Life Insurance 

What is Insurance?


Insurance is a financial tool used to protect against a possible loss. Insurance uses the principle of risk pooling or group sharing of loss. Each member of the group takes on a small loss (premium payments) to insure against an unexpected significant loss (your house burning down or a car accident).

What is Life Insurance?


Life Insurance is a contract between an insurance company and a person who is covered by the insurance contract (the insured). This contract is known as a life insurance policy. The insured pays the insurance company a small premium payment, and in return, the insurance company will pay out a much larger benefit to the insured’s beneficiary if the insured were to die.

The death benefit is paid out to the beneficiary income-tax-free as a lump sum payment.

As soon as the policy is approved and paid for, it will go into effect. Once in effect, the policy will cover any cause of death, with the exception of suicide in the first two years. Though the insured can cancel the life insurance policy at any time, the life insurance company is obligated to the insured and the beneficiary for the life of the policy.

Life insurance is the only financial product that creates an immediate estate in the event of your death. There are two main types of life insurance policies; term life and permanent life.

Life Insurance is used mainly for three purposes.

To protect against loss of income
To cover final expenses
To save for a tax-free retirement
Income Replacement
What would happen to your family if something were to happen to you?

Most people are income producers, and most producers have people (spouse, children, family) dependent on their income. Families survive on income. Income pays for food, shelter, clothes, and all the luxuries of life. Life Insurance is the financial tool designed to replace a person’s income if they were to die or become terminally ill.

The advantage of life insurance for the income producer (insured) is "peace of mind" in knowing that their death will not result in financial hardship for their dependents (beneficiaries). The advantage for the dependents is that they would be able to maintain their standard of living if the insured were to die. If you or your spouse were to pass away, would you be able to afford your current lifestyle? If the answer is no, then life insurance is probably for you.

Final Expenses
According to the National Bureau of Economic Research, the average out-of-pocket expenses for end-of-life necessities are around $12,000. If you or your loved ones do not have $12,000 lying around for this expense, then life insurance might be a good option for you.

Tax-free Retirement
Cash value life insurance gives you the ability to save for retirement. While working, you will make premium payments that will go towards your policy benefits and cash value build-up. When you retire, you can use the cash value to help fund your retirement. By borrowing against the cash value in your life insurance policy, the money that you borrow is tax-free. You would only be faced with a tax penalty if your policy were to lapse and be canceled. With the no-lapse guaranteed rider, you ensure that if your cash value ever reaches zero, your policy will automatically convert into a paid-up policy, so you will not have to worry about paying taxes on your retirement income.

What Life Insurance is Not
Life Insurance is not a lottery ticket or intended to make others rich off of the insured’s death.
Life Insurance is not intended to give in death what you couldn’t provide in life.
The 6 Main Parts to a Life Insurance Policy
Insured
The person who the life insurance coverage is on.
Beneficiary
The person who receives the benefit amount if the insured dies.
Insurance Company
The Company that will pay out the benefit amount to the beneficiary if the insured dies.
Benefit Amount
The Death Benefit is the coverage amount that is paid to the beneficiary upon the insured’s death by the insurance company.
Policy Type - How long the Coverage is Guaranteed for
The number of years the policy is guaranteed for by the insurance company to the insured. This guarantee period can be as little as one year or for the rest of the insured’s life depending on the type of policy.
Premium Payment
This is the payment that is owed by the insured to the insurance company to keep the life insurance contract (policy) in-force (active).
What are the Benefits of Life Insurance?
A life insurance policy is fully guaranteed by the life insurance company after the policy is approved and the first premium payment is made.
Once the policy is approved and in-force the life insurance policy can’t be canceled or changed by the insurance company but the insured can cancel at any time.
Life Insurance benefits are paid out income tax free.
The Life Insurance Industry is one of the most regulated industries in the USA and policies are backed by the State Guaranteed Fund.
Life Insurance Policies are extremely flexible allowing you to get the coverage you need, for the time period needed, and designed to meet your budget.
Policy Riders - Most life insurance policies offer extra benefits with policy riders. Some of these riders are free and some will cost extra premiums.
Most Term Life Insurance Policies are guaranteed renewable to age 95 and be converted into a permanent type of coverage at anytime before age 70.
What are Life Insurance Policy Riders
A life insurance policy rider is an addition to your main policy that adds on additional benefits to your policy and / or makes your policy more flexible.
Riders can be free or come with an increase to your premium payments.
Top Life Insurance Policy Riders
Accelerated Death Benefit
Child
Waiver of Premium
Accidental Death
Long Term Care
Additional Purchase Option
Disability
Unemployment

Do I Need Life Insurance?
If you have anybody in your life that you care about, especially if they are dependent on you, then you probably need life insurance.

