Life Insurance FAQ
Clear your doubts
Life Insurance Products can be difficult to figure out. In order to help you make the best decision possible, we’ve tried to provide answers to a list of commonly asked questions. If you’d like Colva to answer these questions for you in person, feel free to contact us at [email protected] to schedule a free Consultation.
Basic Life Insurance Questions
How much life insurance do I need?
The amount of life insurance you need depends on:
- The amount of income your beneficiaries would need to cover their financial expenses in the event of your death. These expenses include such items as rent, food, entertainment, college tuition, etc.
- The assets you currently have available to provide for the beneficiary needs above.
Learn more about the Colva’s free Death Benefit Analysis Service that Colva provides or Get A Quote and a licensed agent and actuary will provide with a free Death Benefit Analysis as well a Life Insurance Quote and Product Recommendation that best meets your needs.
How long do I need life insurance coverage for?
The length of coverage needed again depends primarily on the financial needs of the beneficiary in the event of your death. If your beneficiary is a child you probably want to cover them until they reach adulthood and are financially independent. If your beneficiary is a spouse, they would probably need either lifetime coverage or until such a time that the spouse can access any pension incomes from retirement.
What is the difference between a Term Insurance policy and a Permanent Insurance Policy?
A term insurance policy covers you for a specified amount of time—generally 5, 10, 20, or 30 years. You pick the number of years that you want before purchasing the policy. This is the cheapest form of insurance policy you can get because at the end of the specified term, your policy expires and you are no longer covered. Types of term policies include 5 Year level term, 10 Year level Term, 20 year level term, 20 year annual renewable term, and 30 year level term.A permanent policy is significantly more expensive than a term insurance policy for two reasons:1) It covers you for the entire lifetime of the insured. As long as you pay enough premiums to keep the policy in force, the policy will cover you for as long as you live.
2) Part of the premium you pay goes into a tax-deferred investment account (similar to a tax-deferred investment account) that grows interest and which you can access and partially withdraw from to pay for certain expenses such as college tuition, deposits on a house, etc, provided certain conditions are met.
Types of permanent policies include
Whole Life (WL), Universal Life (UL), and Variable Universal Life (VUL).
What are the different types of Term policies and how do they work?
As mentioned in the question above, term policies have a specified length of coverage attached to them. The length of this term can range from 1 year to 30 years. You pay the premium each year and can choose to cancel the policy at the end of each year and not pay any more premiums. There are a couple of types of term policies:
A level term means that you pay the same premium each year of coverage.
Annual Renewable Term (ART):
The ART Policy has a premium amount due that increases over each year of coverage. The ART premium is smaller than the premium for a corresponding Level Term Policy in the early years of coverage, but increases to a point where the later premiums are higher than the corresponding Level Term Policy premiums.
Return of Premium (ROP) Term:
The ROP Policy returns all premiums paid into the term policy at the end of the term if the insured survives. Because of this feature, ROP policies are generally 25% to 50% more expensive than the comparable Level Term Policy.
What type of Term Policy best suits my needs?
policies are best suited for individuals who prefer to spend more today than risk paying more later and are fairly certain that they will keep the term policy for the entire term period.
Annual Renewable Term (ART)
policies are best suited for individuals who think that they might not need insurance coverage for the entire duration of the term. If they end up cancelling their policy a couple of years in to their coverage, they would have saved a lot of money in premium costs that would have been paid if they had purchased a Level Term Policy.
Return of Premium (ROP) Term
policies provide a great return on investment if you keep the policy for the entire term period and you survive the term period. However, if you decide to cancel the policy before the end of the term period you would have lost 25 to 50% more than if you would have purchased a Level Term Policy and cancelled it.
What are the different types of Permanent Insurance Policies and how do they work?
As mentioned above, permanent Insurance policies are more expensive than term policies because part of the paid for the policy is allocated to a tax-deferred investment account known as a cash value account. There are three main types of permanent insurance policies:
Whole Life Insurance (WL):
Whole Life Insurance provides you with two guarantees:
Guaranteed Level Premium:
The premium level for a whole life policy is guaranteed to keep the policy in force as long as the premium is paid. The policyholder will never have to pay more than this guaranteed premium.
