6 Reasons to Buy Whole Life Insurance or Term Life Insurance

quality term or whole life insurance coverage is important, especially if there are people in your life whose financial stability depends on your income. Many financial experts even consider life insurance to be the foundation of sound financial planning. Find out six reasons why you should purchase whole life insurance or term life insurance to protect your family and loved ones.

1. Income for Dependents

If people in your life depend on your income for financial support, having a whole life insurance or term life insurance policy in place will protect them in the event of your death. Life insurance can replace your income for your dependents so they aren’t left bearing the financial burden of an income lost through death. This applies most often to parents with young children, but is also applicable to couples if the death of one partner would leave the survivor financially stricken. If your parents, adult children, or siblings are your dependents, life insurance can also provide replacement income to benefit them. And, if your surviving spouse or domestic partner’s government or employer-sponsored benefits will see a reduction after your death, having life insurance to replace your income can definitely be useful.

2. Coverage for Final Expenses

Funeral and burial costs can be expensive, but your life insurance can cover the costs. Carefully planned life insurance will also provide funds to cover mortgages and other expenses. Debts and medical expenses not covered by health insurance can also be covered by your life insurance. Life insurance offers protection to the dependents you leave behind, since it can sometimes be utilized as a cash resource.

3. Create Inheritance

Life insurance can allow you to create an inheritance for your immediate relatives or heirs. Even if you don’t have any other significant assets to pass onto your surviving family or loved ones, you can create an inheritance by naming your heirs as beneficiaries in your life insurance policy.

4. Pay Estate Taxes

Rather than leaving your surviving family to take a smaller inheritance or do away with some assets, have a quality life insurance policy in place so the benefits can pay estate taxes. Some life insurance plans provide tax free cash that can be used to pay estate taxes and death duties.

5. Create Source of Savings

Your life insurance can become a sort of savings plan since some types of insurance can create a cash value that is available for withdrawal upon the owner’s request. Another benefit of this “forced” savings plan is that the interest credited is tax deferred, and if the money is paid as a death claim, the interest can be tax exempt (www.iii.org).

6. Make Charitable Contribution

By naming a charity as a beneficiary of your life insurance, you can make a larger contribution than if you donated the cash equivalent of your policy’s premiums. Donating a term life insurance policy allows you to deduct the cost of the premiums from your taxes. And, if you donate a whole life policy, you can deduct the cash value of the policy and the cost of the whole life insurance premiums. In both cases, after you die, the charity you select gets the insurance policy proceeds.

Plan ahead and ensure that you have a quality life insurance plan in place to protect your family.

How to Collect on Lost Life Insurance Policies

A relative has just died. He had a life insurance policy with you listed as the beneficiary. There’s just one problem: the life insurance policy is missing. You have no idea which insurance company wrote it.

If you find the missing life insurance policy in the future, are you still eligible to receive the death benefit?

Hope they paid their insurance bills

If you’re a beneficiary and you find the lost life insurance policy shortly after the insured dies (within six months to a year, for example), claiming the death benefit should be trouble-free.

First, determine if the insured had term or permanent life insurance. If the insured held a term policy, you’ll receive the death benefit if he died before the end of the policy term. If he died after the policy expiration date, you would get nothing.

If the insured had a permanent life policy, you’ll receive the money if the death occurred while the policy was “in force,” meaning all premium payments were made up until the time of death. If the death was a while ago, you’ll receive the benefit with interest from the date of death.

If the life insurance policy lapsed — meaning the insured stopped making premium payments before he died — there’s a chance you might get nothing. When a permanent life insurance policy lapses, most insurance companies switch its status from permanent insurance to one of two options:

“Extended term” — The insurance company uses the cash value of the policy to buy a term life insurance policy for the same death benefit using the cash value of the policy. The death benefit will continue for the longest period the cash value will purchase.

“Reduced paid up” — The insurance company will keep the policy in force permanently, but will reduce the death benefit.

Gerry Brogla, an actuary for State Farm, says in the majority of the cases at his company, the permanent policy continues as extended term if it lapses. At State Farm, extended term is the default option for most permanent policies.

If the policy lapses, and the extended-term period expires before the insured dies, the policy is worthless and the life insurance beneficiary will get nothing. If the insured dies before the extended-term period is up, the beneficiary will receive the death benefit. If the policy lapsed because the insured died (thus ending premium payments and causing the insurance to be placed in extended-term status), the beneficiary will still collect the full death benefit, regardless of when the extended term was up. The beneficiary always needs to supply the insurance company with a death certificate to verify the date of death.

There is no time limit during which a life insurance beneficiary must step forward to collect the money, according to Jack Dolan, spokesman for the American Council of Life Insurers. “If a person shows up 30 years after [the insured's] death, the company still makes good on it,” Dolan assures.

What happens if no one ever reports the death?

If the insured dies and the insurance company does not learn of the death, the policy lapses. Insurance companies will take steps to find out why a policyholder stopped making payments.

When an insurance company stops getting payments, it sends letters to the insured informing him the policy may lapse as a result of unpaid premiums. If the letters go unanswered, the company might initiate a search to find the insured. If that comes up empty, the company will then lapse the policy.