Who does not need life insurance?
You probably don't need life insurance if you do not have anybody who depends on you or your income, and you have enough money saved for your final expenses.
If your household income is below $30,000, you probably shouldn’t have life insurance. Life Insurance is important, but other necessities are certainly more important.
If you are retired, you have enough money saved to cover your final expenses, you are not married, or your spouse will have access to your retirement funds (social security, pension, 401k, etc.) after your death; you probably don’t need life insurance.
The Most Common Reasons People Buy Life Insurance
Get Married
Expecting a Child
Bought a new home
Starting a Business
They financially support their elderly parents.
The reasons why people need Life Insurance
Personal

Income Replacement
Pay of Debts
Build up a tax-free cash value retirement
Final Expenses
College Education for Children
Business

Key-Man
Buy-Sell Agreement
Secure a loan
How can Life Insurance Protect my Family?
Life Insurance can never replace the love of a parent or spouse, but the only thing worse than losing a loved one is having to figure out how you are going to survive without money. You put a roof over their head, food on their plate, clothes on their backs, and provide the very foundation for their lives. Life Insurance protects your family’s lifestyle and livelihood.

Your family’s future is in your hands; let Life Insurance help protect their future.

Moral Obligation for Life Insurance
As the breadwinner, you have taken on the financial responsibility of supporting your family.

But what happens if you are not here?

Are you not obligated in death, as you were in life, to still support your family? If not, to maintain their standard of living with life’s luxuries, to at least support the necessities of life for them?

For some families, Life Insurance becomes the most important financial decision they ever made because it allows them to keep their living standards and dignity.

How Much Life Insurance Protection Do I Need?
At Simple Term Life, we came up with the money tree principle to determine exactly how much life insurance protection we think our clients should have. Life Insurance is a very personal choice, and there are no right or wrong answers. Some families will spend less on life insurance and have just enough to ensure the bare essentials are taken care of.

Other families go above and beyond and try to make sure that every little need and desire will be taken care of if the breadwinner of their family were to pass away. We believe the Money Tree Principle will get your family as close to their current living standards and lifestyle as possible.

The Money Tree Principle
Imagine you had a tree in your yard that grew dollar bills instead of leaves, and the amount of money this tree produced was very similar to your own personal income.

How much would you insure that tree for in case it died?

This thought experiment will give you an idea of how much Life Insurance you should be considering for yourself.

Here is the formula we recommend to determine the right amount of life insurance protection that you should have for your family’s future.

Multiply your current income by the number of years you have left until retirement, then cut that number in half. We recommend this because half of your income most likely goes to taxes and your personal living expenses.

This amount of coverage will ensure that your family is financially stable whether you are here or not.

There are many approaches that financial advisors have used to determine the right amount of life insurance that families should have. Here are three other popular methods used to determine the right amount of life insurance protection.

Multiples of Income vs. Human Life Value vs. Needs Approach
Multiples of Income

Multiples of Income is the simplest formula to use. Get somewhere between 10 - 12 times your income. If you make $50,000, then buy $500,000

Human Life Value

Human Life Value is a more detailed approach than Multiples of Income. Here we try to figure out what the financial value of your life will be from this point going forward. How much money do you make now? How much money will you make in the future? This is a more effective way to determine your life insurance needs because it takes to age is a factor. The younger you are, the more life insurance you’ll need because your value is greater from an income standpoint. At age 30, you’ll have 35 years of income to make up for if you were to die. At age 40, you’ve already made 10 years of income, so you’ll only have to make up for 25 years of income loss at this point.

