Insurance Articles

Life Insurance 101

There are many decisions to make when assessing your life insurance needs, and one of the most basic is whether to choose term or permanent insurance. Another important question to ask yourself is "how much insurance do I need?". For answers to these questions and to learn more about life insurance terminology, read through the information below.

Term Life insurance, as the name implies, is for a specific amount of time - typically 5, 10, 15, 20 or 30 years. It provides a death benefit, has no cash value, and is the lowest cost life insurance product available.

Universal Life is a flexible premium, adjustable-benefit life insurance contract which accumulates cash value. Flexible premium means that (subject to certain limitations) the policy owner may pay more or less than the premium stated in the contract. Depending on certain factors, premium payments could be skipped in particular years at the policy owner's discretion. The adjustable benefit allows the policy owner to increase or decrease the stated death benefit, subject to certain guidelines.

Whole Life is the most basic type of permanent life insurance. Your premium will purchase a specific death benefit and produce a specific cash value, which are guaranteed for the life of the policy as long as the premiums are paid. Whole life premiums are usually higher than term premiums, but are guaranteed not to increase.

When should I consider Permanent vs. Term life insurance?
Look into Whole or Universal life insurance if you

Want to build cash value on a tax-deferred basis.
Desire insurance coverage beyond age 65.
Want lifetime protection and don't want your coverage to terminate in any specific year.

How much life insurance do I need?
The "rule of thumb" used by insurance experts suggests an amount equal to 6-8 times your annual earnings. This estimation is not exact, however, and many factors should be taken into account in determining your coverage amount. Important factors to consider include income sources other than salary, whether you are married and your spouse's earning potential, the number of individuals who are financially dependent on you, the amount of death benefits payable by Social Security and from any employer-sponsored insurance plan, and any special needs (such as mortgage repayment, education funds, etc.).

It is recommended that your insurance advisor be contacted if you are unsure of the amount of coverage you want to purchase. Call AAA today if you would like a no-obligation insurance needs analysis. 1-800-333-4242

Life Insurance Terminology

Beneficiary	The person(s) to whom the death benefit is paid upon death of the insured.
Cash (Surrender) Value	The amount that is available in cash for loans and that may be available for withdrawals. Accessing Cash Surrender Value may reduce the death benefit and may increase the risk of lapse.
Conversion Option	A conversion option is a Term life insurance policy provision that allows for conversion to a permanent life insurance product (of equal or lesser face value) without a new application or physical examination.
Face Amount	The amount stated on the face of the policy that will be paid to the beneficiary upon the death of the insured. Depending on the type of insurance, the death benefit may be fixed, increase or decrease during the life of the policy.
Insured	The Insured is the person on whose life the policy is issued.
Premiums	The amount paid for the life insurance. Depending on the type of policy, the premium may be level, increasing, or decreasing during the life of the policy. Premiums may be paid monthly, quarterly, semi-annually or annually.
Waiver of Premium	A provision of a life insurance policy which continues the coverage without further premium payments if the insured becomes totally disabled.

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