AAA Life Insurance

Life insurance helps you take care of your loved ones after you’re gone. When you pass away, your policy pays your beneficiaries a death benefit so they have greater financial stability. They can use the money to pay for your funeral, the mortgage, household expenses, and more.

When you purchase a life insurance policy, you’re signing a contract with your insurer and will pay your insurance premiums. When you pass away, it’s your insurance provider’s job to pay your beneficiaries—the people who receive the payout from your life insurance policy, such as your partner and children. 

Once you’ve purchased your policy (and chosen your beneficiaries), you might be able to choose whether your loved ones receive monthly payments or larger annual payments, depending on your insurance options and selected policy.

The cost of your life insurance premium will depend on factors like:

• Age: Younger policyholders typically pay a lower premium than older policyholders.
• Health: If you’re healthy and don’t smoke, your premiums may be lower.
• Family medical history: If your immediate family members don’t have chronic diseases, life insurance premiums usually cost less.
• Gender: Women tend to live longer than men and, therefore, typically pay lower premiums.
• Activities: People who have risky jobs, like police officers, as well as those with risky hobbies, may pay more.
• Driving record: A history of moving violations may hike your life insurance cost.
• Policy: Short-term policies cost less than long-term policies.
• Coverage amount: The larger the coverage amount, the higher your premium.

Life insurance payouts are generally not subject to taxes. Any interest you receive, however, is taxable. So it’s best to discuss your situation with an insurance professional or tax advisor.

Each person’s situation is unique, but you can start by figuring out how much money your dependents will need. Some financial experts advise buying a coverage amount that equals at least five times your annual salary, then add $100,000 for each child’s education expenses.  

It’s best, however, to assess your family’s specific situation. To arrive at a more accurate figure, use this formula: 

[Your Family’s Anticipated Expenses] – [Your Financial Resources] = Life Insurance Need

When tallying your family’s anticipated expenses, include replacement of your income (life insurance agents suggest five years’ salary with a bit extra to account for inflation). You’ll also want to include your mortgage and other debts like auto loans, credit card debt, and student loans. And be sure to include your children’s anticipated college costs.

When adding up your financial resources, include social security survivor benefits, savings accounts, any retirement plans like a 401(k), and your kids’ college funds.

Life insurance helps cover your beneficiaries’ financial needs after you pass away. Your policy’s payout can be used to pay for expenses like:

• Mortgage payments
• Daily living expenses
• Auto loans
• Medical bills not covered by health insurance
• End-of-life expenses and funeral costs
• Education expenses
• Family business

Yes, you can have multiple life insurance policies. You might have a group life insurance plan through your employer, for example, as well as a policy that you bought on your own. Or, you might buy a general life insurance policy to cover your family’s living expenses and a burial policy to cover your own funeral costs.

Stacking multiple policies can give you flexibility and extra coverage that helps you meet your goals at various life stages. 

If you have a permanent life insurance policy, like whole or universal, that grows cash value, you may be able to borrow against its value—or at least some of it. Just be aware that any unpaid loan will reduce the death benefit and there is usually interest charged on the loan.

How soon you can borrow from your life insurance depends on factors like the policy’s rules and amount you want to withdraw. It might be just a couple years or as long as a decade after you purchase your policy.

When you pass away, your beneficiaries will need to submit a claim to your insurance company. Your insurer will ask them to submit a copy of your death certificate and fill out some forms.

Payout options depend on the insurance company and the type of policy you have, but the most common are:

• Lump-sum payment: The beneficiaries receive the entire death benefit in a single payment that’s usually tax-free. 
• Regular payments: The beneficiary receives regular monthly, quarterly, or annual payments (with the beneficiary choosing the amount), providing a steady stream of income. The funds are kept in an interest-bearing account and the interest is taxable.
• Lifetime annuity: The beneficiary receives guaranteed payments for the rest of their life, with the payment amounts calculated based on the total death benefit and the beneficiary’s age. If any funds remain when the beneficiary passes away, they usually go back to the insurer.
• Fixed-period annuity: The beneficiary receives guaranteed payments for a specified period of time, such as 20 years, with the total death benefit dispersed over that time. If the beneficiary passes away before receiving all the funds, the remainder goes to their beneficiaries.
• Retained asset account: The funds are kept in an interest-bearing account and the beneficiary can write checks to spend funds as needed. Any interest is subject to taxes.

Temporary life insurance, or term life insurance, lasts for a specific period of time (or term), usually between 10 and 30 years. 

Pros

• It’s less expensive than permanent life insurance.
• You pay for coverage only during the years when your dependents rely on you most, rather than throughout your life. 
• When the policy expires, you can convert to a permanent policy without taking a medical exam.

Cons

• Your policy doesn’t grow cash value.
• When the policy term ends, your coverage does, too.
• You might be able to renew when your policy expires, but premiums rise as you age.
• If you outlive the policy term, your premiums aren’t refunded, in most cases.

Permanent life insurance, like whole and universal policies, are permanent and last your entire life. 

Pros

• Coverage lasts for your lifetime.
• Premiums usually remain the same throughout your life.
• The policy’s cash value grows tax-deferred, and you can withdraw or borrow against it.
• The death benefit is guaranteed, no matter when you pass away.

Cons

• It’s more expensive than term life insurance.
• If you withdraw funds, the death benefit drops.
• If you borrow cash from your policy, you might pay interest.

There are benefits to buying life insurance as early as possible. If you purchase a policy when you’re young and healthy, it’s typically a lower premium cost. Hopefully you’ll live a long life, but if you pass away at a younger age, your beneficiaries can use your life insurance to help pay off any debts. If you share a mortgage with your spouse or are a cosigner on a loan, for example, your loved ones won’t be stuck paying those off on their own. 

When you experience a major life event—marriage, the birth of a child, or divorce—it’s important to review your policy and make any necessary changes to your beneficiaries. When you have a child, for instance, you may want to increase your death benefit to help your partner cover child-related costs, including future education expenses.

After age 60, life insurance admittedly tends to get more expensive. However, buying final expense life insurance can be helpful to cover end-of-life expenses such as funeral costs.