Life Insurance

If you have a family to protect, a sound life insurance program is the perfect solution. There are two basic types of life insurance needs: temporary and permanent.

Temporary needs include home mortgages or short-term debt reduction, family income and educational expenses and can last as little as one year or last 20 to 30 years or longer. Term insurance is the most cost effective method of insuring many short-term needs. There are a variety of plans to choose from, ranging from an annual renewable term (1 year plan) to a level term plan that could last 5, 10, 20 or 30 years.

Permanent needs include those that last for your entire life or potentially for periods of 15 years or more. Permanent insurance needs include final expenses, funds to cover estate taxes and retirement savings protection. Permanent and universal life plans are ideally suited for meeting these goals.

The primary purpose of life insurance is to provide cash for your family in the event of your death to ensure that they can remain in their home and continue to maintain an adequate standard of living. There are a number of factors that determine the cost you pay for life insurance including:

  • Age
  • Health
  • Tobacco Use
  • Occupation
  • Hobbies

If you are interested in obtaining more information or a quote, contact us.
 

Important Things to Consider

Review your own insurance needs and circumstances. Choose the kind of policy that has benefits that most closely fit your needs. Ask an agent or company to help you.

  1. Be sure that you can handle premium payments. Can you afford the initial premium? If the premium increases later and you still need insurance, can you still afford it?
     
  2. Don’t sign an insurance application until you review it carefully to be sure all the answers are complete and accurate.
     
  3. Don’t buy life insurance unless you intend to stick with your plan. It may be very costly if you quit during the early years of the policy.
     
  4. Don’t drop one policy and buy another without a thorough study of the new policy and the one you have now. Replacing your insurance may be costly.
     
  5. Read your policy carefully. Ask your agent or company about anything that is not clear to you.
     
  6. Review your life insurance program with your agent or company every few years to keep up with changes in your income and your needs.

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Buying Life Insurance

When you buy life insurance, you want coverage that fits your needs.

  1. First, decide how much you need – and for how long – and what you can afford to pay. Keep in mind the major reason that you buy life insurance is to cover the financial effects of unexpected or untimely death. Life insurance can also be one of the many ways you plan for the future.
     
  2. Next, learn what kinds of policies will meet your needs and pick the one that best suits you.
     
  3. Then, choose the combination of policy premium and benefits that emphasizes protection in case of early death, or benefits in case of long life, or a combination of both.

    It makes good sense to ask a life insurance agent or company to help you. An agent can help you review your insurance needs and give you information about the available policies. If one kind of policy does not seem to fit your needs, ask about others.
     

This guide provides only basic information. You can get more facts from a life insurance agent or company, the Internet,  your public library or contact us.

 

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What About Your Existing Policy?

If you are thinking about dropping a life insurance policy, here are some things you should consider:

  • If you decide to replace your policy, don’t cancel your old policy until you have received the new one. You then have a minimum period to review your new policy and decide if it is what you wanted.
     
  • It may be costly to replace a policy. Much of what you paid in the early years of the policy you have now, paid for the company’s cost of selling and issuing the policy. You may pay this type of cost again if you buy a new policy.
     
  • Ask your tax advisor if dropping your policy could affect your income taxes.
     
  • If you are older or your health has changed, premiums for the new policy will often be higher. You will not be able to buy a new policy if you are not insurable.
     
  • You may have valuable rights and benefits in the policy you now have that are not in the new one.
     
  • If the policy you have now no longer meets your needs, you may not have to replace it. You might be able to change your policy or add to it to get the coverage or benefits you now want.
     
  • At least in the beginning, a policy may pay no benefits for some causes of death covered in the policy you have now.

In all cases, if you are thinking of buying a new policy, check with the agent or company that issued you the one you have now. When you bought your old policy, you may have seen an illustration of the benefits of your policy. Before replacing your policy, ask your agent or company for an updated illustration. Check to see how the policy has performed and what you might expect in the future, based on the amounts the company is paying now.
 

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How Much Do You Need?

Here are some questions to ask yourself:

  • How much of the family income do I provide? If I were to die early, how would my survivors, especially my children, get by? Does anyone else depend on me financially?
     
  • Do I have children for whom I’d like to set aside money to finish their education in the event of my death?
     
  • How will my family pay final expenses and debts after my death?
     
