Resources: Life Insurance FAQ
Knowledge Database around Employee Benefits
Get answers to frequently asked questions about life insurances.
If you have anyone that depends on you to provide for them, how will they be provided for in the event of your death? Life Insurance policy will pay the face amount to the beneficiary.
There are two kinds or types of Life Insurance, Term and Permanent Life Insurance.
Term Life is a contract between the owner and the insurance company. The owner is usually also the insured. Term Life has a preset length of time, i.e., 10 yrs., 20 yrs., etc. that the contract will payout upon the insured’s death. During the same preset length of time the premiums remain the same. The owner designates a beneficiary or beneficiaries who will receive a check upon the insured’s death. If the insured does not die during the term the insurance policy ends.
There will be no payout. There is nothing returned to the owner in the form of a refund.
Permanent Life Insurance is for someone that wants life insurance throughout their entire life, rather than 30 yrs. or less. Permanent Life Insurance will payout regardless of age when the insured dies. These policies will be more expensive. The policy may build cash value after 10+ years of premium payments. The cash value will increase every year and you may be able be withdraw or borrow some of the cash value.
The least expensive type or kind of Life Insurance is Term Life. The cost is dependent on two things; your age and the length of time you want the policy. It is inexpensive if you are younger or want the policy for short term (10 yrs.). It will be more expensive the older you are and the longer the term you choose. Additionally, if you are in poor health the policy will be more expensive.
You can buy a policy individually or in a group. The group could be your employer or a professional organization. The group policies will always be less expensive than individual policies. The specific cost will depend on your age and amount of the policy.
Insurance companies are regulated by the state and must have reserve money to pay all claims. The state of Texas guarantees that a claim of $300,000 or less will be paid. Other states may have different laws.
All death benefits paid out by insurance carriers are tax free.
When buying group insurance, individuals have the opportunity to purchase some amount of Life Insurance without answering or providing any medical information. Guarantee Issue insurance is offered during limited times and not always available.
Disability Insurance pays out if you are unable to work. There are types of Disability Insurance, Short Term and Long Term.
- Short Term Disability (STD) can have a benefit period of 12 to 52 weeks, depending on the policy. There can be a waiting period before benefits begin. Benefits are usually paid weekly and have a minimum and maximum amount. Most STD policies are available in a group situation.
- Long Term Disability (LTD) can have a benefit period of 24 months to full retirement age, depending on the policy. There is a waiting period that has to be met before benefits pay out. During the waiting period STD can be paid. Benefits are usually paid monthly and have a minimum and maximum amount.
Employers can offer Group Disability Insurance to their employees. Anyone can buy Individual Disability Insurance however, you must be able to prove you have a source of income.
Benefits are determined by a percentage of your income. Usually 60% or 65% of income covered.
The cost is based on your age, the salary that is being covered and the length of the benefit period.
If the premium is paid by after tax money, then the benefits are not taxable. If you are uncertain what is after tax money please consult your tax preparer.