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Life Insurance Overview

Life insurance protects your spouse and dependents in the event of your untimely death.

Theoretically, life insurance should provide sufficient benefits so that your family can maintain the same standard of living even without your income. (i.e. you need enough coverage to provide for your future income, the Present Value of your future earnings, adjusted for inflation.)

You pay a premium to a life insurance company. This premium is determined by Mortality Tables based on age and other health risks, such as your sex (M or F) or whether you smoke or not.

Persons who work on Mortality Tables are called Actuaries.

General Tips:

1. To buy life insurance, you must have an “insurable interest” in the person whose life is at risk. (i.e. I can’t just buy a life insurance policy on someone I don’t know.) However, if the person at risk buys the life insurance policy, he/she can name anyone as the beneficiary.

2. FYI, businesses often purchase life insurance on their “key employees”. This is permitted, with the employee’s consent.

3. Insurability clause – Many life insurance policies require “proof of insurability”, and, may require you to take a physical (usually if the policy is for a large amount, i.e., several million dollars).

4. Thus, in some circumstances, you may want to get “guaranteed renewability” life insurance “before you need it”.

5. Guaranteed renewability means that the insurance company cannot cancel you because you have entered a higher risk class (i.e. perhaps due to illness). They can still cancel you if you don’t pay your premium. Then, “reinstatement will require proof of insurability”.

6. Two general types of life insurance: (1) Term and (2) Whole Life or Universal