  • Do I have family members or organizations to which I would like to leave money?
     
  • Will there be estate taxes to pay after my death?
     
  • How will inflation affect future needs?
     

As you figure out what you must have to meet these needs, count on the life insurance you have now, including any group insurance where you work or veteran’s insurance. Don’t forget Social Security and pension plan survivor’s benefits. Add other assets you have: savings, investments, real estate, and personal property. Which assets would your family sell or cash in to pay expenses after your death?

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What is the Right Kind of Insurance?

All policies are not the same. Some give coverage for your lifetime and others cover you for a specific number of years. Some build up cash values and others do not. Some policies may offer other benefits while you are still living. Your choice should be based on your needs and what you can afford.

There are two basic types of life insurance: term insurance and cash value insurance. Term insurance generally has lower premiums in the early years, but does not build up cash values that you can use in the future. You may combine cash value insurance with term insurance for the period of your greatest need for life insurance to replace income.

Term Insurance 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. You can renew most term insurance policies for one or more terms even if your health has changed. Each time you renew the policy for a new term, premiums will be higher. Ask what the premiums will be if you continue to renew the policy. Also ask if you will lose the right to renew the policy at some age. For a higher premium, some companies will give you the right to keep the policy in force for a guaranteed period at the same price each year. At the end of that time you may need to pass a physical examination to continue coverage, and premiums may increase.

You may be able to trade many term insurance policies for a cash value policy during a conversion period -- even if you are not in good health.  Premiums for the new policy will be higher than you have been paying for the term life inusurance.

Cash Value Life Insurance is a type of insurance where the premiums charged are higher at the beginning than they would be for the same amount of term insurance. The part of the premium that is not used for the cost of insurance is invested by the company and builds up a cash value that may be used in a variety of ways. You may borrow against a policy’s cash value by taking a policy loan. If you don’t pay back the loan and the interest on it, the amount you owe will be subtracted from the benefits when you die, or from the cash value if you stop paying premiums and take out the remaining cash value. You can also use your cash value to keep insurance protection for a limited time or to buy a reduced amount without having to pay more premiums. You also can use the cash value to increase your income in retirement or to help pay for needs such as a child’s tuition without canceling the policy. However to build up this cash value, you must pay higher premiums in the earlier years of the policy. Cash value life insurance may be one of several types; whole life, universal life and variable life are all types of cash value insurance.

Whole Life Insurance covers you for as long as you live if your premiums are paid. You generally pay the same amount in premiums for as long as you live. When you first take out the policy, premiums can be several times higher than you would pay initially for the same amount of term insurance. But they are smaller than the premiums you would eventually pay if you were to keep renewing a term policy until your later years.

Some whole life policies let you pay premiums for a shorter period such as 20 years, or until age 65. Premiums for these policies are higher since the premium payments are made during a shorter period.

Universal Life Insurance is a kind of flexible policy that lets you vary your premium payments. You can also adjust the face amount of your coverage. Increases may require proof that you qualify for the new death benefit. The premiums you pay (less expense charges) go into a policy account that earns interest. Charges are deducted from the account. If your yearly premium payment plus the interest your account earns is less than the charges, your account value will become lower. If it keeps dropping, eventually your coverage will end. To prevent that, you may need to start making premium payments, or increase your premium payments, or lower your death benefits. Even if there is enough in your account to pay the premiums, continuing to pay premiums yourself means that you build up more cash value.

Variable Life Insurance is a kind of insurance where the death benefits and cash values depend on the investment performance of one or more separate accounts, which may be invested in mutual funds or other investments allowed under the policy. Be sure to get the prospectus from the company when buying this kind of policy and STUDY IT CAREFULLY. You will have higher death benefits and cash value if the underlying investments do well. Your benefits and cash value will be lower or may disappear if the investments you chose didn’t do as well as you expected. You may pay an extra premium for a guaranteed death benefit.

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Life Insurance Illustrations

You may be thinking of buying a policy where cash values, death benefits, dividends or premiums may vary based on events or situations the company does not guarantee (such as interest rates). If so, you may get an illustration from the agent or company that helps explain how the policy works. The illustration will show how the benefits that are not guaranteed will change as interest rates and other factors change. The illustration will show you what the company guarantees. It will also show you what could happen in the future. Remember that nobody knows what will happen in the future. You should be ready to adjust your financial plans if the cash value doesn’t increase as quickly as shown in the illustration. You will be asked to sign a statement that says you understand that some of the numbers in the illustration are not guaranteed.

