How Life Insurance Works
A true life insurance story…
A Mother’s Love
I once had a client who was a single mother of 2 children.
This mother was dedicated and loving. Her children were her world.
She purchased life insurance to be sure that if anything happened the children would be taken care of.
Unfortunately, about a year later she was killed in a terrible car accident.
After some time had passed I reached out to my deceased client’s mother who was the beneficiary. I wanted to check on her and the children.
She expressed how grateful she was for the term life insurance that her daughter purchased.
Although, it didn’t erase the pain the insurance policy was a true life saver. The grandmother expressed that without the life insurance she wasn’t confident she would have the resources needed to care for the children until they become adults.
Here’s how life insurance helped this family…
- They were able to take care of the funeral expenses with no worries.
- The grandmother was able to pay off the home the daughter had recently purchased to secure the children’s future. She moved into the home with the children and could afford the help of a caregiver/nanny for her and the kids.
- There was enough money left over to set up a trust fund for the children’s ongoing needs.
- She then took some of the remaining life insurance funds and increased her own coverage so that if something happened to her that money could also help support her grandchildren.
If anyone depends on your income or will suffer a loss when you pass away…you need life insurance. It’s important
Here’s how life insurance works…
In exchange for a small monthly premium a life insurance company will provide a guaranteed sum of money to your family in the event of your passing.
Life insurance funds may be used for any need the family has.
- Pay off a mortgage
- Pay off consumer debt
- Start a business
- Pay college tuition
- Support a charity
- Fund a family trust
Life insurance also provides a tax free inheritance…
Many people only view life insurance as a way to pay for funerals but, it can do so much more. Life insurance is an integral part of a well-rounded family wealth plan.
Life insurance is the only pillar of generational wealth building that is passed to the family tax free and guarantees a specific amount.
4 Pillars of Generational Wealth
- Life Insurance
- Real Estate
- Stocks
- Business
5 Questions you need to ask before purchasing life insurance
- How long will my coverage last?
- Will my price go up? If so, when and by how much?
- Will this plan cover both my short-term and long-term life insurance needs?
- Does coverage start immediately or is there a waiting period?
- Are there any additional benefits?
Here are a few life insurance terms you should become familiar with…
Accelerated Death Benefit– This provision allows the insured to receive a portion of the death benefit while still living. The money is paid if the insured suffers a heart attack, stroke, invasive cancer, critical illness, or chronic illness.
Accidental Death Benefit– This rider pays an additional benefit amount if the insured passes away from an accident instead of natural causes.
Beneficiary (Primary)– The person(s) or entity that is listed to receive the money from your life insurance policy when you pass away. You may elect more than one beneficiary and determine the percentage each receives.
Beneficiary (Contingent)– The person(s) or entity that would receive your life insurance payout if the primary beneficiary(s) precede you in death. Some call this your “back up” beneficiary
Broker– An independent insurance agent that represents multiple life insurance companies.
Captive Agent– A life insurance agent that works for one company and isn’t allowed to solicit insurance from other life insurance carriers.
Cash Value– Cash value refers to an investment component in life insurance that grows tax-free. Cash value is a part of permanent life insurance policies. Cash value can be borrowed from, withdrawn, or even used to make life insurance payments.
Face Amount– The base amount of life insurance coverage provided in your policy.
Lapse– A loss of life insurance coverage once it goes outside of the grace period. After a policy lapses it cancels the death benefit.
Reinstatement– Restoring a lapsed policy by paying any back premiums required.
Rider– Additional benefit attached to the policy. Some common riders include children’s insurance rider, accidental death, long term care, and disability income. Available riders very by insurance company.
Term Life Insurance– A temporary life insurance policy that offers coverage for a specified period of time.
Underwriting– The process the life insurance carrier goes through to examine risk and either approve or deny an application for coverage. Underwriting generally involves a list of health questions but, can also include a motor vehicle report, exam, prescription history check, a medical information bureau report, and/or medical exam
Universal Life Insurance– A flexible life insurance policy that can be customized to act as either short-term or long-term insurance. Universal life can also be designed with or without cash value accumulation.
Waiting Period– A stipulation placed on some life insurance policies that says if the insured dies within the first two policy years the beneficiary will receive the premiums paid instead of the death benefit.
Whole Life Insurance– A permanent life insurance policy that is designed to build a guaranteed amount of cash value.
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Here at A.L. Johnson Life Insurance Agency we pride ourselves in providing excellent service to our clients.
Need immediate assistance. Call us at 913-279-1463. You may also use the contact form below.
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