Life Insurance

What is an irrevocable trust?

An irrevocable trust can't be modified or terminated without the permission of the beneficiary. The grantor, having transferred assets into the trust, effectively removes all of his rights of ownership to the assets and the trust. This is the opposite of a revocable trust, which allows the grantor to modify the trust.

Can you transfer a life insurance policy?

If you want your life insurance proceeds to avoid federal estate tax, you may wish to transfer ownership of your life insurance policy to another person or entity. There are two ways to do it. You can transfer ownership of your policy to any other adult, including the policy beneficiary or you can create an irrevocable life insurance trust and transfer the policy to the ownership of the trust.

What happens if there is no living beneficiary when the policy owner dies?

In case all beneficiaries have died, the proceeds will be paid to the insured individual's estate. It will pass through probate and will be subject to procedures and charges determined by court.

Define Life Insurance

Insurance that pays out a sum of money either on the death of the insured person or after a set period.

What does front-loaded mean?

Life insurance policy in which the bulk of the expense charges are applied as deductions against premium payments throughout the period the premiums are paid.

Is term life insurance permanent life insurance?

No

Does life insurance go through probate?

Probate makes sure that a deceased person's property goes to the right beneficiaries, and it also ensures that the estate pays all creditors. ... The proceeds from life insurance policies do not pass through probate as long as named beneficiaries are available to take the payout.

Define Convertible Life Insurance

Some term life insurance policies are described as being "convertible". A conversion provision allows the owner of the term life policy to convert from the term life insurance policy to a permanent life insurance policy during a specified period of time without having to show that the insured is in good health. Typically the permanent life insurance rate will be significantly greatly than the term life insurance rate.

What type of life insurance do employers generally provide employees?

Term Life Insurance

Define Term Life Insurance

Term life insurance is designed to provide financial protection for a specific period of time, such as 10 or 20 years. With traditional term insurance, the premium payment amount stays the same for the coverage period you select. After that period, policies may offer continued coverage, usually at a substantially higher premium payment rate. Term life insurance is generally less expensive than permanent life insurance.

Define Cash Value

The cash value of an insurance contract, also called the cash surrender value or surrender value, is the cash amount offered to the policyowner by the issuing life carrier upon cancellation of the contract. This term is normally used with a life insurance or life annuity contract.

What is the difference between permanent life insurance and term life insurance?

The dollars you pay into term life insurance premiums are only there to provide a death benefit to your beneficiaries if you die during a specified term, while money you invest in whole life insurance premiums builds cash value that you can use later in life or that will add to the death benefit payout.

What happens to the cash value of life insurance when one dies?

The life insurance company will absorb the cash value, and your beneficiary will be paid the policy's death benefit. Unlike term life, which pays a death benefit if you die sometime within the policy's term, permanent life insurance (such as whole life) covers you no matter when you die.

What is the difference between whole life insurance and universal life insurance?

There are two main types of permanent life insurance: Whole life insurance - Caters to long-term goals by offering consumers consistent premiums and guaranteed cash value accumulation. Universal life insurance - Gives consumers flexibility in the premium payments, death benefits and the savings element of their policy.

Is employer provided life insurance portable?

Typically no, it generally stays with the employer. However some employer term life policies are convertible to individual whole life policies.

What need does Whole Life Insurance address?

Whole life can be used as an estate planning tool to help preserve the wealth you plan to transfer to your beneficiaries.

Define Whole Life Insurance

Whole life insurance is a type of permanent life insurance designed to provide lifetime coverage. Because of the lifetime coverage period, whole life usually has higher premium payments than term life. Policy premium payments are typically fixed, and, unlike term, whole life has a cash value, which functions as a savings component and may accumulate tax-deferred over time.

Is cash value life insurance the same as whole life insurance?

Whole life, variable life and universal life are all types of cash-value life insurance. ... Cash-value insurance has higher premiums than term insurance because part of the premium pays for the death benefit coverage and part of it goes toward the policy's cash value.

Do you pay taxes on cash value of life insurance?

If you withdraw cash from a cash value life insurance policy, the amount of withdrawals up to your basis in the policy will be tax free. Generally, your basis is the amount of premiums you have paid into the policy less any dividends or withdrawals you have previously taken.

What is Conversion Privilege?

Conversion privilege is an insurance policy in which the insurer is required to renew or update the policy regardless of the insured's health. An insurance policy with this type of provision allows the insured to switch to a different type of policy without submitting to a physical examination.

What is a term life insurance conversion credit?

If you convert qualifying term life insurance to a permanent life or universal life insurance policy, the new policy's first year premium will be reduced. The amount of reduction is based on the premiums you have paid on your existing term coverage during the 12 months prior to converting.

What need does Term Life Insurance address?

Term life insurance proceeds can be used to replace lost potential income during working years. This can provide a safety net for your beneficiaries and can also help ensure the family's financial goals will still be met—goals like paying off a mortgage, keeping a business running, and paying for college. It's important to note that, although term life can be used to replace lost potential income, life insurance benefits are paid at one time in a lump sum, not in regular payments like paychecks.

Define Universal Life Insurance

Universal life insurance is a type of permanent life insurance designed to provide lifetime coverage. Unlike whole life insurance, universal life insurance policies are flexible and may allow you to raise or lower your premium payment or coverage amounts throughout your lifetime. Additionally, due to its lifetime coverage, universal life typically has higher premium payments than term.

What need does Universal Life Insurance address?

Universal life insurance is most often used as part of a flexible estate planning strategy to help preserve wealth to be transferred to beneficiaries. Another common use is long term income replacement, where the need extends beyond working years. Some universal life insurance product designs focus on providing both death benefit coverage and building cash value while others focus on providing guaranteed death benefit coverage.

How does the cash value of life insurance work?

Part of your premium pays for the insurance and part of the premium payment will go toward your policy's cash value. The life insurance company generally invests this money in a conservative-yield investment. As you continue to pay premiums on the policy and earn more interest, the cash value grows over the years.