Guaranteed Cash Value Account:
The cash value account is guaranteed to accumulate at a specified rate—even in adverse economic environments.
Whole Life also provides you with a non-guaranteed dividend that depends on the mortality experience of the company as well as the economic environment.
Universal Life Insurance (UL):
Unlike Whole Life, Universal Life does not have a guaranteed level premium or guaranteed cash value accumulation. This allows the Universal Life Product to offer the policyholder less stringent premium requirements and better cash value accumulation since the mortality expenses associated with the cash value account are not as high. As long as the cash value account is positive, the policyholder does not have to pay any premiums into the policy. The money in the cash value account is invested in safe investments and while there is a minimum guaranteed interest rate like in Whole Life, the rate credited to the cash value account is generally higher than this rate if the economy and insurance company are doing well.
Variable Universal Life (VUL):
Variable Universal Life is like Universal Life except that the policyholder has the option to invest in more aggressive investments that will result in higher cash value accumulation. Higher performance on these investments means that the policyholder can pay less premiums in the future in order keep his policy in force. However, if these investments do poorly then the policyholder will have to pay more premiums in the future than he had originally planned to in order to make up for this poor performance. Since the policyholder—and not the insurance company—is choosing the investment funds for himself, there is no minimum guaranteed interest rate.
Should I get a term or permanent life insurance policy?
Since the expenses for permanent life insurance are excessively high, it is usually meant for wealthy individuals looking to avoid the estate tax or those who can invest large amounts of money into the policy in order to overcome the high expense structure and earn a great guaranteed tax-deferred return. The average policyholder should be electing a term policy with a coverage period that meets their financial obligations to their beneficiaries. However, if you’re a young adult with long-term insurance needs you might be economically better served by purchasing a permanent policy as the expenses for these products are significantly reduced the younger you are. Click here to learn more about the difference between term vs permanent life insurance policies and the suitability of each of these policies for your needs.
I already receive life insurance through work, do I need additional life insurance?
Probably. Companies can only offer employees up to $50,000 of life insurance as an employee benefit. Anything above that amount requires the employee to pay for themselves at rates that do not involve any medical underwriting. Since the insurance company does not do any medical underwriting on the employee, they have to assume that he or she is in relatively poor health and offer rates accordingly. If the employee is in very bad health, then he or she should choose to get as much life insurance as possible. However, most individuals would achieve much better rates by applying for insurance themselves and being medically underwritten. It’s also important to note that the life insurance coverage offered by the employer expires if the employee leaves the company and that future employers might not offer this benefit.
Why should I choose Colva to service my insurance needs?
Colva offers its policyholders unprecedented actuarial and insurance product expertise in comparison to its competitors who are just sales agents. The following features separate Colva from its competitors:
Non-Commission Based Approach:
Colva ensures that we emphasize the exceptional insurance
we provide—and not just the insurance
that other agencies offer. Our Non-Commission Based Approach includes the following features:
Full Disclosure of Colva’s commissions:
Colva discloses all potential commissions that we would receive from any insurance product that we sell you. A typical sales office tries to conceal the extent of these commissions.
Free Death Benefit Analysis:
Colva’s free Death Benefit Analysis Service helps clients determine the right amount of life insurance that they need which prevents them from both purchasing insurance that they don’t need and leaving their beneficiaries financially unprepared.
Free Premium Analysis Service:
Colva’s free Premium Analysis Service helps clients to minimize the premiums that they need to pay on their permanent life insurance policies—instead of maximizing it to enhance our commissions.
Colva’s Actuarial Expertise in pricing insurance products means that the person selling you an insurance policy has hands-on experience working in the pricing department of a large insurance company. The ideal person to help explain to you the complicated features of a life insurance policy is someone who actually helped design and develop them. At Colva, we offer you that personal expertise. Our Actuarial Expertise also affords our potential permanent life insurance policyholders access to our free Premium Analysis Service which helps you minimize the premiums you would pay on a permanent life insurance policy. Other insurance agencies might be incentivized to have you pay a larger premium than you need to since the commission they receive for selling you an insurance policy is based on the first year premium that you pay.