The Needs Approach

The Needs Approach is the most detailed approach. Instead of multiplying your income by 10 or determining the economic value of your life over time, you determine all of your needs. Here you determine every expense your family has, add up all of those expenses, and then multiply by the number of years you’ll need to meet those needs and try to meet those expenses with Life Insurance if the breadwinner dies.


Types of Life Insurance Policies
Term Life Insurance
Permanent Life Insurance
Guaranteed Issue Final Expense
What is Term Life Insurance?
Term Life is a life insurance policy designed for temporary life insurance needs.

Reasons to own Term Life

Income Replacement
Mortgage Protection
Debt Repayment
Dependents
Court Ordered
How does Term Life Work
A Term Life Insurance policy typically has a term period from 10 - 30 years.
The Benefit Amount and Premium payment are guaranteed to stay the same for the term period.
Term Life Insurance is the least expensive life insurance option. The longer the term period is guaranteed, the more expensive the policy becomes.
After the term period expires, the premium payments increase substantially.
Most term policies can be converted to a permanent insurance policy (universal or whole life), with no questions asked or underwriting required.
2% of Term Life Insurance Policies payout to beneficiaries on average.
Term Life Insurance is a tremendous value because policyholders pay pennies on the dollar when comparing premium payments to the death benefit.
i.e., a 40-year-old man who qualifies for a Standard Rate Class (4th Best) looking for a $500,000 10-year level term would pay $40 per month / $480 per year / or $4,800 over 10 years.
If this client passes away after making just one $40 payment, his family will receive $500,000 income tax-free, and that protection would only cost him only $4,800 over the ten years. That’s what we mean by “pennies on the dollar.”
Learn more about Term Life Insurance

What is Permanent Life Insurance?
There are many types and options for permanent life insurance. The three major subcategories of permanent life insurance are whole life, universal life, and variable life.

Permanent Life Insurance is significantly more expensive to buy than term insurance because the death benefit is usually guaranteed for life and these policies usually offer a savings or investment element.

Reasons to own Permanent Life

You need coverage that is guaranteed for the rest of your life.
You want to build up tax-free retirement savings.
How does Permanent Life Work
Whole Life

Whole Life is a permanent life insurance policy that remains in force typically for the insured’s entire life. The premium payments remain level and are required for the life of the policy. If the annual premium payment is not made, then the policy will lapse, and any cash value accumulation will be returned to you.

Universal Life

Universal Life is a permanent life insurance policy that offers flexibility. The death benefit, cash values, and premiums can be reviewed and altered as a policyholder's circumstances change.

Variable Life

Variable Life is a form of permanent life insurance that allows you to invest your cash value into various investment instruments and funds such as stocks, bonds, and mutual funds. This tends to be the most expensive type of permanent life insurance.

Learn more about Permanent Life Insurance

What is Guaranteed Issue Final Expense
Guaranteed Issue Final Expense are smaller policies with coverage amounts from $5,000 - $25,000. There is no underwriting with these policies, so everyone qualifies, even if you have health issues. Some of these policies come with a two-year waiting period before they take effect.

Reasons to own Guaranteed Issue Final Expense

You need final expense coverage.
You can not qualify for a fully underwritten life insurance policy.
What Life Insurance Policy is Right for Me?
If your need for coverage is temporary, you should consider a term life insurance policy. If you need coverage that is guaranteed for the rest of your life or would like to enjoy a tax-free retirement, then permanent life insurance is a better choice. Guaranteed Issue Final Expense policies make sense if prior health issues disqualify you from a fully underwritten life insurance policy, like term or permanent life, and you want to ensure your final expenses are covered so as not to leave a burden on your loved ones.

At Simple Term Life, our agents have been advising our clients for almost two decades and will be happy to discuss your life insurance needs, so you find the right policy at the lowest price.

How to get Approved for Life Insurance
To get approved for life insurance, you must complete an application and undergo the underwriting process. Depending on different factors, the underwriting process could be as simple as filling out an application and waiting a few minutes for your approval or a more lengthy process that requires a paramed exam and ordering your medical records by the insurance company.

