What is the definition of life insurance?
Life insurance is a contract between you and an insurance company, designed to provide financial protection in the event of your untimely death. You pay regular premiums to keep the policy active, and in return, the insurance company agrees to pay a death benefit to your designated beneficiary(ies) if you pass away while the policy is in effect. In most cases, this payout is income tax-free, offering peace of mind that your loved ones will be financially supported during a difficult time.
At Ai Merchantry®, we are committed to helping you secure the right life insurance coverage, ensuring your family’s financial future is protected. Explore how life insurance can provide security and stability for your loved ones when they need it most.
How do I know how much life insurance I need?
There’s no single answer to how much life insurance you need, as everyone’s reasons for purchasing coverage vary. The right amount for you depends on your current and future financial situation, as well as your goals for the insurance proceeds. These goals could include covering final expenses, providing estate liquidity, leaving a charitable legacy, paying off debts, saving for your children’s education, or replacing your income for a set number of years. To determine the right coverage, consult with your insurance agent to ensure it aligns with your financial needs and objectives.
What does life insurance cover?
The primary reason for purchasing life insurance is to protect your loved ones from potential financial hardships after your passing. Life insurance provides a cash death benefit to your designated beneficiaries if you pass away while the policy is active. These benefits are generally income-tax free and can be used for any purpose. Common uses include paying off debts, covering final expenses and funeral costs, meeting tax obligations, replacing lost income, and creating a lasting financial legacy for your family.
At Ai Merchantry®, we understand the importance of ensuring your family’s financial security and are committed to helping you find the right coverage to meet your needs. Explore how life insurance can provide peace of mind and financial protection for your loved ones when it’s needed most.
Do I need life insurance?
Most people can benefit from having some level of life insurance. For single individuals without dependents, a basic policy can provide immediate funds to cover final expenses. For those with spouses or children, life insurance can offer a financial safety net, helping loved ones maintain their standard of living in the event of a death. Additionally, for individuals with significant estates, life insurance can serve as a practical tool to generate cash for covering estate taxes and other related expenses.
Why is life insurance for children important?
Purchasing life insurance for a child does more than just ensure funds are available to cover final expenses in the unfortunate event of their premature death. It also helps safeguard your child’s future insurability. Since no one can predict future health conditions, having a permanent life insurance policy in place from an early age means the coverage can last a lifetime, provided premiums are paid, even if your child later develops a health condition that might make them uninsurable.
Is life insurance necessary for young adults?
While young adults may not yet have families depending on them financially, they typically haven’t accumulated enough assets to cover final expenses, such as funeral or burial costs. Life insurance can provide that protection and help pay off debts, ensuring parents aren’t left with these financial burdens. Additionally, since life insurance premiums are based on age when the policy is issued, purchasing coverage at a younger age means locking in more affordable rates that can last a lifetime. Indexed Universal Life (IUL) policies also offer tax-free retirement savings, making them a smart option for younger adults. By pairing an IUL with a term policy that includes living benefits, they can protect their retirement funds, even if a serious illness arises later in life.
Are there different types of life insurance?
There are various options when it comes to purchasing life insurance. For some, a term life policy may be the best fit, offering coverage for a set period at a fixed rate. For others, a whole life or universal life policy might be more beneficial, providing lifelong coverage along with a built-in cash value savings component. Life insurance can also serve as a tool for retirement planning or securing your children’s or grandchildren’s future insurability. An independent insurance agent can guide you in assessing your coverage needs and crafting a plan that meets your goals while staying within your budget.
Mortgage protection
Is there life insurance to cover a mortgage payment?
Absolutely! Mortgage protection insurance provides life insurance coverage specifically designed to ensure your mortgage payments will be taken care of if you pass away unexpectedly. This can give your loved ones peace of mind, knowing they won’t have to worry about losing their home during an already challenging time. Some mortgage protection policies also include coverage for homeowners who become disabled or are diagnosed with a covered critical illness, offering additional financial security.
Retirement
How can I use life insurance to fund retirement?
