Are Life Insurance Death Benefits Taxed?

Not all life insurance benefits are received tax-free.

ZACKS

Typically, beneficiaries do not have to pay income tax on life insurance death benefits when they are received as a lump sum. However, some insurance companies usually offer beneficiaries a choice of payout options other than a single lump sum. In this case, a portion of these payouts may be considered taxable earnings. There are also other circumstances in which life insurance benefits may be taxed.

Lump Sum Payouts

Life insurance policy proceeds are distributed to named beneficiaries without income tax liability. Beneficiaries who receive a single lump sum as a life insurance death benefit are not obligated to report the payout or include it in gross income calculations. The only exception to this rule would be if a beneficiary received an amount greater than the actual death benefit. Although rare, this situation may occur when the insurance company temporarily places the death benefit in an interest-bearing account while awaiting documentation, or while the beneficiary investigates possible consequences of the various payout options. In addition to the lump sum distribution, the beneficiary would receive any interest generated by the policy proceeds, and that excess is taxable.

Scheduled Payouts

Most life insurance companies offer beneficiaries the option of receiving death benefit proceeds as a series of equal payments over a pre-determined period of time, rather than in a single lump sum. Recipients who select this payout method typically receive more money because the benefit amount is transferred into an interest-bearing account. In those cases, the portion of each payment considered interest earnings above the actual death benefit is fully taxable as ordinary income.

Policies Without Beneficiaries

If you have not declared a beneficiary on your life insurance policy, or if the beneficiary pre-deceases you and you fail to update your designations, your death benefit will be paid to your estate. Even though income taxes are not due on the payout, estate taxes could become an issue if the additional value placed on your estate by the policy proceeds increases the total above the current $5 million exclusion.

Business-Owned Policies

Life insurance policy proceeds received by businesses or other organizations might be taxable. Many companies purchase life insurance on key executives or other employees to prevent substantial losses if that person dies; policies are often purchased on corporate partners to provide adequate capital to buy out a deceased shareholder's family's interest in the business. If specific disclosure documents and guidelines are not properly obtained and followed, the entire death benefit is considered taxable earnings to the company. To avoid taxation of corporate-owned life insurance, the company must obtain the employee's written consent to be covered and acknowledge the size of the death benefit.

From website IRS

Life Insurance Proceeds

Life insurance proceeds paid to you because of the death of the insured person aren't taxable unless the policy was turned over to you for a price. This is true even if the proceeds were paid under an accident or health insurance policy or an endowment contract. However, interest income received as a result of life insurance proceeds may be taxable.

Proceeds not received in installments. If death benefits are paid to you in a lump sum or other than at regular intervals, include in your income only the benefits that are more than the amount payable to you at the time of the insured person's death. If the benefit payable at death isn't specified, you include in your income the benefit payments that are more than the present value of the payments at the time of death.

Proceeds received in installments. If you receive life insurance proceeds in installments, you can exclude part of each installment from your income.

To determine the excluded part, divide the amount held by the insurance company (generally the total lump sum payable at the death of the insured person) by the number of installments to be paid. Include anything over this excluded part in your income as interest.

Example.

The face amount of the policy is $75,000 and, as beneficiary, you choose to receive 120 monthly installments of $1,000 each. The excluded part of each installment is $625 ($75,000 ÷ 120), or $7,500 for an entire year. The rest of each payment, $375 a month (or $4,500 for an entire year), is interest income to you.

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Do I Need Life Insurance?

Not everyone needs life insurance. Find out whether or not you do.

Life insurance has long been a part of estate planning in the United States. Although life insurance does not need to be a part of every person's estate plan, it can be useful, especially for parents of young children and those who support a spouse or a disabled adult or child.

In addition to helping to support dependents, life insurance can help provide immediate cash at death. Insurance proceeds are a handy source of cash to pay the deceased's debts, funeral expenses, and income or estate taxes.

People who have no minor children or financially strapped dependents may not need life insurance. Below you'll find questions to ask yourself to help evaluate your life insurance needs. If you decide to purchase insurance, you should know exactly why you are buying it and choose the best type of policy for your needs. And, of course, you should buy no more than you need.

