Life Insurance Brochures
Your need for life insurance varies with your age and responsibilities. It is a very important part of financial planning. There are several reasons to purchase life insurance. You may need to replace income that would be lost with the death of a wage earner. You may want to make sure your dependents do not incur significant debt when you die. Life insurance may allow them to keep assets versus selling them to pay outstanding bills or taxes.
Consumers should consider the following factors when purchasing life insurance:
- Medical expenses previous to death, burial costs and estate taxes;
- Support while remaining family members try to secure employment; and
- Continued monthly bills and expenses, daycare costs, college tuition and retirement.
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- Make sure you feel confident with your insurance agent and company.
- Decide how much you need, for how long, and what you can afford to pay.
- Learn what kinds of policies will provide what you need and pick the one that is best for you.
- Do not sign an application until you review it carefully to be sure the answers are complete and accurate.
- Do not buy life insurance unless you intend to stick with your plan. It may be very costly if you quit during the early years of the policy.
- When you buy a policy, make the check payable to the company, not the agent.
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- What is an Annuity?
An annuity is a contract in which an insurance company makes a series of income payments at regular intervals in return for a premium or premiums you have paid. Annuities are often bought for future retirement income. Only an annuity can pay an income that can be guaranteed to last as long as you live. Your money grows tax-deferred as long as you leave it in the annuity.
- Examine Different Kinds of Annuities
The most common types of annuities are: single or multiple premiums, immediate or deferred, and fixed or variable. For a single premium contract, you pay the insurance company only one payment, whereas you make a series of payments for a multiple premium. With an immediate annuity, income payments start no later than one year after you pay the premium. The income payments from a deferred annuity often start many years later. Deferred annuities have an accumulation period, which is the time between when you start paying premiums and when income payments start. During the accumulation period of a fixed deferred annuity, your money, less any applicable charges, earns interest at rates set by the insurance company or in a way spelled out in the annuity contract. During the payout period, the amount of each income payment to you is generally set when the payments start and will not change. During the accumulation period of a variable annuity, the insurance company puts your premiums, less any applicable charges, into a separate account. You decide how the company will invest those premiums, depending on how much risk you want to take. During the payout period of a variable annuity, the amount of each income payment to you may be fixed (set at the beginning) or variable (changing with the value of the investments in the separate account).
- Know How Interest Rates are Set
During the accumulation period, your money, less any applicable charges, earns interest at rates that change from time to time. Usually, what these rates will be is entirely up to the insurance company. The current rate is the rate the company decides to credit to your contract at a particular time. The company will guarantee it will not change rates for a certain time period. The minimum guaranteed interest rate is the lowest rate your annuity will earn. This rate is stated in the contract. Some annuity contracts apply different interest rates to each premium you pay or to premiums you pay during different time periods. Other annuity contracts may have two or more accumulated values that fund different benefit options. These accumulated values may use different interest rates. You get only one of the accumulated values depending on which benefit you choose.
- Know What Charges May be Subtracted from Your Fixed Deferred Annuity
Most annuities have charges related to the cost of selling or servicing it. These charges may be subtracted directly from the contract value. Ask your agent or company to describe the charges that apply to your annuity. Some examples of charges, fees and taxes are surrender or withdrawal charges, free withdrawal, contract fee, transaction fee, percentage of premium charge and premium tax.
- Contract Benefits of Fixed Deferred Annuities
Companies may offer various income payment options. You or another person that you name may choose the option. If you choose Life Only, the company pays income for your lifetime. Life Annuity with Period Certain pays income for as long as you live and guarantees to make payments for a set number of years even if you die. If you choose Joint and Survivor, the company pays income as long as either you or your beneficiary lives. In some annuity contracts, the company may pay a death benefit to your beneficiary if you die before the income payments start.