How Do I Buy Life Insurance?
The first step to buying life insurance is to speak to a licensed life insurance advisor. Depending on the type of policy you need, the approval process could be as simple as filling out a short application with your agent.

However, most policies require that you go through the underwriting process to get approved.

Life Insurance Underwriting
Fully Underwritten

Fully Underwritten policies are almost always your least expensive option, but they typically take at least 2 - 6 weeks to get approved for your insurance coverage. Fully Underwritten policies will require that you visit with a paramed examiner. Once your exam has been completed, the results and your application will be sent to the Underwriter at the Insurance Company. The Underwriter will order your driving record from your State’s Secretary of State, a report from the Prescription Database (Rx Reports), and a report from the Medical Information Bureau (MIB). Based on your health history, the Underwriter may also order medical records from your doctor(s). Once the Underwriter has all the reports and records requested, it usually takes about a week for the policy to be approved.

Simplified Issue - No Exam

Simplified Issue - No Exam policies are approved without requiring the paramed exam. These policies are typically approved within a few minutes to a few days. In the past, these policies would usually cost more money. Instead of possibly being approved at the best rate class (Preferred Plus), applicants who qualify for Simplified Issue No Exam Underwriting would at best qualify for the fourth best rate class (Standard). This was due to the insurance company taking on more risk because they could not access the information a paramed exam would provide. Thanks to black box underwriting technology, more and more companies are approving policies without requiring a medical exam, and they are approving them at the best rate class an applicant would qualify for with a fully underwritten policy.

Though the exam is not required, these policies are still otherwise fully underwritten. The insurance company will order your driving record, Rx Report, and MIB Report.

Guaranteed Issue

A guaranteed issue policy can be approved if you meet the age requirement, which varies from company to company. The only requirement will be filling out the application with your agent. These applications do not ask any health or lifestyle questions, and since the policy is approved immediately, a payment method will be required.

Most Guaranteed Issue policies have a graded death benefit, meaning the full coverage amount will not take effect until 24 - 36 months. If the insured dies before the policy benefit kicks in, the beneficiary will get back all the premium payments made plus an additional percentage that varies from company to company.

The benefit amount is typically limited from $5,000 - $25,000.

Life Insurance Approval
When the Underwriter has finished the Underwriting Process, there will be one of 5 possible outcomes.

Approved as Applied for

Your policy is approved at the rates you and your life insurance advisor previously discussed.

Approved Better than applied for

Your policy is approved better than applied for. The cost of your policy will be less than the quotes you received during your application.

Approved Other than applied for

Your policy was approved, but the rates will be higher than what you were originally quoted during your application.

Postponed

The insurance company can not approve the policy at this time. A postponement typically happens when the insurance company either did not get all the information they requested in a timely manner or requires the applicant to go for further medical evaluation before they will approve the policy.

Declined

The Insurance company declines to offer life insurance protection. When your policy is declined, you may still have options. It is best to reach out to your life insurance advisor as soon as possible to discuss your potential options.

How to get Approved at the Best Price
How is the Cost of Life Insurance Determined?

Life insurance costs are based on age, gender, health, and lifestyle.
Based on your age and gender, every company has about 20 different rate (risk) classes that you may qualify for based on your health and lifestyle. Twelve non-nicotine rate classes and six nicotine rate classes.
All rates and rate classes are published with the life insurance state commissionaire, and the qualifications for each rate class are published in the company's underwriting guidelines.
How to find the Best, Lowest Life Insurance Rates?

Every Life Insurance Company Publishes its rates, rate classes, and underwriting guidelines with your state’s life insurance commissionaire.
Your Licensed Advisor uses state-of-the-art software that tracks the rates for all 40+ companies we work with based on your age, gender, and the company’s published underwriting guidelines.
We customize the quotes based on your criteria to narrow down the company that will offer you the lowest rate.
How to find the Best Value?

