opinion is between 5 and 10 times your income. If you can afford 10 times, in our opinion, that is what you should have. If it is needed to protect your business, keyman, or buy/sell agreements, then your accountant should be able to tell you.
Question : What about Insurability?
If I become uninsurable, I will not be able to purchase additional insurance and Term Life Insurance will eventually run out.
Answer : Most term policies are fully convertible to a permanent policy without having to prove insurability. If you need to, then you bite the bullet and purchase some permanent insurance.
Question : Is cash value life insurance a good investment?
I was told it could be used like a pension plan and I can use the cash to live on when I retire, and I can withdraw the cash tax free. Is that true?
Answer (The following answer is solely the opinion of the author): Ever try to put a square peg in a round hole. It is amazing how many quote, " Financial Planners", literally try to do just that. To earn enough cash from a cash value life insurance policy ( both Whole Life and Universal Life) to use for retirement you would have to purchase a life insurance policy with a very high death benefit. A cash value life insurance policy with a very high death benefit would have very high mortality and expense charges that would eat into your investment. Plus, to set up a program like this would mean planning far into the future. Many things could change. If you did not strictly adhere to the payment plan it could seriously jeopardize your investment. In the early years it is not a liquid investment and if you change your mind you could lose everything you put into it. Interest rates do have an impact on cash value life insurance, and has had a serious negative impact on policies the past 10 years. Now suppose you followed the plan and started withdrawing income for retirement. Will there be anyone around who will tell you how much you can withdraw. If you withdraw too much your policy will lapse. If your policy lapses when you are age 75 or 80, all the money you withdrew above your basis will be subject to income taxes. At ages 75 or 80 how would you like to pay 40, 50, 60 thousand dollars or more of income taxes on money you have already spent? If this does not sound like putting a square peg into a round hole, I don't know what does.
Question : What type of policy is right for me?
Answer : Our theme throughout has been: "The insured should get the maximum coverage that is needed." Time and affordability are the determinants as to the type of policy purchased. For example: if the purpose of the insurance is to replace the income of the insured if the insured were to die, the insured should review the cost of purchasing the various level term policies, and choose the one most affordable. If he or she can afford 20 or 30 year term, then, that is what should be purchased. If the insured can only afford 5 or 10 year term, then, that is the best decision. The only reason we are not recommending cash value life insurance is because to purchase cash value life insurance, most people, in our opinion, will have to compromise on the amount purchased based on affordability. If the insured is purchasing life insurance to cover a loan, then the amount purchased should be for the amount and time period of the loan.
Question : What insurance company is right for me?
Answer : Term insurance is straight forward. Most insurance companies guarantee the premium level pay period, and product performance is usually not a factor of some variable. Other than choosing based on price alone, you should review some of the underwriting guidelines and conversion options. It might be difficult to get approved for some of the ultra preferred rates. InstantQuote.com has provided some guidelines to help make an informed choice.
Question : Who should I purchase my insurance from?
Answer : InstantQuote.com specialize in providing you with a selection that is not bias. To the best of our knowledge, InstantQuote.com is presenting some of the most competitive rates in the country. InstantQuote.com publishes, some general underwriting guidelines to provide you with some insight as to what you can reasonably expect. For example, after reviewing the general underwriting guidelines you might ask yourself, "Do I meet all the requirements for preferred, or does standard category seem more reasonable, or do I exceed these general underwriting guidelines altogether?". After a proposed insured completes the underwriting process and the approval is other than preferred, InstantQuote.com will provide the applicant answers as to why. We have tried to provide enough information for you to make an informed and intelligent decision.
Question : If term life insurance is purchased, what happens if someone dies? How is a claim made?
Answer : You can call InstantQuote.com who is the agent or contact the insurance company directly. All the insurance companies have a claims department. A claim form will be mailed to the beneficiary. Once the insurance company receives the completed claim form and death certificate, and if everything is in order, the benefit amount will be mailed to the beneficiary or beneficiaries. In many cases the money is placed in a Money Market fund and starts earning interest from the day of death, and the benefit arrives in the form of a checkbook. If death occurs after the contestability period, the process normally takes no more than two weeks after the forms are received.
Question : Who is InstantQuote.com Online Insurance Services?
Answer : InstantQuote.com was founded by Anthony M. Sarlese, CLU who has been selling life insurance since 1984. It is the goal of the InstantQuote.com Web Site to provide the consumer with the most convenient and economical way of buying Term Life Insurance.
Our goal is help the consumer choose a company and product based on all the factors that are considered by the insurance companies when they underwrite a case. We present a list of products based on the personal data you submit and products available. We also show all the preferred premiums and standard premiums side by side. We present an underwriting guideline chart for each Insurance Company. This allows you to match the lowest premium that fits your profile based on the underwriting criteria used by the Insurance Company.
No matter what your needs for Term Life Insurance, we welcome the opportunity to serve you and your family.
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*The FAQ was authored by Anthony M. Sarlese, CLU and all comments are based on his opinions and experiences.