- Tax Treatment of Annuities
Under current federal law, annuities receive special tax treatment. Income tax on annuities is deferred, which means you are not taxed on the interest your money earns while it stays in the annuity. Tax-deferred accumulation is not the same as tax-free accumulation. An advantage of tax-deferral is that the tax bracket you are in when you receive annuity income payments may be lower than the one you are in during the accumulation period. You will also be earning interest on the amount you would have paid in taxes during the accumulation period. Most states’ tax laws on annuities follow the federal law. You should consult a professional tax advisor to discuss your individual tax situation.
- Take Advantage of the “Free Look” Provision
Many states have laws that give you a set number of days to look at the annuity contract after you buy it. If you decide during that time that you do not want the annuity, you can return the contract and get all your money back. This is often referred to as a "free look" or "right to return" period. The "free look" period should be prominently stated in your contract. Be sure to read your contract carefully during the "free look" period.
- Is a Fixed Deferred Annuity Right for You?
You should think about what your goals are for the money you put into any annuity. You need to think about how much risk you are willing to take with the money as well. Ask yourself the following questions: How much retirement income will you need in addition to what you will get from Social Security and pension, will you need that additional income only for yourself or yourself and others, how long can you leave money in the annuity and does the annuity let you withdraw money when you need it.
- Some Questions Your Agent Should be Able to Answer
A few questions that you should ask your agent are: Is this a single premium or multiple premium contract, what is the initial interest rate and how long is it guaranteed, what is the guaranteed minimum interest rate, can I get a partial withdrawal without paying surrender or other charges and is there a death benefit.
- Review Your Contract Carefully
Before you decide to buy an annuity, you should review the contract. Terms and conditions of each annuity contract will vary. Ask the agent and company for an explanation of anything you do not understand. Do this before any free look period ends. Compare information for similar contracts from several companies. Comparing products may help you make a better decision. If you have a specific question or cannot get answers you need from the agent or company, contact the Department.
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Ask yourself the following questions:
- How much of the family income do I provide?
- If I were to die, how would my survivors, especially my children, get by?
- Does anyone else depend on me financially, such as a parent, grandparent, brother or sister?
- Do I have children for whom I would like to set aside money to finish their education in the event of my death?
- How will my family pay final expenses and repay debts after my death?
- Do I have family members or organizations to whom I would like to leave money?
- Will there be estate taxes to pay after my death?
- How will inflation affect future needs?
Some insurance experts suggest that you purchase five to eight times your current income. However, it is better to go through the above questions to figure a more accurate amount.
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All policies are not the same. Some give coverage for your lifetime and others cover you for a specific number of years. Some build up cash values and others do not. Some policies combine different kinds of insurance, and others let you change from one kind of insurance to another. Some policies may offer other benefits while you are still living. There are two basic types of life insurance: term insurance and permanent insurance.
- Term Insurance
Term insurance generally has lower premiums in the early years, but does not build up cash values that you can use in the future. You may combine cash value life insurance with term insurance for the period of your greatest need for life insurance to replace income.
Term insurance covers you for a term of one or more years. It pays a death benefit only if you die in that term. Term insurance generally offers the largest insurance protection for your premium dollar. It generally does not build up cash value.
You can renew most term insurance policies for one or more terms, even if your health has changed. Each time you renew the policy for a new term, premiums may be higher. Ask what the premiums will be if you continue to renew the policy. Also ask if you will lose the right to renew the policy at some age. For a higher premium, some companies will give you the right to keep the policy in force for a guaranteed period at the same price each year. At the end of that time, you may need to pass a physical examination to continue coverage and premiums may increase. You may be able to trade many term insurance policies for a cash value policy during a conversion period even if you are not in good health. Premiums for the new policy will be higher than you have been paying for the term insurance.
- Permanent Insurance
Permanent insurance (such as universal life, variable universal life and whole life) provides long-term financial protection. These policies include both a death benefit and, in some cases, cash savings. Because of the savings element, premiums tend to be higher.
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Print and complete the Consumer Complaint form below and return to the Department of Insurance.
Consumer Complaint Form [pdf 26k]