If a beneficiary to a policy never steps forward, it unfortunately means the insured paid money to a policy throughout his life and his beneficiaries never see a penny. This is why its a good idea to make sure beneficiaries are aware of any life insurance policies you have.

If you’re lucky, the state may have your money

In some cases when a beneficiary fails to claim a death benefit for several years, the money is transferred to the state where the insurance policy was purchased under the escheat laws.

If a company knows an insured died and it cannot find the beneficiary, it must turn the full death benefit over to the state comptroller’s department within three to five years of the insured’s death. The money is transferred to the state where the insured bought the policy. The money is considered “unclaimed property” and gets lumped in with dormant bank accounts and uncollected rent deposits. The comptroller’s department maintains a database that lists the names and addresses of lost life insurance beneficiaries.

Many states will try to contact life insurance beneficiaries in an effort to pay the death benefits. In Texas, for example, the names and addresses of the beneficiaries are published annually in each county in the state. In New York, the Web site of the New York State Comptroller’s Office of Unclaimed Funds has an online search to find any unclaimed death benefits owed to you. You can find out the procedures in your state by contacting the office of your state comptroller or treasurer.

Keep in mind your chances of finding the policy with the state are slim. The insurance company has no obligation to hand the money over to the state if it’s unaware the insured died. In most cases, it’s the beneficiary who contacts the insurance company.

Also, the insurer only transfers the money to the state three to five years after it cannot find the beneficiary but knows the insured died. If the state doesn’t have the death benefit, it’s likely the insurer is still looking for the beneficiary or doesn’t know the policyholder has died.

Unclaimed death benefits are rarely transferred to the state. Dave Potter, a spokesman for Hartford Life, says less than 1 percent of his company’s death benefits go unclaimed.

Del Chance, a life insurance claims manager at State Farm, says, “Turning over life policy benefits to an individual state after the death of an insured is extremely rare. State Farm utilizes their own search techniques as well as outside vendors to locate lost beneficiaries in the event of the death of one of our insureds. By and large these procedures have always located the beneficiary.

Tips for making sure your life insurance beneficiaries get your death benefit:

1. Give your beneficiaries your policy information. It can be a difficult and awkward conversation, but an important one.

2. Keep all your financial records (especially your life insurance policies) in one place. Don’t force your beneficiaries to search your house from top to bottom after you die.

Tips for looking for lost life insurance policies:

1. Go through canceled checks or contact your relative’s bank for copies of old checks. Look for checks made out to insurance companies.

2. Ask those who may have known about your relative’s finances. Speak with the relative’s lawyer, banker or accountant. Also contact the relative’s insurance agent.

3. Contact your relative’s past employers. They might know of possible group life insurance. The insured might have also purchased supplemental life insurance through work.

4. Check the mail for a year. Premium bills and policy-status notices are usually sent annually.

5. Look at income tax returns for the past two years. Check for interest income from policies or expenses paid to life insurance companies.

6. Contact the Medical Information Bureau. If your relative bought life insurance fairly recently, there might be a trail of the companies to which he applied. The Medical Information Bureau (MIB) maintains a database that might show if insurers requested your relative’s medical information within the past seven years. Record searches can be requested through the MIB’s Policy Locator Service and cost $75. The MIB says that nearly 30 percent of searches turn up leads.

Term Life Insurance

Life insurance can be of two types-whole life insurance and term life insurance. As the name suggests, whole life insurance covers the whole life, as long as the policy is held and is beneficial only on the demise of the policy holder. Obviously, the benefits of whole life policy depend upon the value of the policy at the time of death of the policy holder. A cash value on the tax defer basis is also accumulated. The dividends are paid throughout the life of the policy.

On the other hand, term life insurance, is evidently purchased for a certain period or term. If the death occurs within that period, an agreed upon amount to the beneficiaries is paid. The payment is not paid if the premiums are not paid or if the death occurs after the expiration of the term. Also, term life insurance has no cash value.

The premiums for term life insurance are low in the beginning of the policy and increase over time. It is not feasible to borrow against the cash value since cash value does not exist in term life insurance, unlike in whole term life insurance. The coverage for a term life insurance varies from five to thirty years and the longer the term, the more expensive the policy will be.

Term life insurance quotes can be obtained from multiple agents and there are lead generating websites that help in getting the quotes. Term life insurance quotes can be obtained instantaneously through websites from companies that vie with each other and alleviate the need to approach the agents for different quotes. Monthly premiums that suit the budget can be obtained for a term life insurance policy and it offers the feasibility of switching over to whole life insurance policy after a period of time.

Universal life insurance that covers everything can also be accomplished. Some of the companies may issue a policy without any medical examination depending upon the answers given to questions relating to the age of the policy holder, occupation and health and evidently, younger age gets a better quote.

Normally, term life insurance is cheaper than whole life insurance and more often than not, the difference between the two values in permanent life insurance and term life insurance is utilized to invest and make a profit. Hence, term life insurance is considered to be profitable and cheaper.

Term life insurance can be bought in increments of ten year term and twenty year term and the premium paid goes directly towards paying for insurance and nothing else and is rightly known as pure life insurance. The objective of term life insurance is to reduce financial risk for a fixed period and is a temporary life insurance.