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Life Insurance Information Library
Intro to Life Insurance
Buying Life Insurance: What Kind and How Much?
Types of Insurance
Key Terms and Definitions
How Much Insurance Do I Need?
Other Types of Life Insurance
Intro to Life Insurance
Life insurance is an important component of a sound financial plan. Buying insurance involves asking a variety of personal lifestyle and financial questions. If you are not already working with an insurance professional, you may want to consider the advice of a fee-for-service financial planner who can offer you an objective review of your insurance options. When you decide on what you want, there are many solid insurance companies to choose from. Consult your library or an independent insurance professional for companies with the highest ratings from the four ratings agencies: AM Best, Duff Phelps, Standard & Poor's, and Moody's.
Term insurance is basic, inexpensive coverage with premiums that increase over time and have no cash value.
Consider a term policy that is renewable and convertible to whole life should your needs change.
Whole life provides level coverage with level premiums. A portion of those premiums goes into tax-deferred savings.
Check rates on whole life policies and compare them to other investment opportunities.
Variable life offers control over your investments.
Premiums on variable policies are fixed, but face value and the value of your investments can fluctuate.
Universal life offers more investment options, but is highly sensitive to interest rate changes. Universal variable life is highly flexible, but offers no guarantees beyond the original face value.
Insurance needs are based on income replacement and personal preferences.
Buying Life Insurance: What Kind and How Much?
Think about which members of your household should be covered by life insurance. (It's typically a good idea to insure anyone who earns income.)
Use a Financial Needs Calculator to determine an adequate amount of insurance coverage for your needs
Review the various types of life insurance policies available (see below), the most common being Term and Universal Life. Decide which type of policy will meet your financial goals.
Buying Life Insurance
Conventional wisdom says that life insurance is sold, not purchased. In other words, some people are reluctant to discuss the importance of owning life insurance, and others are simply unaware of the need to have life insurance. Although many large companies provide life insurance as part of their benefits package, this coverage may be insufficient.
Who needs life insurance? If there are individuals who depend on you for financial support, or if you work at home providing your family with such services as child care, cooking, and cleaning, you need life insurance. Older couples also may need life insurance to protect a surviving spouse against the possibility of the couple's retirement savings being depleted by unexpected medical expenses. And individuals with substantial assets may need life insurance to help reduce the effects of estate taxes or to transfer wealth to future generations.
Types of Insurance
is the most basic, and generally least expensive, form of life insurance for people under age 50. A term policy is written for a specific period of time, typically 1 to 10 years, and may be renewable at the end of each term. Also, the premiums increase at the end of each term and can become prohibitively expensive for older individuals. A level term policy locks in the annual premium for periods of up to 30 years.
Non-Medical Term insurance
is the same thing as normal term insurance, but the application process and underwriting time are much different. Non-medical insurance only requires a short application and the underwriting decision is usually made within minutes. This avoids the hassle of a large application, medical exams, urine samples and weeks of waiting for a decision.
Declining Balance Term insurance
, a variation on this theme, is often used as mortgage insurance since it can be written to match the amortization of your mortgage principal. While the premium stays constant over the term, the face value steadily declines. Once the mortgage is paid off, the insurance is no longer needed and the policy expires. Unlike many other policies, term insurance has no cash value. In this sense, it is "pure" insurance without any investment options. Benefits are paid only if you die during the policy's term. After the term ends, your coverage expires unless you choose to renew the policy. When buying term insurance, you might look for a policy that is renewable up to age 70 and convertible to permanent insurance without a medical exam.
combines permanent protection with a savings component. As long as you continue to pay the premiums, you are able to lock in coverage at a level premium rate. Part of that premium accrues as cash value. As the policy gains value, you may be able to borrow up to 90% of your policy's cash value tax-free.
is similar to whole life with the added benefit of potentially higher earnings on the savings component. Universal life policies are also highly flexible in regard to premiums and face value. Premiums can be increased, decreased or deferred, and cash values can be withdrawn. You may also have the option to change face values. Universal life policies typically offer a guaranteed return on cash value, usually at least 4%. You'll receive an annual statement that details cash value, total protection, earnings, and fees. Drawbacks to this type of insurance include higher fees and interest rate sensitivity. Universal policies include up-front fees as well as ongoing administrative fees totaling as high as 5% to 7% of your premiums. You may also find your premiums increasing when interest rates decline.
generally offers fixed premiums and control over your policy's cash value. Your cash value is invested in your choice of stock, bond, or money market funding options. Cash values and death benefits can rise and fall based on the performance of your investment choices. Although death benefits usually have a floor, there is no guarantee on cash values. Fees for these policies may be higher than for universal life, and investment options can be volatile. On the plus side, capital gains and other investment earnings accrue tax deferred as long as the funds remain invested in the insurance contract.
Life insurance is the most aggressive type of policy. Like variable life, you control your investment in mutual funds. However, there are no guarantees on universal variable policies beyond the original face value death benefit. These policies are probably best suited to affluent buyers who can afford the risks involved.
Key Terms and Definitions
Face Value -- The original death benefit amount.
Convertibility -- Option to convert from one type of policy (term) to another (whole life), usually without a physical examination.
Cash Value -- The savings portion of a policy that can be borrowed against or cashed in.
Premiums -- Monthly, quarterly, or yearly payments required to maintain coverage.
Beneficiary -- The individual(s) or entity (e.g., trust) that is designated as benefit recipient.
Paid Up -- A policy requiring no further premium payments due to prepayment or earnings.
How Much Insurance Do I Need?
