LIFE COURSE CONTENTS
Special Life Insurance Considerations for Young Families
Life Insurance Considerations for All Life Situations

CONSUMER ALERT

Retained Asset Accounts and Life Insurance:
What Consumers Need to Know About Life Insurance Benefit Payment Options

Life insurance is intended to assist with the financial burdens brought on by the passing of a loved one. While life insurance policies provide for a single payment of the death benefit, policies may also offer other payout options that are intended to fit your needs and those of your family. The National Association of Insurance Commissioners (NAIC) suggests you consider the following information if a life insurance company offers you a Retained Asset Account as an option to a single payment. Read more . . .

Questions on Retained Asset Accounts (RAA) may also be directed to your state's insurance department. Use the NAIC State Web Map to locate your state's website or call 1.866.470.NAIC (6242).

Special Life Insurance Considerations for Young Families

Having children is often the ‘catalyst’ for buying life insurance, as young parents recognize the awesome, life-long responsibility they have assumed.

  • When purchasing life insurance, consider covering both spouses – even if one stays at home and is not employed. In the event of the stay-at-home parent’s death, the surviving spouse will need to shoulder all the responsibilities of the household.
  • In determining the amount of life insurance to purchase, make sure to take into account your full childcare costs – especially for children under 5 years old and for kids with special needs. Take the time to estimate these costs carefully, and factor them into your decision-making process.
  • Weigh the costs/benefits of purchasing whole life vs. term life insurance as part of your financial planning strategy. Whole life insurance policies build cash value and also pay a death benefit. But they are more expensive. If you can’t afford whole life insurance right now, but think you may want it in the future, you may want to consider term life insurance with a conversion option that will let you change to a whole life policy for a fee when you are ready.
  • Or you may want to purchase term life insurance, which offers death benefit protection for a specified time period. For example, term life insurance may be appropriate to provide coverage during your child-rearing years or while paying off a mortgage. Term life premiums increase as you age. Term life is typically less expensive in your younger years than permanent life insurance, which covers you for your entire life and typically has level premiums. You may also want to consider purchasing a combination of term life insurance and whole life insurance.
  • Remember to update your policy to include your children as beneficiaries, especially in the event of a divorce. You might want to consider naming a trustee for your children in the unfortunate event that both parents die before the children turn 18.
  • Some people purchase life insurance for healthy newborn babies because their insurability is high and the premium costs are low. If health issues develop later in life, individuals may not be eligible for life insurance coverage.

Here are some tips to prudently control life insurance costs:

  • Many life insurance plans offer discounts for improved health (quitting smoking, lowering cholesterol, etc), so make sure to inquire about these potential benefits.
  • If you are in the military, consider Serviceman’s Group Life Insurance (SGLI) – a program of low cost group term life insurance automatically available to all military members. This policy is automatically activated unless the service member opts out.
    • If you have decided to purchase additional life insurance outside of the SGLI, review the list of exclusions to the policies, and make sure that the benefits will be payable even if the death is a result of war, the action of a military force or traveling on a non-commercial aircraft.
    • Individuals who sell life insurance at military installations are required to obtain authorization from the Department of Defense, so ask to see the agent’s permit or license.
  • Finally, remember the impact of key factors that can affect your life insurance premiums. These include:
    • Pre-existing and/or chronic health problems, such as diabetes, heart disease or cancer
    • Poor health habits, such as smoking and excessive drinking
    • Your driving record
    • Engaging in dangerous hobbies, such as skydiving, skiing or rock climbing

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Life Insurance Considerations for All Life Situations

There are two basic types of life insurance.

The first is term insurance, which covers you for a term of one or more years. It pays a death benefit only if you die in that term. Term insurance generally offers the largest insurance protection for your premium dollar. It generally does not build up cash value, and it may not be renewable at the end of the term or may cost considerably more to continue.

The second type is permanent life insurance, which goes by several names, such as universal life, variable universal life and whole life. Permanent insurance may provide long-term financial protection. These policies include both a death benefit and, in some cases, cash savings. Because of the savings element, premiums tend to be higher.

A number of factors affect life insurance premiums. These include:

  • The age you purchase your policy. The older you are, the more expensive the premiums.
  • Your overall health. Life insurance companies typically ask you about your medical history, request access to medical records and even obtain blood and urine samples for testing.
  • Pre-existing and/or chronic health problems, such as diabetes, heart disease, cancer or sexually transmitted diseases may prevent you from getting life insurance or place you in a high-risk pool at greater cost.
  • Poor health habits, such as smoking and excessive drinking. Be aware that insurance companies may look back and consider these behaviors for the past five years.
  • Engaging in dangerous hobbies, such as skydiving, skiing or rock climbing
  • Your driving record, in terms of accidents, DWI/DUI citations, claims and tickets. The better your driving record, the better rates you’ll receive for your life insurance.
  • Your geographic area. Life insurance companies have access to regional data that document mortality rates and life expectancy, and they use that data to calculate the rates they offer.

Some of these factors are in your control. Others are a function of your genetics, occupation or location. Either way, it’s important for you to be educated on these issues so that you can make the best insurance decisions to fit your life.

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