Long-Term Needs

To determine whether it makes sense for you to buy insurance to provide financial help for family members over the long term, consider these questions:

How many people depend on your earning capacity? If the answer is "none," you probably don't need life insurance.

How much money would your dependents need for living expenses? One way to determine this amount is to look at the earned income that you bring to your dependents on a regular basis. From that amount, subtract the worth of property they would inherit from you and any amounts that will be available from public sources or private insurance plans that already provide coverage. Social Security survivors and dependents benefits will probably be available, and you may also be covered by union or management pensions, or a group life insurance plan. Also subtract any other likely sources of income, such as the help reasonably affluent grandparents would provide for your children in case of disaster.

How long would it take for your dependents to be come self-sufficient? If your children are almost out of college, they may not need much additional income. If they're younger, remember that dependent spouses caring for young children can usually return to work at some point, and some kids may get at least partial scholarships.

Once you perform this exercise, you may find that your dependents may need little additional income from life insurance. But if you have young children, you may find that it makes sense to buy an affordable amount of life insurance. For more information, see Using Life Insurance to Provide for Your Children.

Short-Term Needs

Now, assess whether you need life insurance for short-term needs:

What assets will be available to take care of your dependents' immediate financial needs? You might leave some money in joint or pay-on-death bank accounts, or place marketable stocks in joint tenancy or register them on beneficiary (transfer-on-death) forms. For more information, see How to Avoid Probate.

After you die, how long will it be before your property is turned over to your inheritors? If most of your property will avoid probate, there's usually little need for insurance for short-term expenses, unless you have no bank accounts, securities, or other cash assets. By contrast, if the bulk of your property is transferred by will and therefore will be tied up in probate for months, your family and other inheritors may need the ready cash insurance can provide. While a probate court will usually promptly authorize a family allowance or otherwise allow a spouse or other inheritor access to estate funds, it can still be nice to have insurance proceeds available.

Will your estate owe substantial debts and taxes after your death? Lawyers and financial advisors call cash and assets that can quickly be converted to cash "liquid." If your estate has almost all "non-liquid" assets (real estate, collectibles, a share in a small business, jewelry), there may be a significant financial loss if these assets must be sold quickly to raise cash to pay bills, as opposed to what they could be sold for later if there had been enough liquid money from insurance or other sources to meet all pressing bills. Obviously, if your estate has significant funds in bank accounts or marketable securities, you won't need insurance for this purpose. Fortunately, federal estate taxes aren't due until nine months after death, so cash to pay them doesn't have to be raised immediately.

Avoid Probate and Estate Taxes on Life Insurance

Avoiding probate. The proceeds of a life insurance policy are not subject to probate unless you name your estate as the beneficiary of the policy. If anyone else, including a trust, is the beneficiary of the policy, the proceeds are not included in the probate estate and can be quickly transferred to survivors with little red tape, cost, or delay. Except when your estate will have no ready cash to pay anticipated debts and taxes, there is no sound reason for naming your estate, rather than a person, as the beneficiary of your life insurance policy. (For a more detailed discussion of the advantages of avoiding the probate process, see Why Avoid Probate?)

Avoiding estate taxes. If you own your insurance policy at the time you die, the proceeds are included in your taxable estate. If your estate is large enough to face estate tax liability (at least over $2 million), your life insurance proceeds will be subject to estate tax. On the other hand, if you don't legally own your life insurance policy, the proceeds are excluded from your taxable estate. This can significantly reduce your death tax liability. For more information, see Transfer Your Life Insurance and Decrease Your Estate Tax.

If you've determined that life insurance is right for you, you can learn about different types of insurance policies in Life Insurance Options. Or, if you already know the type of policy you need, go to How to Buy Life Insurance for tips on purchasing the coverage you need.

Business Needs

If you are the sole owner of a business, how much cash will it need when you die? Do you want and expect that some of your inheritors will continue the business? If so, do you think there will be enough cash flow for them to successfully maintain the business? You may need insurance proceeds to cover any cash flow shortage of the business. Will there be liquid funds to pay estate taxes?

