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Life Insurance

Video Text

Nicole: Welcome to our first topic, second video, we are going to be talking about Life Insurance. Mr. Gissas why don’t you tell us some of the benefits of life insurance.

MJ: Life Insurance is a very important part of your financial plan. I think it is the most under utilized tool that is available to an individual. Life insurance is important because it is transferring the risk to an insurance company, so when you pass away, and if you have debt, or you have estate taxes that you have to pay, that life insurance policy will go to pay those debts and also replace your income that was lost after you pass away.

Nicole: We hear all the time, people talking about term versus permanent. Can you explain those to me and how they are different?

MJ: Term insurance is the cheaper of the two options and allows someone to purchase an amount of insurance, say one million dollars for a small amount of premium but only for a specified term, whether that be five, ten or thirty years. But once that term is over, the life insurance is over.

For a permanent policy, that is permanent insurance, you are buying it now and you will have that policy up until you reach age 120.

Nicole: Up until 120, so basically the will guarantee that I live to be 120?

MJ: I don’t know about that, but it will guarantee that you will be insured up to age 120.

Nicole: How would I qualify for a life insurance policy, term or permanent?

MJ: Some policies offer guaranteed issue, which means that you don’t have to go through an “underwriting process”. But typically, you will go through and find out what your health rating is.  Are you a healthy person, are you a smoker and depending on your age, health, and your sex, will determine what your health rating is and that will really determine what you will be paying for that life insurance.

Nicole: Great, that’s really good to know. So, staying healthy has its benefits.

MJ: That’s right!  Nicole, in your profession, what do you think the importance is in having a life insurance policy as far as your estate plan goes?

Nicole: A life insurance policy is critical to any estate plan. The proceeds of a life insurance policy pass outside of your estate and outside of your wealth and without the need for probate oversight. That can save your heirs thousands of dollars in probate costs. There is a plethora of other things that could end up happening. An heir can challenge the estate, and that asset (life insurance) is not part of the estate. A creditor or heir could challenge but they will not get away with that asset, so it’s protected.

MJ: So, you are saying that we have to have proper beneficiary designation?

Nicole: Absolutely! Your beneficiary is critical, without a beneficiary that defaults back to the estate and that death benefit is subject to creditor claims, challenges by heirs and other administrative costs in settling the estate.

MJ: Wow! That is all very important information.

Nicole: Life insurance vastly expedites the process. Are there any other benefits to life insurance?

MJ: That is a great question. Life insurance nowadays has a benefit, when you put money into a permanent life insurance policy, you are not paying for a death benefit but you are also paying for a cash value component and some of these cash value components can be tied to an index, in an index universal life policy, in which the cash value is growing based on how the performance of the stock market is doing. So, typically in a life insurance policy you can see growth between 5-6% and if you ever need that cash you can borrow against that life insurance policy.  You will never have to pay it back and never get taxed on it, and the death benefit will pay for it (the loan) when you pass away.

Nicole: So, when do you think the right time to buy life insurance is?

MJ: Well, the best time would be, yesterday! If you have any questions regarding life insurance or estate planning, leave a comment in the comment section below.

Nicole: Stay tuned for our next video: Beneficiary Designations