Your Licensed Advisor will ask questions to determine which company and policy are best for you and your family’s situation.
Many companies offer unique riders that might make sense for your particular situation. All companies offer a death benefit to protect your family, but the value may come from what these companies provide. One company offers up to 95% of the benefit if you are diagnosed with a chronic, critical or terminal illness. Other companies offer waivers of premium riders if you become disabled or unemployed.
To ensure you get the protection you and your family deserve at the lowest rate or best value, we strongly suggest contacting one of our experienced licensed advisors today.
Understanding The Underwriting Process
Life Insurance Underwriting is the process insurance companies use to determine an applicant’s risk of dying prematurely. Underwriting aims to assign an applicant a risk level known as the rate class. The rate class is determined by the applicant’s health, lifestyle, occupation, and family history. Each life insurance company has published underwriting guidelines explaining how they access all the risks they consider.

The price of a life insurance policy is based on the rate class, age, and gender of the applicant and the type of policy being applied for.

Rate Classes
Preferred Plus - The very best rates class. This rate class is for those few individuals that have almost zero risk. Roughly about 20% of people will qualify.

Preferred - The second best rate class. This rate class is for individuals with very good health and very little risk. Roughly 20% of people will qualify for this rate class.

Standard Plus - The third best rate class. This rate class is for individuals at a better than average risk but who do not qualify for a preferred risk.

Standard - The fourth best rate class. This is rate class is for individuals that are of average risk. The majority of applicants will fit into this guideline.

Substandard Rate classes - These rate classes are known as table rates. Usually, you will fit into a table listed either A - H or 1 - 8, depending on the company. Substandard rates for people that are below average risk. For most companies, each table is 25% more expensive than Standard. So table A (table 1) is 125% times standard. Table B (table 2) is 150% of the times standard. Table C (table 3) is 175% more than Standard. Etc.

Tobacco Rates
Tobacco users are considered a greater risk to insurance companies because their average lifespan is not as long as nonsmokers, everything else being equal. The good news is that some companies specialize in this risk, and their rates are much lower than most of their competitors.

Preferred Tobacco - Risk is similar to Preferred non-tobacco rates, but the individual uses tobacco.

Standard Tobacco - Risk is similar to Standard non-tobacco rates, but the individual uses tobacco.

SubStandard Tobacco - The person is less than the average risk and uses tobacco.

Life Insurance Glossary
Accelerated Death Benefit Rider
— Benefits available before the insured’s death are available in some life insurance policies. These benefits are usually available only due to terminal or catastrophic illness, long-term care, or confinement to a nursing home.

Accidental Death Benefit Rider
— Sometimes referred to as “double indemnity,” this policy add-on provides for the payment of an additional benefit in the event of death due to an accident.

Automatic Premium Loan
— A provision in some life insurance policies designed to provide policyholders with added flexibility by automatically “borrowing” from a policy’s cash value (if sufficient) to keep the policy in force even if the premium due has not been received by the end of the grace period.

Beneficiary
— The person or entity receiving the death benefit at the insured's death.

Cash Value
— the amount of money accumulated by a life insurance policy as the policy matures and available to be borrowed while the policy is in force or paid to the policyholder when the policy is canceled.

Convertible Clause
— a policy clause that gives the policyholder the right to convert term insurance to whole life insurance.

Death Benefit
– The total cash payment made to the beneficiary upon the insured's death.

Decreasing Term
— term insurance in which the face value decreases on a specified schedule. This type of policy is often used for insuring home mortgages.

Disability Waiver Rider
— a policy rider that waives premiums if the policyholder becomes permanently disabled or unable to work.

Dividend
— the money paid back to the policyholder at the end of a year if an insurance company has collected more premiums than necessary to meet its expenses, death benefits, and reserve build-up.

Estate
— The total value of a decedent’s assets at the time of death. Such assets may be passed directly to a beneficiary via a will or held in trust for the beneficiary.

Estate Planning
— the process of planning to protect wealth from taxes and other costs and to distribute assets and income after death.

Evidence of Insurability
— The presentation to a prospective insurer of an applicant’s current and historical medical status. Usually, this is a disclosure of health history via a questionnaire (although other evidence may be requested) to an insurer to determine the appropriate premium to charge for the risk the insurer expects to accept.

Face Value
— the amount of money a life insurance policy pays if the insured dies.

Grace Period
— A designated period of time following each premium due date in which an overdue premium may be paid without loss of coverage.