Example

Alicia owns several valuable pieces of real estate and a profitable antique store, but she has very little cash and no life insurance. When she dies, she owes debts of $90,000 (aside from mortgages) and estate taxes of $120,000.

To raise this money, her beneficiaries (technically, her executor) must sell some of her real estate or her interest in the store. Unfortunately, the country is suffering a recession, and the market value of both antiques and real estate is down. To make matters worse, canny real estate people spread the word that this is a "distress sale" to raise money for estate obligations. As a result, the price the beneficiaries receive when they sell one of the pieces of real estate is far below what they would have received had they been able to choose when to sell. Had Alicia purchased an insurance policy with a payoff at death of $210,000 or more, they wouldn't have been forced to sell.

If your inheritors won't continue the business, the questions are different: How much is your death likely to affect the value of the business? Will there be enough cash to keep the business alive until it is sold?

If you are one of several co-owners, life insurance proceeds can be used to buy out co-owners' interests. For more information on using life insurance to fund buyouts, see Business Buyout Agreements: A Step-by-Step Guide for Co-Owners, by Anthony Mancuso and Bethany K. Laurence (Nolo).

http://www.nolo.com/legal-encyclopedia/do-i-need-life-insurance-29929.html

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10 Reasons People Don't Buy Life Insurance

Updated on Wednesday, March 15 2017 By Bryan Ochalla

Many people could benefit from a life insurance policy but still choose not to purchase one. Learn why they should give life insurance another look.

There's no question that not everyone needs life insurance. According to the Consumer Federation of America (CFA), there's little reason to buy it if you don't have any dependents, "since there is no economic catastrophe associated with death."

Even then, though, there are exceptions, with the CFA declaring that "those who expect family responsibilities soon may wish to get coverage early to guard against a health change that could raise costs. Substantial term life insurance is inexpensive for young non-smokers, so paying for what you don't need yet, but will soon, is not a serious burden."

Still, at least the case can be made that if you're single, and especially if you're single as well as relatively young and healthy, you may not feel a pressing need to purchase life insurance as soon as possible.

The same can't be said for a lot of the excuses that people who pass on buying this type of insurance use when asked to explain their hesitation or indifference. In fact, most of the reasons cited by folks who fail to see the appeal or benefit of life insurance are pretty easily refutable, with the following examples being noteworthy cases in point.

1. Life insurance costs too much (or I can't afford it)

Here's the funny thing about this particular line of reasoning: usually life insurance isn't all that expensive.

That depends on a number of factors, of course, including how old you are when you decide to take out a policy, how healthy (or unhealthy) you are at that time, whether or not you're a smoker, which type of life insurance, and how much coverage you want to buy.

If you're fairly young and healthy and you're not a smoker, though, you should be able to get a 20-year, $250,000 level-term policy for less than $200 annually.

This is far from common knowledge among today's consumers, though, with Todd Silverhart, Ph.D., corporate vice president at LIMRA Insurance Research, sharing that the work he and his colleagues have done in this area suggests that "consumers generally do not have a good understanding of how much a life policy might actually cost."

In fact, he adds, "they tend to over-estimate the actual cost a lot," with a good example being that, when asked (as part of the 2015 Insurance Barometer Study that LIMRA conducted with non-profit Life Happens) to guess the yearly cost of the above-mentioned policy, the average person replied $400. The median response from people under the age of 25, on the other hand, was $600, while a whopping one in four assumed the bill to come to $1,000 or more.

2. I don't need it because I have plenty of assets to leave my loved ones

That may be true, but what form are those assets in at the moment? Are they mainly liquid, meaning your beneficiaries could quickly convert them into cash should the need arise? Or are they mostly in non-liquid form, which would mean real estate, a share in a business, or even jewelry?

If it's the latter, a life insurance policy could provide your loved ones with access to some "ready cash" that would allow them to pay off debts that require immediate attention and also let them retain those non-liquid assets rather than potentially sell them for a fraction of what they'd get if they could hold on to them for a while longer.

3. I'm healthy

You are now, but what about five or 10 years down the road? Actually, none of us knows for sure how healthy—or not—we're going to be tomorrow or the next day, let alone a year or a decade in the future.