A popular approach to buying insurance is based on income replacement. In this approach, a formula of between five and ten times your annual salary is often used to calculate how much coverage you need. Another approach is to purchase insurance based on your individual needs and preferences. The first step is to determine your unique income replacement needs.
Currently, a large portion of your income goes to taxes (insurance benefits are generally income tax free) and to support your own lifestyle. Start off by determining your net earnings after taxes. Then add up all your personal expenses such as food, clothing, magazine subscriptions, club memberships, transportation expenses, etc. The remainder represents annual income that your insurance will need to replace. You'll want a death benefit amount which, when invested, will provide income annually to cover this amount. Then, you should add to that the amounts needed to fund one-time expenses such as college tuition for your children or paying down mortgage or debt.
Income replacement for nonworking spouses is an important and often overlooked insurance need. Coverage should provide for your costs for day care, housekeeping, or nursing care. Add to this any net earnings from part-time employment.
Finally, estimate your own "final expenses" such as estate taxes, uninsured medical costs, and funeral costs.
Other Types of Life Insurance
Survivorship life insurance
(also referred to as last-to-die or second-to-die) is a unique type of contract that insures the lives of two people. It pays a death benefit upon the death of the second insured. Therefore, it is typically less expensive than two individual policies. Survivorship life is often used for estate planning, where it may be possible to potentially leverage today's dollars -- via insurance premiums -- into a potentially significant death benefit that can be used to fund estate taxes, create wealth for future generations, or benefit a charity. These policies may be available if one insured is medically "uninsurable."
First-to-die life insurance
insures the life of at least two people and pays a benefit upon the death of the first insured. This policy is useful for covering a mortgage or other large debt obligation where there is more than one debtor. In addition, it can be an ideal tool for funding a buy-sell agreement within a closely held business.
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Sunshine Motor Club Terms and Conditions
Emergency Roadside Assistance
Services are available 24/7 365 days a year by calling the toll-free Dispatch Services Center at 1-800-451-0459. Auto Knight will arrange to send help to your disabled vehicle from a participating service provider. Auto Knight will issue payment ti the service provider directly for covered dispatch expenses.
: Auto Knight will tow the Member’s vehicle with one tow up to 25 miles to the nearest repair facility. Towing is limited to $100.00. Additional mileage is available and can be negotiated prior to service dispatch. Accident towing is included. Service is limited to one tow or service call per disablement. No back to back towing for the same disablement.
Flat Tire Change
: Auto Knight will dispatch a service person to change your vehicle’s damaged tire with a usable inflatable spare. If, for any reason, the spare is not usable, the lug nuts cannot be removed or the vehicle has two flat tires with one usable spare, towing will be provided in accordance with the towing benefit provisions.
Battery Jump Start
: Auto Knight will send an authorized service provider to provide a battery jump and minor adjustments to start the car, even if the car is in your own driveway.
: An emergency fuel (3 gallons) and / or fluids supply will be delivered to the member’s vehicle in immediate need. The cost of the fuel and / or fluids is the Member’s responsibility at time of delivery.
Mechanical First Aid
: Any service requiring minor adjustments, exclusive of parts, to enable the vehicle to get back on the road. The cost of parts is the Member’s responsibility at time of delivery.
: If the Member’s keys are locked inside the vehicle Auto Knight will send an authorized contractor to unlock the vehicle.
Trip Itinerary and Concierge
: Customer road trip vacations will be more carefree and economical when using Auto Knight’s Trip Routing Service. The Member calls Auto Knight Customer Service toll-free at 1-888-223-1173, Monday through Friday between 9:00 a.m. and 5:00 p.m. Pacific Standard Time, lets us know of their travel plans and Auto Knight will provide a Trip Routing Kit that will provide the best way to go and see the sights they are interested in seeing. Discount coupons are also available to registered customers upon request.
Limits of Service
Emergency Roadside Assistance is intended to assist members whose vehicles are disabled by providing a toll-free Emergency Dispatch Service number to get help sent to them. This service may not be used as a substitute for regular maintenance necessary to keep a vehicle in good condition. Up to four (4) covered service occurrences per member per membership year are allowed. Pre-existing conditions prior to membership activation are not covered.
Roadside Assistance is limited to: 1.) Non-commercial vehicles weighing less than 12,000 lbs/5,540 kg., 2.) Towing up to the lesser of 25 miles or up to $100 per occurrence, 3.) up to $100 benefit for each Lock Out, Mechanical First Aid, Flat Tire, Fluids/Gas Delivery, and Battery services, and 4.) disablements within the United States and Canada. Roadside Assistance is valid for three hundred sixty five (365) days from the Membership effective date.
Coverage Does Not Include
The purpose of the Roadside Assistance benefit is to provide service in common emergency situations. Coverage does not include:
Service if member is not with the disabled vehicle. However, do not remain with the vehicle if it is unsafe to do so.
Towing from or service while at an auto repair shop or service station to another facility.
Towing or service on roads not regularly maintained.
Towing of a vehicle off a boat dock or marina.
Towing of vehicles for disposal (i.e.: junkyard).
Towing at the direction of a law enforcement officer related to traffic obstruction, impoundment, abandonment, illegal parking, or other violations of law.
Towing or service in areas not regularly traveled, such as vacant lots, beaches, open fields, or other places which would be hazardous for service vehicles to reach.
Service to taxicabs, tractors, boats, trailers, recreational vehicles and trucks, dune buggies, ATV’s, competition vehicles, stolen vehicles, unlicensed vehicles, vehicles with expired safety inspection sticker, illegally parked or impounded vehicles.