Life Insurance: Frequently Asked Questions
Life insurance exists to protect the people who depend on you financially. These answers explain the basics so you can talk with an agent from an informed position.
Who needs life insurance?
Anyone whose death would cause financial hardship for others: parents of young children, spouses who share debts or a household income, business partners, or those supporting a family member with special needs. If no one depends on your income, you may need little or none.
What is the difference between term and permanent insurance?
Term insurance covers you for a set period, such as 10, 20 or 30 years, and pays only if you die in that period. It is generally the least expensive way to buy a large amount of coverage. Permanent insurance, such as whole life or universal life, lasts for your lifetime if premiums are paid and builds cash value, but costs considerably more.
How much coverage do I need?
A common approach is to add up what your family would need: replacing income for a number of years, paying off debts, funding education, and covering final expenses, then subtract existing savings and coverage. Rules of thumb based on a multiple of income are only a starting point.
Are life insurance proceeds taxable?
Death benefits paid to a beneficiary are generally not subject to federal income tax. They may, however, be included in your estate for estate tax purposes if you own the policy, which matters mainly for larger estates. Ownership and beneficiary designations are worth planning carefully.
What about the cash value in a permanent policy?
Cash value grows tax-deferred, and you can often borrow against it. But withdrawals and loans can reduce the death benefit and may have tax consequences, particularly if the policy lapses. Understand the fees and the long-term cost before buying.
Who should be the beneficiary?
Name a primary and a contingent beneficiary, and review them after marriage, divorce, births or deaths. Beneficiary designations generally override a will, so keep them current.
Can I get coverage through my employer?
Many employers offer group life insurance at low cost, but coverage is often modest and may not follow you if you change jobs. Treat it as a supplement.
To see how life insurance fits into your estate and financial plans, learn about our planning services or contact us directly.
This article is general information, not tax, legal or investment advice for your specific situation.