There are several ways life insurance products can be used to help fund your retirement. Options like whole life or universal life policies allow you to build cash value within the policy that can accumulate over time. Another popular option is to explore retirement protection products from Ai Merchantry®, which offer the benefits of annuities or indexed universal life (IUL) policies. These options provide insurance protection while offering tax-deferred growth or the potential to link returns to a market index, creating the opportunity for enhanced financial growth during retirement.
Term life insurance
What happens when term life insurance expires?
If you outlive your term life insurance policy, you may have the option to extend coverage for a new term. However, it’s important to note that premiums can increase significantly when doing so. This is because the original premiums were partially based on your age when the policy was first issued, while the new premiums will reflect your current age at the time of renewal. You might also have the option to convert your expiring term policy into a permanent one. Be sure to consult with your insurance agent to explore the best options for your specific policy and needs.
Critical illness insurance
Can I get life insurance if I have a critical illness?
Unfortunately, if you wait to obtain critical illness insurance until after being diagnosed with a critical illness, you won’t be eligible for coverage for that specific illness or health event.
Critical illness insurance is available to individuals who have not yet been diagnosed with a serious illness at the time of applying for coverage. Purchasing this type of policy while you're still healthy offers clear advantages: once you complete any necessary underwriting and select your policy, you'll pay premiums to maintain coverage. If you are later diagnosed with a covered critical illness, the insurance company will provide a lump-sum cash benefit.
Additionally, under the Affordable Care Act, you can continue to maintain health insurance coverage as long as premiums are paid, since providers cannot discriminate based on pre-existing conditions.
Disability insurance
Why do I need disability insurance?
A diagnosis of cancer, heart disease, or another critical illness can be overwhelming, especially when you’re concerned about how to safeguard your family from financial challenges if something happens to you. While having a critical illness may reduce the amount of life insurance you can qualify for and may result in higher premiums, it doesn’t make coverage impossible to obtain. Since none of us can predict the future, purchasing life insurance while you’re young and healthy is a smart choice. It can help you secure lower rates and give you peace of mind, knowing your family will be protected, no matter what lies ahead.
Universal life insurance
What happens if I miss a premium payment for my universal life insurance policy?
A major advantage of universal life insurance policies is their flexible premium structure. As cash value builds up within the policy, the policyholder may have the option to occasionally skip a premium payment without causing the policy to lapse immediately. The cost of insurance would be covered by withdrawing from the accumulated cash value, allowing the policy to remain in force. However, frequently relying on this flexibility or doing so for an extended period may eventually require additional premium payments to keep the policy active in the long run.
What is the cost of life insurance?
Many people delay purchasing life insurance, assuming it will be too expensive. In reality, life insurance is often more affordable than expected. The cost of your policy depends on several factors, including your age and health when you apply, the type of policy you choose (e.g., term vs. permanent), and any optional features you add. Your independent insurance agent can help you explore options that fit both your coverage needs and your budget.
What does life insurance cost? Many people delay buying life insurance because they assume it will be too expensive. However, life insurance is often more affordable than they realize. The cost of your policy depends on several factors, including your age and health at the time of application, the type of policy you choose (e.g., term vs. permanent), and any optional add-ons. Your independent insurance agent can help you find coverage options that suit both your insurance needs and your budget.
How are life insurance premiums determined?
The premiums you’ll pay to keep your life insurance policy active will depend on several factors, including the type of policy, your age, health, and lifestyle. In general, permanent life insurance has higher premiums because it provides lifelong coverage, unlike term insurance, which is temporary. Premiums for a young, healthy individual are typically lower than those for an older person or someone with health concerns.
Are life insurance premium payments tax deductible?
Premium payments for individual life insurance policies are not tax-deductible. However, business owners may, in some cases, deduct premiums they pay for life insurance policies covering employees (excluding the business owner or anyone with a financial interest in the company), provided the business is not the policy's beneficiary. Given the complexity of these rules, it's essential to consult with a tax professional to determine the deductibility in your specific situation.
The primary tax advantage of life insurance is that the death benefit is typically paid out to beneficiaries tax-free. In most cases, these payouts are not subject to income tax, though any interest earned on the policy is usually taxed as ordinary income.