It doesn't take much Internet surfing to find stories of people who ignored life insurance because they were healthy or young (or both), only to be blindsided by an unexpected medical crisis that made them ineligible for life insurance.

This doesn't mean everyone should run out and buy as much life insurance as they can afford. If you've got a spouse, or children, or a parent who relies on your financial support, though, you should seriously consider at least some form and amount of life insurance. Even if you regularly get clean bills of health from your physician.

4. I've got too many other things to worry about right now

Maybe you're recently married, or you're busy prepping for your trip down the aisle. Or maybe you're about to have a baby, or you just had one.

Those situations and many more have prompted a lot of people to put "buy life insurance" at the bottom of their to-do lists—assuming it ever made it onto these lists to begin with.

As was mentioned earlier, though, you never know when something unfortunate or unexpected could happen to you, so if there are people in your life who depend on your income, you should make life insurance a priority again as soon as you're able.

5. I don't understand it well enough to buy it

All sorts of studies have found that one of the main reasons people don't purchase life insurance is that they're confused by all of the varieties and options that are made available to them during the buying process.

According to LIMRA's and Life Happens' 2015 Insurance Barometer Study, for example, 38 percent of participants cited "I’m not sure how much or what type to buy" as their reason for not purchasing.

"Given that buying life insurance is believed to be important and not something that is done often, the uncertainty that surrounds it paralyses many people," Silverhart says.

One fairly obvious solution to this issue is to reach out to an experienced agent so you can be led through the process by a helping hand rather than tackle it on your own.

6. I find the process intimidating

According to a 2014 LIMRA study, more than 70 percent of people who purchased life insurance policies through their employer said they were happy with the process and even described it as "comfortable."

A more recent study from the same organization, on the other hand, suggested that those who go to buy life insurance on their own are far less pleased with the experience. In fact, many say they find it intimidating.

Again, this is another situation where working with a professional who knows the ins and outs of the industry would help ease some of the tension associated with such a complex product.

7. I have other financial obligations that are more important than life insurance

For some people, spending their hard-earned cash on vacations, or shopping, or movies, or eating out is more important than using it to pay for a life insurance policy. For others, cable, Internet, and phone bills come before life insurance.

In fact, according to the most recent Insurance Barometer Study conducted by LIMRA and Life Happens, 60 percent of Millennials consider their cellphone, Internet, and cable payments higher priorities than purchasing life insurance, with 49 percent of those 65 and older saying the same thing.

According to Jim Kerley, LIMRA's chief membership officer, “Consumers today are confronted with more financial demands than ever. Younger shoppers in particular realize they need life insurance, but it’s not a priority for them."

One way to make it more of a priority for younger and older consumers alike, he adds, is to reinforce just how cheap life insurance can be—especially if you spend a bit less on eating out, movies, even your daily coffee run and use the savings to fund an insurance policy instead.

8. I don't trust insurance companies or agents

This keeps more people than you may imagine from buying life insurance, as the aforementioned study conducted by LIMRA and Life Happens found that nearly 40 percent of respondents have refrained from it due to the apprehension they feel for insurance agents.

If this describes you, there are a number of places you can go to read up on any companies you're considering doing business with, with A.M. Best, the Better Business Bureau, the National Association of Insurance Commissioners, and your state insurance commissioner's office being four great examples.

9. I'll get to it eventually

Another way of putting the above is to say that a lot of people procrastinate when it comes purchasing a life insurance policy.

"Even though they recognize the value of life insurance and are aware of their need for it, many consumers [30 percent, according to the most recent Insurance Barometer Study] just haven’t gotten around to taking care of that need," Silverhart says.

10. It makes me think about death

Similarly, 30 percent of the men and women who participated in the 2015 Insurance Barometer Study suggested they've avoided buying life insurance because doing so causes them to think about their mortality.

Unfortunately, there's no easy way to combat this particular quandary—other than, perhaps, to point out that the thought of leaving your spouse, or children, or other loved ones in dire financial straits isn't likely to be much more, if at all, appealing thank thinking about passing away.

Frequently Asked Questions

Q: In what kinds of situations or circumstances would I want to avoid or ignore life insurance?