Guaranteed Insurability Rider
— a policy rider that allows the policyholder to purchase stated amounts of additional life insurance at specified times without passing a physical exam.

Guardian
— A person or persons named to care for minor children until they reach the age of majority. A will is the best way to ensure that the person or persons whom you wish to have care for your minor children are legally empowered to do so in the event of your death.

In-Force
— “In-force” policies are active contracts that will pay out if the insured passes away. The opposite of in-force is a lapsed policy.

Insurability
— An assessment of the applicant’s health status is used in determining the appropriate premium commensurate with the insurer's risk. There are three basic categories of insurability: preferred, standard, and rated. Preferred applicants are those whose health is above-average. Standard applicants are of normal health status. Rated applicants are those whose health is below average. (e.g.., those who have had cancer or a heart attack, etc.).

Insured
— The person covered by life insurance.

Lapsed Policy
— A policy that has been terminated and is no longer in-force due to non-payment of premium.

Maturity
— The date upon which the face amount of a life insurance policy is paid to the policyholder (if not previously invoked due to the insured's death).

Mortality Table
— a mathematical table indicating the average length of life for a group of persons at any particular age.

Non-Forfeiture Values
— The value of a policy if canceled, either in cash or in another form of insurance.

Nonparticipating Life Insurance
— coverage that is calculated as closely as possible to actual cost so that no dividends are paid to policyholders.

Owner
– The person or entity who owns the insurance policy. The owner may or may not be the insured. The owner can designate the beneficiary and is responsible for paying premiums.

Premium
– The amount billed to the owner of an insurance policy (usually monthly, quarterly, or annually) by the insurance company.

Participating Life Insurance
— coverage that pays dividends to policyholders.

Policy
— The actual terms of a contract of life insurance.

Policy Loan
— a loan made to a policyholder for part of the policy’s cash value.

Premium
— the amount of money paid by the policyholder at regular intervals to keep the policy in force.

Probate
— The legal certification process of a decedent’s written instructions regarding the disposition of his or her estate.

Proceeds
— the money the beneficiary receives upon filing a claim after the policyholder's death.

Reinstatement
— The restoration of a lapsed policy to in-force status. The company may require evidence of insurability (and, if health status has changed, may deny reinstatement) and will always require payment of the total amount of past due premium.

Renewable Clause
— a policy clause that allows the policyholder to renew coverage for another period without a medical examination.

Rider
— a clause that, when added to the policy, expands or restricts its benefits or excludes certain conditions from coverage.

Surrender
— The cancellation of an in-force policy by the policy owner. The policy owner receives the full cash/non-forfeiture value, and the insurer is no longer obligated to pay the death benefit.

Term Insurance
— a policy that pays a death benefit to survivors but doesn’t accumulate a cash value.

Trust
— A trust is a legal entity established by one person to benefit other people. The person establishing the trust is usually called the “grantor.” Those receiving income from, or the assets of, a trust are called “beneficiaries.” The assets of a trust are managed or overseen by a “trustee” – whose responsibility is to act only in the interests of the beneficiaries.

Underwriting
— The process of grouping applicants for insurance by characteristics such as age, gender, health occupation, and lifestyle or hobbies. People with similar characteristics are assigned a similar level of risk – and premium amounts are determined accordingly.

Universal Life Insurance
— a flexible policy that lets the policyholder vary the premium payments and the face value of the policy.

Variable Life Insurance
— a policy in which the death benefits and cash value depend on the investment performance of one or more separate accounts.

Whole Life Insurance
— a policy that builds a cash value and gives protection through the policyholder’s lifetime as long as premiums are paid.

History of Life Insurance
100 BC - Roman military leader, Caius Marius, created a burial club among his troops so that when his soldiers died unexpectedly, other members would pay for burial expenses. Similar clubs started, eventually leading to clubs paying stipends to the deceased surviving family members.

1653 - Italian banker, Lorenzo de Tonti, creates the Tontine annuity system in Paris, France. Investors would pay a sum of money into the annuity. Each investor then received an annual dividend paid out on his capital. As each investor died, his or her share would be divided among the surviving investors and paid out as higher dividends. The annual payments continued until there was only one survivor left.