At Ai Merchantry®, we are committed to helping you navigate the complexities of life insurance and its tax implications, ensuring you make informed decisions that benefit both you and your loved ones.
How can I use life insurance to save for college?
Life insurance can offer more than just tax-free cash benefits upon your passing—it can also be a powerful tool for saving and funding college expenses for you, your children, or your grandchildren. With permanent life insurance, such as whole life or universal life policies, you have the opportunity to build cash value over time. By starting to contribute to this cash value while your children are young, you’ll be amazed at how it grows. When it comes time to cover college costs, you can borrow against the cash value or take a partial distribution to help fund those expenses.
At Ai Merchantry®, we believe in providing solutions that not only protect your family but also support your long-term financial goals. Explore how permanent life insurance can help secure your loved ones’ future while offering the flexibility to fund important milestones like education.
How long does it take to get approved for life insurance?
The time it takes for your life insurance application to be approved and your policy to be issued can vary depending on several factors. The process, known as "underwriting," allows the insurance company to assess the risk of insuring you. In some cases, underwriting is streamlined or automated, and you may be approved for coverage almost immediately without needing to provide additional proof of insurability. However, in other cases, the underwriting process can take anywhere from a few weeks to a few months.
What are some common reasons life insurance claims are denied?
Life insurance is intended to provide death benefits when the insured person passes away. However, there are certain situations where a death benefit claim may be denied. The most common reason is the failure to pay enough premiums to keep the policy active. Other reasons include if the insurance company determines that the insured person lied or made significant misrepresentations on the application, or if beneficiaries fail to submit the necessary documentation to support their claim. Additionally, most policies do not cover suicide within the first two years of coverage.
Is it possible to get life insurance with diabetes?
Life insurance underwriting takes several factors into account, and having diabetes or other health conditions doesn’t automatically disqualify you from getting coverage. However, individuals with serious health issues or underlying conditions may not be approved. If you are approved, you might be required to pay higher premiums to maintain the policy.
Can I use life insurance to pay for long-term care?
If you don’t have a standalone long-term care insurance policy, you may be wondering how to cover your future long-term medical care if needed. Fortunately, there are several ways life insurance can help with this. One option is a combination life insurance/long-term care policy, which provides benefits either for long-term care expenses or as a death benefit for your beneficiaries. Additionally, some life insurance policies include an accelerated death benefit rider, allowing you to access a portion of the death benefit to pay for long-term care under specific conditions. Life settlements are another possibility. To explore your options, consult with your insurance professional to determine the best solution for your needs.
Can you get life insurance with pre-existing medical conditions?
Possibly. Having a pre-existing health condition doesn’t automatically disqualify you from obtaining life insurance. When you apply, you’ll need to provide details about the condition, and if approved, you may be required to pay higher premiums. One advantage of working with an independent insurance agent is their ability to shop around and present various policy options for you to consider. This allows you to make an informed choice. Even if one insurer declines your application, there’s a good chance another carrier will offer coverage.
Is it more difficult to be approved for a universal life insurance policy?
Universal life insurance policies often undergo a more rigorous underwriting process than term life policies for the same coverage amount. This is because term life insurance provides protection for a limited time, whereas universal life is designed for lifelong coverage, provided that premiums are paid adequately. Many insurers do offer "Guaranteed issue" or "No exam" policies, which are easier to qualify for. However, these options may leave you with less coverage and higher premiums than you would otherwise pay with a fully underwritten policy.
What is the main difference between accidental death and dismemberment vs life insurance?
Life insurance policies generally provide death benefits to the named beneficiaries, regardless of how the insured passes away, with common exceptions for suicide within the first few years of the policy. In contrast, accidental death and dismemberment (AD&D) policies only pay benefits if death is the result of a covered accident or if an accident leads to dismemberment, as defined in the policy. For instance, both policies would likely pay if the insured died in a car accident, but only a life insurance policy would offer benefits if the insured passed away from cancer.
Life insurance versus a pension: which is best?