A: Most experts will suggest staying away from life insurance if you're single, or if you don't have any dependents. Many will say the same in regard to retirees—or at least a certain segment of the retired population. There are times when even folks in these situations may want to buy life insurance, though—with two cases in point being young, single people who assist siblings or parents and retirees who help support grandchildren.

Q: Do "empty nesters" need life insurance?

A: Sometimes, yes. For example, are there people in your life who depend on you for financial assistance? If so, you'll probably want to invest in this kind of insurance even if your children have "flown the coop." Another instance when life insurance may make sense for a so-called empty nester is if you're at all concerned about the Social Security “blackout period” that impacts some folks—women, especially—following the death of a spouse. (Because Social Security pays nothing between when your youngest son or daughter finishes high school and you apply for survivors’ benefits—the latter of which isn't possible before you turn 60.)

Q: I'm a retiree. Do I still need life insurance?

A: Whether or not you "need" life insurance as a retiree depends on your current circumstances. If you're free of debt, you no longer rely on an occupation for income, you have children who are self-sufficient, or if you're having a hard time paying your premiums, you very well may not need, or no longer need it. That said, if you're still paying off your house, or if you're supporting one or more dependents—a good example would be grandchildren you may be caring for, or even adult children who are disabled—you could make a far worse purchase than life insurance.

https://quotewizard.com/life-insurance/why-people-dont-buy-life-insurance

References:

A Buyer's Guide to Insurance
Why should I buy life insurance?
Life Insurance - Insurance Information Institute
The No. 1 Reason People Don’t Buy Life Insurance and Why They Are Wrong
2015 Insurance Barometer Study
Six in Ten Life Insurance Industry Leaders Foresee External Disruptions within Next Five Years
LIMRA Study Finds Majority of Gen X and Y Consumers Believe They Need More Life Insurance, But Few Will Buy
Three Ill-Advised Reasons Not to Buy Life Insurance
Do I Need Life Insurance?

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Custom Whole Life: At a glance.

DESIGNED TO MEET YOUR INDIVIDUAL NEEDS AND GOALS.

New York Life’s Custom Whole Life insurance is the first whole life insurance product that lets you select how long you pay premiums1 and is designed to maximize the cash value accumulation in the policy. Its unique design allows you to coordinate the paid-up date of your policy with your personal financial goals and timetable, and access your policy’s cash value in the form of periodic payments via policy loans or partial surrenders.2

Should the entire death benefit no longer be needed, the cash values may be used to supplement retirement income, provide additional education funding, or for other purposes. Periodic payments can be structured so that you can obtain the payments generally income tax-free.

Whole life insurance has provided financial security to families for generations. Custom whole life shares some of the key features of whole life, including:

• A level premium guaranteed never to increase.
• A guaranteed death benefit3 as long as premium is paid when due.
• Tax-deferred cash value accumulation.
• The ability to borrow from cash value, generally on a tax-free basis.2
• The potential to earn dividends as declared by the company.4

ADDITIONALLY, CUSTOM WHOLE LIFE CAN BE AN EXCELLENT CHOICE WHEN:

• You want to pay premiums for a specific number of years to meet your unique financial needs.
• You want to access the cash value in your policy during your lifetime to achieve a specific financial objective (i.e., to supplement retirement income, help with education funding, or for any purpose you choose).

PLUS, YOU CAN CUSTOMIZE YOUR NEW YORK LIFE CUSTOM WHOLE LIFE POLICY BY CHOOSING FROM A VARIETY OF POLICY RIDERS5 TO MEET YOUR SPECIFIC NEEDS AND GOALS:

Accidental Death Benefit. Provides additional death benefit equal to the face amount of the policy if you were to die as a result of an accident, up to $300,000 maximum, prior to age 70. Available for purchase.

Child’s Protection Benefit. Protects the ability to continue paying for insurance purchased on your child. In the event of the death or disability of a premium payer, New York Life will waive the premiums on the child’s policy until the policy anniversary closest to the child's 25th birthday. Available for purchase.

