Arvin D. Pfefer - Senior Advisor
 
   
 
Click on one of the links below or use the scroll bar on the right to view all of the FAQs. 2222222222  
Do You Really Need Life Insurance?
How Much is Right for You?
What About Rules of Thumb?
What are some other reasons you may want to consider life insurance?
How can I choose the policy that's right for me?
What are my options?
How can I conserve costs?
What if I already have life insurance coverage?

Can I trade or replace my policy?

 

Do You Really Need Life Insurance?

No, you don’t need life insurance.  But... if you are like most people you probably feel that you have at least some responsibility for those who depend on you.  Life insurance can provide those who depend on you with a lifetime of financial security.

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How Much is Right for You?

Many people have trouble figuring out how much life insurance is right for them.  It’s important to buy enough coverage so your family is taken care of, but you shouldn't overpay for insurance you may not need.  Arvin D. Pfefer will help you choose the appropriate amount of coverage for your specific situation.

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What About Rules of Thumb?

Some have recommended following a “rule of thumb” method which is simply based on a multiple of your annual income.  Since everybody’s financial situation is different, there is no “rule of thumb” that can tell you with any degree of certainty how much life insurance you should own.

You may have also considered buying only enough life insurance to cover a mortgage or other outstanding debt. While mortgage life insurance will pay off your mortgage, it will not provide a dependable income for your family

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What are some other reasons you may want to consider life insurance?

In addition to the comfort of knowing that you have provided for your loved ones after your death, there are several other reasons you may want to consider life insurance, including:

  • If your policy has cash value, the cash value may be used to help with big-ticket items such as college education or a down payment on a home. Most cash-value policies enjoy a tax-deferred status, meaning that you do not pay taxes on any cash value accumulation until you receive funds from the policy.
  • Life insurance can be used to pay estate taxes and funeral expenses. If an individual dies in 2004 and his or her estate is worth more than $1,500,000, federal estate taxes at rates as high as 48% may be payable, usually due within nine months of death.  So, even if you have a substantial sum of money, life insurance can be a benefit. The proceeds usually go directly to your beneficiaries without going through the probate process.

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How can I choose the policy that's right for me?

Life insurance is a long-term commitment. Before buying any policy, ask yourself these very important questions:

  • How much insurance do I need? If I were to die, what would my spouse and dependents need in order to live comfortably?
  • In addition to protection, what am I trying to accomplish with life insurance? Am I accumulating funds for education costs? Providing away to pay estate taxes? Do I need some additional supplemental income for my retirement or emergencies? Remember that Term life pays a death benefit only, while Whole, Universal and Variable policies can supplement your income through withdrawals or loans against a policy's cash value.
  • How much can I afford to pay for a policy?
  • Is the insurance company I'm considering financially secure? Do they have a good claims payment history, good customer service and competitive prices? Independent companies such as Standard and Poor's, A.M. Best, Moody's, Fitch and Weiss rate insurance companies and their publications can be found in your local library.

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What are my options?
There are four basic types of life insurance to meet your individual needs.

Term life insurance is the least expensive type of coverage, at least initially, and the simplest. These policies do not build up a cash value. Coverage is in effect for a fixed term or period of time - usually one to 30 years - and usually can be renewed. The policy pays your beneficiary a fixed amount of money if you die during the term of the policy. The premiums are lowest when you are young and increase upon renewal as you age. Be sure to check your policy for age or other renewal restrictions.

Whole life insurance provides protection as well as a cash value. The premiums remain at a fixed level for the duration of the contract. Over time, the policy generally builds up cash value on a tax-deferred basis. Many companies pay policyholders a dividend. Dividends provide both flexibility and increased value to your life insurance policy. They can add more coverage to your overall insurance benefit and can build a sizable cash value.  You may prefer this type of coverage since the cash value can benefit you while you're still alive. You can use it to supplement retirement funds or help provide for a child's education - it's your money to use as you need. You should, however, keep in mind that life insurance should not be purchased solely for accumulation. Its primary purpose is protection. Also, withdrawals and/or loans will decrease the death benefit.

