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New York State Life Insurance
Life insurance is an agreement between you (the insured) and an insurer. Under the terms of a life insurance contract, the insurer promises to pay a certain sum to someone (a beneficiary) when you die, in exchange for your premium payments.
Why Do You Need Life Insurance?
The most common reason for buying life insurance is to replace the income lost when you die. For example, say that you work, and that your income is used to support yourself and your family. When you die, and your paychecks stop, the life insurance proceeds can be used to continue to support the family members you’ve left behind.
Another common use of life insurance proceeds is to pay off any debts you leave behind. For example, mortgages, car loans, medical bills, and credit card debts are often left unpaid when someone dies. These obligations must be paid from the assets left behind. This can deplete the resources that your family needs. Life insurance can be used to pay off these debts, leaving your other assets intact for your family to use.
Life insurance provides liquidity to your estate. When you die, you may leave some liquid assets (such as cash, CDs, and savings bonds), and some illiquid assets (such as real estate, an automobile, and stocks). Your liquid assets may not be enough to pay all the debts that you leave behind, plus all the expenses that arise because of your death (such as funeral expenses and estate taxes). Your illiquid assets may have to be sold in order to meet these obligations when they come due. This may cause a financial loss if the assets must be sold cheaply in order to get the money on time. Life insurance can avert this situation, because the proceeds are available almost immediately upon your death.
Life insurance creates an estate for your heirs. After your debts and expenses are paid, there may not be much left over for your family. Life insurance can automatically provide assets for them after your death.
Life insurance is a great way to give to charity when you die. You may have always had a great philanthropic desire, but not the means to make it a reality. Life insurance can do that for you.
Life insurance can be a critical component for specialized business applications, such as funding a buy-sell agreement. Under a buy-sell agreement, life insurance can be used to provide cash for the purchase of a deceased owner’s interest in the business.
Finally, life insurance can be an investment vehicle. Some types of life insurance policies may actually make money for you, as well as provide the benefits described above. This can help you with long-term financial goals.
Life insurance needs at various life stages, life insurance as a savings vehicle, life insurance and estate planning, life insurance and charitable giving and more.
What Do You Need To Know About Life Insurance?
You need to know that there are several kinds of policies that may be available to you, if you are healthy enough.
Term life insurance policies provide life insurance protection for a specific period of time or term. If you die during the coverage period, the beneficiary named in your policy receives the policy death benefit. If you don’t die during the term, your beneficiary receives nothing.
Permanent insurance policies provide insurance protection for your entire life as long as the policy remains in force. In addition to the insurance protection provided, this type of policy also builds internal cash values, often described as a savings account within the policy.
Types Of Permanent Life Insurance Policies
- Whole Life
- Ordinary Level Premium Whole Life
- Limited-Pay Whole Life
- Current Assumption Whole Life
- Variable Life
- Variable Universal Life
- Joint Life (1st To Die)
- Survivorship (2nd To Die)
You also need to know that the cost of life insurance will depend upon the type of policy, your age, and your health.
A life insurance contract is made up of provisions, options, and riders. Provisions describe or explain features, benefits, conditions, or requirements of the contract. Options are features of the agreement that require you to make a choice regarding some aspect of coverage. Riders are additional coverage (or endorsements) offered by the insurer at the time of application and added to the standard agreement in return for an additional premium.
Finally, you need to know the tax consequences of owning life insurance.
- Life insurance premium payments are not tax-deductible expenses.
- In general, the death benefit paid to the beneficiary is not included in gross income for federal income tax purposes, because it is paid with after-tax dollars.
- You must be very careful about who owns the policy and who the beneficiaries are, in order to avoid estate taxes on the proceeds when you die.
Where Can You Get Life Insurance?
Your employer, or an association to which you belong, may offer a group life insurance plan. If not, you can buy an individual policy through a licensed life insurance company.