Both life insurance and pensions offer financial benefits, but they function differently. Life insurance provides a cash death benefit to your chosen beneficiaries after your death, helping them cover final expenses, debts, and lost income. With permanent life insurance, there’s also a cash value component, which can serve as a way to save for retirement. In contrast, pension plans are designed to provide you with income during retirement, with payments that may end upon your death or continue for your beneficiary. When considering your financial protection options, it doesn’t have to be a choice between the two—you can benefit from both life insurance and pension plans.
Is it more difficult to be approved for a universal life insurance policy?
In general, universal life insurance policies often require a more rigorous underwriting process than term life policies for the same coverage amount. This is because term life insurance provides protection for a set period, while universal life is designed to offer lifelong coverage, provided premiums are paid adequately. However, many insurers offer "Guaranteed issue" or "No exam" life insurance options, which are easier to qualify for. While these policies provide convenience, they may leave you underinsured and result in higher premiums than you would otherwise pay with fully underwritten coverage.
Mortgage protection insurance vs. Private mortgage insurance: what's the difference?
Although these two insurance products may seem similar, they have distinct functions. Private mortgage insurance (PMI) protects your lender if you stop making payments and default on your loan. It’s often required if your down payment is less than 20%. On the other hand, mortgage protection insurance is designed to safeguard your family. It ensures that, in the event of your death, illness, or disability, your mortgage payments will continue, preventing financial strain on your loved ones.
How does life insurance work when someone dies?
Life insurance is intended to provide financial protection by paying a cash death benefit when the insured person passes away. After death, the named beneficiaries must submit the necessary claim forms, a certified copy of the death certificate, and any other required documents to the insurance company. An independent insurance agent can guide your beneficiaries through each step of the process, helping them choose settlement options that best suit their needs.
How do you select a beneficiary for your life insurance policy?
When applying for a life insurance policy, you will need to designate one or more beneficiaries who will receive the death benefit if you pass away while the policy is active. The choice of beneficiaries is personal, but many married individuals or those in committed relationships often name their spouse or partner as the primary beneficiary. You can also designate secondary or tertiary beneficiaries who will receive the benefit if the primary beneficiary passes away before you. For instance, a married person with two children might designate their spouse as the primary beneficiary and split the benefit equally between their children as secondary beneficiaries. It’s important to discuss your beneficiary designations with your insurance agent to ensure they align with your wishes for how the policy proceeds should be distributed.
How does someone know if they are the beneficiary of a life insurance policy?
Insurance companies are required to fulfill life insurance contracts by paying death benefits to the named beneficiaries when the insured person passes away. In some cases, beneficiaries are aware they've been named and will contact the insurance company to initiate the claims process. Other times, family members may discover an old policy statement or premium bill and contact the insurer to determine if the policy was still active. In certain situations, insurance companies may need to actively search for beneficiaries after the policyholder’s death. If you purchase a life insurance policy, it's important to provide accurate and up-to-date contact information for your beneficiaries to ensure a smooth process for distributing benefits when the time comes.
How are life insurance companies regulated?
Each U.S. state has its own insurance department responsible for regulating life insurance companies, policies, agencies, and agents (salespeople). Regulations, rules, and laws vary from state to state. Variable life insurance products, which are a combination of insurance and securities, are regulated by both state insurance departments and the Securities and Exchange Commission (SEC). To learn more about how life insurance is regulated in your state, you can use the National Association of Insurance Commissioners' (NAIC) online resource to find your state's insurance department.
Who sells life insurance?
Life, disability, and critical illness insurance are complex financial products regulated by state laws, and it’s important to work with licensed professionals who understand these products. At Ai Merchantry®, our independent agents are fully licensed and have completed all necessary pre-licensing training, as well as ongoing post-licensing education, to stay current with the latest regulations and nuances of various insurance products.
Our licensed professionals are contracted to offer life insurance and other coverage options from over 80 trusted insurance carriers. This ensures that we provide you with personalized solutions that best fit your unique needs, backed by the expertise and integrity that define Ai Merchantry®.
Explore how our knowledgeable agents can help guide you through the complexities of life, disability, and critical illness insurance, ensuring you and your loved ones are protected.
