September serves as Life Insurance Awareness Month. We all want what is best for our families and life insurance provides our loved ones with peace of mind as well as security from any end-of-life and final expenses. Before we begin to learn about what exactly life insurance is and how beneficial it is for our family, let's understand some terminology used in life insurance policies.
Life Insurance Terms
Administrator: The person (usually the spouse, domestic partner, or close relative) that the court appoints to manage the estate of person who dies with a Will. The administrator is also called the personal representative of the estate.
Beneficiary: The beneficiary of a life insurance policy is the person, organization or trust that you define as receiving the life insurance payout. If you take out a $10,000 policy and name your child the sole beneficiary, when you die, they get $10,000. You can also assign multiple beneficiaries to your policy and define just how much of the policy they’ll receive. For example: John takes out a $25,000 life insurance policy. He names his wife and his two sons as the beneficiaries of his policy, but he specifies that his wife will receive 50% of the payout and each of his sons will receive 25% of the payout. John dies, and his wife gets $12,500, while each son gets $6,250.
Cash Value: For most whole life insurance policies, when you pay your premiums some of that money goes into an investment account. The money in this account is the cash value of that. If you cancel a policy, you can receive the cash value of the policy as payment instead of the face value.
Death Benefit: A death benefit is the money paid upon the death of the insured. It’s usually a payout of the full coverage amount defined in the policy (a $10,000 policy pays a $10,000 death benefit).
Decedent: The person who has passed.
Estate: All liabilities as well as assets like your home become your "Estate". You would have to take inventory of all things you own and decide how your heirs and creditors would receive assets.
Executor: A person named in a Will and appointed by the court to carry out the dead person's wishes. The executer is also called the personal representative of the estate.
Face Value: The face value of the policy is simply the coverage amount the policy is worth. So, the face value of a $10,000 policy is $10,000. This is usually the same amount as the death benefit.
Living Trust: A trust set up during the life of a person to distribute money or property to another person or organization.
Personal Representative: The administrator or executor that the court appoints to manage the estate.
Probate: The court process for distributing a dead person's assets, paying debts owed and settling the financial affairs of people when they pass.
Successor: Anyone who has the legal right to receive property of a person who dies, either under the Will or the Probate Code.
Trust: An agreement where property is given to someone to be held for the benefit of another person.
Will: A legal document with Instructions about what will happen to their property after death.
"Do I really need life insurance?"
"If you were to die, would your family struggle to pay for
your funeral, mortgage or daily living expenses?"
What End of Life Expenses to Expect
A study done by Experian in 2016 determined 73% of Americans are going to die in debt. Unless a family member cosigned with the person who passed, debt is typically not inherited by any of the surviving family members and is paid off by the estate.
What may come out of pocket for the living family members (with no insurance policies in place) may be the following:
- Funeral Expenses - The California average is about $11,777.
- Nursing Home Care/Hospice Care - This can easily reach $1,000 for 24 hour care, BUT Medicaid may be able to cover 100%.
- Medical Bills - Depending on medical conditions and treatment, this cost only adds stress to an already difficult time.
"How much life insurance do I really need?"
"The amount of insurance depends on the standard
of living you wish to assure your dependents."
The Two Basic Types of Life Insurance:
What is Term Life Insurance?
- Available terms can range from 10 to 30 years
- Beneficiaries receive larger death payouts than whole life insurance policies
- Benefits transfer to beneficiaries tax-free
- Can easily be converted to Whole Life Insurance
- Lower payments based on how young you are
- May be a challenge to renew your policy upon expiration
- No ability to cash out for end of life expenses
- Protects your family from a loss of income
- Temporary policy with an expiration date
- Typically costs less than Whole Life Insurance
What is Whole Life Insurance?
- Burial costs and other final expenses are covered
- Builds cash value, which could be used while you are alive
- Coverage will continue as long as payments are made
- Death Benefits transfer to beneficiaries tax-free
- Death benefit amount can never decrease
- The cost (Premiums) do not increase as long as payments are made
- Smaller death payout
- Typically higher in cost than Term Life Insurance
"I'm pretty healthy, I'll wait until I am older to get Life Insurance."
"You pay less if you get insurance when you are younger and besides
you'll be covered should any unexpected health issues arise."
Think of Life Insurance as a Form of Investment
Just as some invest into the stock market and/or the real estate market, whole life policies build cash value through a portion of the money used for premiums through interest. Over time, this sum slowly grows to the point where you can borrow from it tax-free. Keep in mind, you will have to pay interest on this loan and any remaining balance will be deducted from the death benefit your loved ones are set to receive.
If the above-mentioned funds become big enough, you may have the option to trade the policy for an annuity. This would provide you with monthly payments for the rest of your life or when the funds are exhausted. While this may sound like a great idea, you would have to keep in mind, there is a chance your insurance policy will not pay out the death benefit to your loved ones.
Another option available with Whole Life Insurance is being able to surrender (sometimes known as "selling") your policy to the insurance company. By doing so, you void your insurance coverage and while you will get a sum of money, it would not be as much as the amount the insurance company would have paid out when you pass. While thinking of life insurance as an investment, understand this should not replace your savings or 401k.
How To Pick the Right Policy
Which policy best aligns for your own goals and/or family's goals? When it comes down to figuring out which policy is best, most will initially pay for term life insurance until their career reaches an established point in-which more of their earned money is used towards converting their term policy to whole life.
SafeAmerica Credit Union has partnered with Trustage® Life Insurance to help credit union members like you protect the people who matter most in their lives. Any amount of coverage can make a difference.
TruStage® Life Insurance can help give you peace of mind today and provide an income-tax free cash benefit for your family. It can help pay expenses you might leave behind like funeral costs, mortgage payments or unpaid debts. TruStage helps make it easy to compare insurance and explore options you can afford—so you can make a good decision today for your family:
TruStage® Life Insurance is offered by TruStage Insurance Agency, LLC and issued by CMFG Life Insurance Company, PO Box 61, Waverly IA 50677‑0061. The insurance offered is not a deposit and is not federally insured or guaranteed by your credit union.
© 2020 TruStage Insurance Agency