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Term Life Insurance
What would happen to your family’s finances if a parent met a premature death? Would the surviving spouse and children have enough monthly income to pay the bills, pay the mortgage, and maybe fund a college education?
Penn Health Insurance Solutions, Inc. represents more than ten term life insurers and we know how to best find an affordable solution to your needs.
Please take a look at these FAQs and feel free to call us at anytime at 215-794-7418.
Q). What is Term Life?
A). Term Life is an insurance contract designed to last for a period of ten to thirty years. Should you die within the term covered, the insurer guarantees your beneficiaries an income tax-free payment, called the death benefit. Term life does not have any cash value, which is why it is usually affordable. Term Life only pays out if the insured person dies within the covered term.
In most cases, term life insurance is purchased to serve one critical need: providing financial security for a family should Dad or Mom meet a premature death. We all want to provide household funds for our surviving spouse and for our children. We want to be sure our surviving family members have enough annual income to pay the mortgage, pay bills, and perhaps fund a college education.
Term life can be viewed similarly to homeowner’s insurance for your house. If your house burns down, the insurance company pays out so that your family can build a new home. Your family finances are not wiped out because you have the insurance. Term Life protects family finances from being wiped out should Dad or Mom meet a premature death.
Q). How is term life priced?
A). Quotes are based on key factors such as age, gender, current health, whether or not you smoke, the dollar amount of coverage you wish, and length of term coverage.
Term life is usually quite affordable. Most persons will end up paying the equivalent of $1.50 to $4.00 per day for coverage, depending on the above-mentioned variables.
A death benefit payout from the insurer is generally a lump-sum income-tax free payment. Some insurers offer even further discounted rates for those persons willing to take some of the insurance payout in a ten or twenty year monthly annuity. The theory here is the insurance company saves money by paying out 25% of the death benefit in a lump sum and the remainder in monthly installments. Because the insurer is saving money, they pass on the savings to you in the form of premiums that are often 20% less than the premiums for those who would like the death benefit payout in a lump sum.
We would be happy to discuss your options anytime – 215-794-7418.
Q). Do all insurers charge the same rates for coverage?
A). No. Even though the policies offered may be nearly identical, some insurers choose to offer annual rates at 20% to 50% less than other insurers. Most consumers are unaware of just how great pricing variation is among insurers.
If you purchased a policy from an agent who represents only one insurer, chances are you are grossly overpaying for coverage. Penn Health Insurance Solutions, Inc. represents more than ten term life insurers and we will vigorously shop the marketplace to deliver best value.
Q: Can’t I just use the internet to find best quotes for term life?
A: You can try, but Penn Health Insurance Solutions, Inc. will probably do a better job. We know which insurers offer best pricing. We understand the quirks of medical underwriting associated with each insurer. Insurers’ quotes vary based on a person’s health history, including cholesterol levels, blood pressure, chronic illness, death before age 70 of a sibling or parent... lots of things like this. We’ll interview you, take notes, and then we’ll shop the marketplace to get best value for you based on your unique story.
Q). I purchased some term life a few years back. Can I switch out of it to save money, or at least get a larger death benefit for the same annual premium?
A). Yes. For most persons, switching insurers is an easy process. For example, let’s assume you are five years into a twenty-year term contract with an overpriced insurer. We can probably save you money (or buy a larger death benefit) by simply switching you into a new fifteen-year contract – which gives you coverage for the same remaining years as your current twenty-year contract.
Q). Which term contract is right for my family – 10, 15, 20, or 30 years?
A). This depends on your current age, the age of your children, your health, and your financial assets. Generally speaking, the younger you and your family are, the longer the term contract needed. Most persons under age 40 or so need a term of at least twenty years and a good-sized death benefit.
For those ages 45 and older, perhaps a ten to fifteen year contract might be enough cover your family through that critical period when your children are approaching college age and your mortgage is almost paid off.
Q). How much coverage is prudent?
A). For most families, figure coverage at about fifteen to twenty times your household’s annual spending needs.
If your household needs $50,000 per year to pay all bills, then try to go for coverage of at least $750,000 to $1,000,000 on the family’s main breadwinner. The insurance theory here, called the income approach, tells us that in the event of a death, the surviving spouse uses the insurance proceeds to purchase bonds that create an annual income for surviving family members.
If we took a $1,000,000 insurance payout and purchased bonds that yielded about 5% after taxes, then we would generate about $50,000 per year. So, it might take $1,000,000 or so to generate $50,000 in income.
If a family has other financial resources, (mutual funds, stocks, bonds, real estate) which could be deployed to help pay household bills, then perhaps we might not need as much insurance coverage here.
Q). Won’t Social Security Survivor Income help our family with monthly payments if Dad or Mom dies prematurely?
A). Somewhat, assuming you qualify, but the income is temporary and not enough for a family to maintain its present lifestyle. Generally speaking, Social Security Survivor Income offers a monthly payment to a non-working spouse and to children, subject to a family maximum income cap.
Children receive an income up to age 18 or 19, but the surviving spouse’s income is terminated once the youngest child reaches age 16. The surviving spouse might then need to return to work until he or she is age 62 to age 67, when the spouse can now tap into social Security Retirement Income.
As a shorthand estimation, most families would probably receive about $1,500 per month for a limited number of years from Social Security, should a parent meet a premature death while children are not yet 19. For a more exact answer for your household, take a look at a recent annual mailing from Social Security where it states your monthly income.
Social Security can possibly contribute to family survivorship income, but it is not nearly enough to fund a family’s financial needs.
Q). Do both spouses need coverage?
A). If your family depends on income from both spouses, then both spouses should have coverage. If one spouse does not work, coverage should still be considered, but the death benefit might be smaller than if the spouse was working. Proceeds from a smaller policy for a non-working spouse can be used to provide child-care funds.
Q). I have Group Term Life at work, so I’m already covered, right?
A). Some corporations offer group term life, where premiums are deducted from your paycheck. These plans generally offer a woefully inadequate $50,000 to $250,000 in death benefit.
Should you ever leave your job or become laid-off, your access to this coverage would discontinue, leaving you uninsured and forcing you to purchase new insurance at an older age, when premiums can be significantly higher.
In discussions with clients, we examine either purchasing additional individual term life to supplement the group term policy -- or replacing the group term policy with a larger individual term policy totally controlled by you, not controlled by your affiliation with your company.
Q). Once my children are grown, my mortgage is paid off, and I’m at retirement age or older, do I need to own life insurance?
A). For most middle-class families, once your children are grown, your house is paid off, and you are nearing retirement, you may not have a great need for life insurance anymore. This assumes your family now has enough financial resources so that if one spouse dies, the surviving spouse will have enough income for monthly needs.
If this is not the case for your family, if retirement assets are tight, then there would be a strong argument to obtain some kind of life insurance to help the surviving spouse here.
For wealthier families, sometimes a permanent life insurance policy can help serve estate planning and retirement income needs.
Penn Health Insurance Solutions, Inc. can help with planning and guidance here.
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