Universal life insurance is a flexible life insurance plan. These policies are interest-sensitive and permit the owner to adjust the death benefit and/or premium payments, within limits, to fit the owner's situation. Your net premium payments are applied to the accumulation fund, which earns a guaranteed interest rate. The monthly cost of the death benefit and policy administration is deducted from the accumulation fund. As with whole life insurance, the cash value is yours — you may withdraw it or borrow against it at any time. Read your policy carefully to understand how withdrawals may affect the death benefits. Since you decide how much premium to pay, within limits, some universal life policies even allow you to skip payments. If you skip a premium payment, the administrative and death benefit costs are deducted from your cash value. The policy stays in effect until your cash value can no longer cover these costs. Make sure you understand your annual statement so you know how much interest your policy is earning and how much cash value you have. Universal life insurance rates are subject to change, but the rate will never fall below the minimum rate guaranteed in the contract.

Variable life insurance is for those who want to tie their life insurance policy to the performance of the financial markets. You decide how your net policy values are to be invested. Your cash value may have the opportunity to accumulate more rapidly than with other cash value policies, but you incur additional risk. If market performance is poor, your death benefit may decrease, and you may have to pay higher premiums to keep the policy in effect. As with whole and universal life policies, you may borrow against or withdraw the cash value at anytime. Keep in mind that loans and withdrawals may reduce cash values and the death benefit. Read your policy carefully for any possible charges associated with these transactions. These policies are sold by prospectus, a valuable disclosure document, that you should also read carefully.

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How can I conserve costs?

Here are some ways you can save money when purchasing the life insurance that's right for you.

  1. Don't buy insurance if you don't need it, and don't buy more insurance than you actually need to provide for your loved ones. 
  2. Shop for a competitively-priced policy while you are in good health. Don't smoke. Take care of yourself by exercising regularly and maintaining a moderate weight.
  3. If you buy term insurance, look for guaranteed renewable policies. That way you won't have to shop for a new policy (with higher premiums) when you're older.
  4. Buy additional riders, which are optional forms of coverage, only if you need them.
  5. Shop around and compare prices and coverage. There are over 2,000 companies selling life insurance policies. Get at least three quotes on comparable policies, and ask questions about the policy's renewal and withdrawal provisions.
  6. Participate in your employer's sponsored life insurance program, even if you have to contribute or pay for it. This form of life insurance coverage, known as group insurance, pools good, average and poor risks to offer a benefit that can be less expensive than comparable plans offered outside of work. You may be able to obtain coverage up to a certain level without providing evidence of good health, a key advantage. Additionally, group insurance plans often provide for continued coverage during periods of disability. Many plans are administered through payroll deduction, a very convenient way to pay for coverage. And finally, many plans allow you to continue your coverage even after you leave employment by continuing payment of premiums or converting coverage to an individual policy.

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What if I already have life insurance coverage?

Even if you have life insurance, keep in mind that life changes and, as it changes, so do your needs for protection. Your life insurance needs should be reviewed every few years. Any of the changes listed below should prompt you to sit down with your insurance agent to make sure your plan is still appropriate.

  • You have recently married or divorced
  • A child or grandchild has been born or adopted
  • Your health or your spouse's health has deteriorated
  • You have begun to provide care or financial help to a parent
  • A loved one will require assistance or long term care
  • You have recently purchased a new home
  • Your children or grandchildren are about to enter school or college
  • You or your spouse retired or will retire early
  • You or your spouse has been promoted recently
  • You have refinanced your home mortgage in the past six months
  • You or your spouse has received an inheritance

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Can I trade or replace my policy?

You can trade or replace your policy, but it's not something to be considered lightly, regardless of whether you are thinking of switching policies within the same company or switching from one company to another. New policies typically have high costs the first few years and there is normally a new "contestability period" during which the insurer can cancel the policy and refuse to pay death benefits if an application was misleading. If you want to increase your total life insurance, it is probably better to keep your old policy and simply add a new one, or increase your specified face amount under the same life insurance policy. For example, suppose your objective is to have $100,000 of life insurance and you currently have $50,000. It maybe better to keep the existing $50,000 policy and buy a second $50,000 policy to reach your goal of $100,000. Your existing policy premiums will generally be less than those for the new policy, because you bought it when you were younger and you won't lose any existing cash value. Be sure to ask your agent, financial advisor or insurance company about the best alternative for your specific situation.

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