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Finding A Good Value In Life Insurance

After you have decided which kind of life insurance is best for you, compare similar policies from different companies to find which one is likely to give you the best value for your money. A simple comparison of the premiums is not enough. There are other things to consider. For example:

Do premiums or benefits vary from year to year?

  • How much do the benefits build up in the policy?
     
  • What part of the premiums or benefits is not guaranteed?
     
  • What is the effect of interest on money paid and received at different times on the policy?
     

Once you have decided which type of policy to buy, you can use a cost comparison index to help you compare similar policies. Life insurance agents or companies can give you information about several different kinds of indexes that each work a little differently. One type helps you compare the costs between two policies if you give up the policy and take out the cash value. Another helps you compare your costs if you don’t give up your policy before its, coverage ends. Some help you decide what kind of questions to ask the agent about the numbers used in an illustration. Each index is useful in some ways, but they all have shortcomings. Ask your agent which will be most helpful to you. Regardless of which index you use, compare index numbers only for similar policies—those that offer basically the same benefits, with premiums payable for the same length of time.

Remember that no one company offers the lowest cost at all ages for all kinds and amounts of insurance. You should also consider other factors:

  • How quickly does the cash value grow? Some policies have low cash values in the early years that build quickly later on. Other policies have a more level cash value build-up, A year-by-year display of values and benefits can be very helpful. (The agent or company will give you a policy summary or an illustration that will show benefits and premiums for selected years.)
     
  • Are there special policy features that particularly suit your needs?
     
  • How are nonguaranteed values calculated? For example, interest rates are important in determining policy returns. In some companies increases reflect the average interest earnings oh all of that company’s policies regardless of when issued. In others, the return for policies issued in a recent year, or a group of years reflects the interest earnings on that group of policies; in this case, amounts paid are likely to change more rapidly when interest rates change.
     

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Simplified Issue 20-Pay Life for Children and Young Adults

20-Pay Life is an excellent starter policy for infants, children and teens. Choose the coverage amount and payment option that best meets your family’s needs.

Erie Family Life’s Youth Life Series for young people offers an affordable way to provide valuable life insurance protection for your children or grandchildren.

It features a guaranteed premium, cash value and death benefit.

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Ten Reasons For Life Insurance For Your Child

1. To let your child enjoy the benefit of a low rate… Everyone knows that life insurance premiums increase with age, because of the increase in death rates. Every year of delay in taking out insurance means an increase in the cost per dollar of protection, or a reduction in the amount of insurance a premium dollar will buy.

2. To provide help in learning foresight and thrift… It is the function of the schools to teach your child to think and to accumulate knowledge. It is the function of the home to help the child develop good character and values.

3. To help in selecting the first policy… The life insurance way of foresight and thrift represents a long-term investment. It is important for you to give your child the benefit of your knowledge of the purposes and advantages of the various forms of policies.

4. To provide a policy that will mature early in life… One of the happiest experiences that can come to a person is to find that one of his or her life insurance policies has reached the end of the premium-paying period.

5. To provide some cash to help with college… Financing your child’s college education may present no problem whatever for you when the time comes. Perhaps ample funds will be on hand, perhaps not.

6. To guarantee against being uninsurable… If something were to happen to your child- and sometimes things do happen- to make him or her uninsurable, perhaps with a spouse and a child or two as dependents, both of you would rejoice that some insurance had been bought in the child’s early years. On the other hand, you would be remorseful if insurance had not been secured while your child was insurable.

7. To train your child to bear responsibility… A policy on you child’s life, with you as beneficiary will produce a sense of worth in you child since he or she will have the perception of assisting in your protection. You want your child to grow into a person any parent would be proud of. You want him or her to develop character that will win respect.

8. To help your child be ready to meet financial problems later… It has often been observed that most financial problems are easily solved if attacked early enough.

9. To offset a potential loss… An insurance policy on the child’s life will offset, at least partially, the loss of the investment in his or her life and will protect the other members of the family against unnecessary financial hardships in the event that death does occur.

10. To do for you child what you would wish to be done for you… The acid test of the wisdom of buying a policy for your child is whether you wish your parents had bought a policy on your life for you when you were young.

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