Sam Cheng Insurance

"Assisting Medicare Beneficiaries With Their Medicare Health Insurance Options"

Life Insurance Explained

Life insurance is an legal contract between the insured and the insurer that the insurer will pay the beneficiaries a tax-free benefit in accordance with the terms and conditions of the policy if the insured dies. It can serve as financial protection for the insured’s loved ones who would lose the income in the event of such a death.

There are two main types of life insurance: term and permanent
Term Life Insurance
 
Term life insurance provides coverage for a specific period of time. A term life insurance policy issues a payment to a beneficiary only if the policyholder dies while the policy is in effect and if they have paid their premiums on time and in full.

Term life insurance periods are commonly ranging from 10 to 30 years, If the insured dies after the policy expires, no payout is made. There is no cash value in term life insurance, and rates are generally more affordable than certain permanent life insurance policies.

WHO should purchase term life insurance?
A term life insurance policy can be beneficial for several types of people, including:
  • Parents of young children
    If you die while your children are still young, they may not be able to maintain the same quality of life that you were able to provide for them.  A term life insurance policy can help provide your children with a financial safety net, should you pass away before they are grown up and gain financial independence.
  • Homeowners and people with co-signed debt
    If you have any co-signed debt, such as car payments, a mortgage or bank loans, your surviving co-signer will be responsible for that debt if you die before it is paid off. A term life insurance policy can provide help protection for your co-signer for the term of that debt, or until it is paid off.
  • Primary household income sources
    A 30-year term life insurance policy can help cover the working years of a household “breadwinner” (or primary household source of income), providing income replacement in the event of their death.
  • Stay-at-home parent
    If a stay-at-home parent were to die, the services they performed in the home might need to be hired out through home cleaners and babysitters and would no longer be “free.” Things like child care and cleaning can become costly for a single parent. A term life insurance policy payout can help cover some of these expenses.

Permanent Life Insurance
 
Permanent life insurance provides lifelong protection. As long as the policy premiums are paid on time, your designated beneficiary will receive a payout after you pass away.
Permanent life insurance policies can accumulate a cash value that can be withdrawn, borrowed against or even used to pay the policy premiums. Sometimes a permanent life insurance policy may even pay out dividends.

The most common types of permanent life insurance are:
  • Whole life insurance
    Whole life insurance premiums remain level for the life of the policy. Whole life policies include a cash value that can accrue over time.
  • Universal life insurance
    Many universal life insurance policies give you the ability to adjust your policy premiums as your needs change over time. Like a whole life insurance policy, a universal life policy can accrue case value over time. In many cases, you can use this cash value to pay your policy premiums.
  • Variable life insurance
    The cash value tied to a variable life insurance policy can include investment features like money market funds, stocks and bonds. Similar to whole life insurance and universal life insurance, variable life insurance gives you permanent protection, as long as your policy premiums are paid on time.

WHO Should Purchase Permanent Life Insurance?
Permanent life insurance can be beneficial for people in a number of situations.
  • You have a large estate
    Estate taxes can take a significant chunk out of an inheritance. If you have a sizeable estate, a permanent life insurance policy can help offset some of the estate taxes that may be owed by your heirs.
  • You wish to leave a charitable donation
    If you wish to leave behind a cash gift to a charity or other organization upon your death, the payout from a permanent life insurance policy can do just that.
  • You’re a business owner
    The payout from a permanent life insurance policy can be used in a buyout agreement if one partner in a business dies and leaves their equity behind to a spouse or child. It can also help provide financial support to business partners if your passing away puts the business at risk.
  • You have a special needs child
    A child with special needs can require a lifetime of caregiving. A permanent life insurance policy payout can help provide financial protection for their long-term needs after you’re gone.
  • You want to leave behind an inheritance but may not have much to give
    If you would like to leave a gift to your children, grandchildren or anyone else after you paw away but you’re worried you may not have much money to give, a permanent life insurance policy can be one way to ensure you leave behind a level of financial help to the ones you love.
  • You come from a family with health issues
    Some permanent life insurance policies include optional riders that can be added over time. If there are health issues that run in your family, these riders could potentially accelerate your death benefits, waive your premiums, purchase additional coverage and more, depending on your specific plan and your health situation.
 
Ways to Use a Life Insurance Policy

Life insurance deals with two inevitable things in life: Death & Taxes.
Main Uses of a Life Insurance Policy can be categorized as -

1. Financial Protection of a human life value, provide replacement for lost income
2. Wealth management: Assets Allocation Assets Accumulation/Growth, and Providing access to liquidity
3.Guaranteed Tax Free Benefits, in most cases
4. Legacy/Estate planning

 
Most Common Myth or Misconceptions
 
1.  Life insurance benefits are only for the beneficiaries, not the insured. WRONG! 

2. Life insurance is only for people in certain age band. WRONG!

3. Life insurance is not a good idea because I can use the premium money to invest elsewhere (equity, real estate, etc.) for better rates of return. Deadly WRONG!

4. I can not afford the premium. WRONG Again! Because then you can not afford NOT to have it!

5. I will purchase life insurance later when I have the money. WRONG!  Because what qualifies you for a policy is NOT just the money, it's more importantly your health conditions. Nobody knows for sure what's going to happen tomorrow...

6.... And much more... 

For more details, please call Sam at 551-305-4759 or email me at shaosen.cheng@gmail.com, YOU WILL BE GLAD YOU DID!