What is Life Insurance?
Life insurance is a contract between an insured and an insurer, whereby the insurer promises to pay a designated beneficiary a sum of money in exchange for a premium, upon the death of the insured person. Life insurance is generally classified in two categories: Term Life and Permanent Life.
Term Life Insurance
Term Life Insurance typically is used for financial protection from death until a specified period of time, usually 10, 20, or 30 years. For example, until you reach the age of retirement, or until children graduate from college, or until a mortgage is paid off. If the insured dies during the term, a beneficiary or beneficiaries receives the full face value of the policy, tax free. The monthly premiums are guaranteed for the life of the term so they remain fixed, or level, throughout.
If death does not occur during the term the policy owner can let the policy lapse, may have the option to convert to permanent insurance, or continue the policy at a higher monthly premium. Some policies also have a "Return-of-Premium" option that can be included at an additional cost, where the policy owner receives all paid premiums back at the end of the term.
Common uses for term life insurance are:
- Income replacement for a family to maintain their standard of living
- Pay for children's education
- Pay off significant debt such as a mortgage, credit cards, and medical
- Buy-Sell or Key-Person agreements within a business
- Pay for burial and other final expenses
Term life insurance generally provides the most value because it offers the highest death benefit for the lowest cost. Texas Benefits Advisors generally recommends the term life option in most circumstances.
Permanent Life Insurance
Permanent Life Insurance provides lifelong protection and not just for a set duration. Examples are Whole Life and Universal Life. These types of policies build a 'cash value' that accumulates as a return on a portion of your premiums that the insurance company invests. The cash value builds tax-deferred, and can be used for loans or withdrawals, or surrendered prior to death.
Premiums for permanent life insurance are typically higher compared to term-life because it is intended to last for a lifetime. They are often level for life. Permanent life insurance can be useful in some unique circumstances, but generally has very little flexibility. Some scenarios where it may be preferable is estate planning, income continuity at an advanced age, or replacement of a deferred annuity.
How are premiums determined?
The premium you pay for your life insurance is primarily based on current age, current health, medical history, tobacco use, and perhaps your occupation. Higher face amounts will usually involve completion of a medical history questionnaire and medical exam as part of the application. The exam usually includes height/weight and blood pressure check, as well as giving blood and urine specimens to test for cholesterol, nicotine, and drug/alcohol use, among other things. In some instances it may require additional medical tests such as an EKG. The cost of the medical exam is usually paid by the insurance company and not the applicant.
The results from the medical exam are then submitted to the insurance company underwriters to evaluate, and additional medical records may need to be provided as they consider your case. Premiums are ultimately based on the risk the insurance company assumes to insure an individual, so the higher the risk the higher the premiums. After the underwriting evaluation the applicant is assigned a 'risk class', and some common labels for these are Preferred Plus, Preferred, Standard Plus, and Standard. Tobacco use will normally add additional risk, and therefore a higher premium. In extreme cases, the insurance company may elect not to offer coverage, or it could become too cost-prohibitive for the applicant.
The following link provides a useful tool we use to help estimate how much life insurance coverage is right for you and your situation....
Life Insurance Calculator
Please Contact Us today for a free, no-obligation review of your life insurance needs. We're here too help whether you're looking to get life insurance for the first time, or you'd like to compare existing coverage in order to replace or add additional coverage.
What insurance companies do you represent?
Each company Texas Benefits Advisors represents is A+ or A rated by A.M Best for financial strength. A.M Best is America's leading, independent rating organization for life insurance. We've specifically chosen these companies because some provide favorable rates for people with certain lifestyle or medical risks. As an example, some comanies will provide more favorable rates to an applicant with high cholesterol and/or blood pressure that is stabilized through medication, and is in otherwise good health. Others may provide more favorable rates to people who smoke but have no medical conditions.
By representing a variety of life insurance companies, it gives us the flexibility to obtain the most affordable coverage for you based on your unique situation and lifestyle. Some of the well-known companies we represent are as follows, along with their A.M. Best rating....
Banner Life Insurance Company - A+
Genworth Financial Companies - A
John Hancock - A+
Lincoln Financial Group - A+
MetLife - A+
Mutual of Omaha - A+
Prudential - A+
Transamerica - A+
Voya Financial(formerly ING) - A
Please Contact Us today to see how we can help!
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