Disability Waiver of Premium. Helps give peace of mind by assuring that valuable insurance coverage is not lost when the policy owner is unable to pay premiums due to a total disability. With this rider, New York Life will waive premiums should the insured become totally disabled, as explained in the rider, and total disability has continued for at least six months.

Dividend Option Term. Combines a decreasing term rider with the paid-up additions dividend option. Each year, the amount of term insurance decreases automatically by the same amount as the increase in permanent insurance provided by the paid-up additions. This helps make more insurance coverage available at an affordable cost. The remaining term insurance can be converted to a permanent life insurance policy without evidence of insurability. Available for purchase.

Extension of Premium Paying Period Rider. While this rider is in effect, the insured may increase the premium-paying period of the base policy to which this rider is attached. This change can only be elected once, and the election must be within the first five policy years.

Insurance Exchange. Provides for the exchange of policy coverage to a successor insured, subject to evidence of good health. There may be a cost to exercise the rider.

Living Benefits Rider. Gives you access to a portion of the policy’s eligible death benefit during your lifetime should the insured be diagnosed with a terminal illness with a life expectancy of 12 months or less. (State variations exist.)6 There’s a cost to exercise the rider.

Option to Purchase (OPP) Paid-Up Additions. OPP is an economical way to increase your death benefit protection and build more cash value. OPP premiums, which are subject to upfront expense charges, are used to purchase additional life insurance coverage that has cash and loan value, and is eligible for dividends, if declared. Dividends are not guaranteed.4

Policy Purchase Option. Guarantees the option to purchase additional insurance at certain ages and at critical junctures in your lifetime, when your insurance needs are likely to increase, such as marriage, or the birth or adoption of a child. Available for purchase.

Premium Deposit Account. We also offer a simple way to fund your Custom Whole Life policy using the Premium Deposit Account.

Spouse’s Paid-Up Insurance Purchase Option.7 Gives your spouse/beneficiary the right to purchase a new paid-up life insurance policy on his/her life without evidence of insurability at the time of the insured's death. Available for purchase.

All guarantees are based upon the claims-paying ability of New York Life Insurance Company. In Oregon, the Custom Whole Life policy form number is ICC12213-50. The rider form numbers are as follows: Accidental Death Benefit: 208-200; Child&rquo;s Protection Benefit: 208-325; Disability Waiver of Premium: 208-225; Dividend Option Term: 208-265; Extension of Premium Paying Period: 209-203; Insurance Exchange: 978-432; Living Benefits: 206-495.27; Option to Purchase Paid-Up Additions: ICC11213-330; Payer Protection Benefit: 210-327; Policy Purchase Option: 208-413; Spouse’'s Paid-Up Insurance Purchase Option: 205-375.

Questions about this article or about New York Life, our subsidiaries, and the products that we offer? Click on the “Consult an Agent” form or “Talk to Us” tab on this page to have a local New York Life agent in your area contact your at your convenience.

This material is for informational purposes only. Neither New York Life nor its agents provide tax, legal, or accounting advice. Please consult your own tax, legal, or accounting professional before making any decisions.

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1 In no case can the premium-paying period be less than five years or extend beyond age 75.

2 Loans against your policy accrue interest at the current variable loan interest rate. Loans and partial surrenders of any paid-up additions decrease the death benefit and cash value.

3 All guarantees are based upon the claims-paying ability of the issuer.

4 Dividends are based on the policy’s applicable dividend scale, which is neither guaranteed nor an estimate of future performance.

5 These are only partial descriptions of riders. Not all riders are available in every state and some states vary the terms of certain riders. Please speak to a New York Life agent for complete information.

6 Various states have established different life expectancy periods once terminal illness is diagnosed.

7 Rider Insured’s Paid-Up Insurance Purchase Option in New York.

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Getting Life Insurance to Secure a Loan

By Janet Arrowood

Getting a small-business loan can be a convoluted and frustrating process. Just when you think you’ve provided all the required information the loan officer or underwriter asks for “just one more piece of information.” It’s enough to drive an entrepreneur crazy.

In today’s economic climate, lenders may ask for something that hasn’t usually been a requirement until now: life insurance on all the parties involved in the loan repayment (meaning you and any guarantors).

Years ago, requiring a borrower to get life insurance and then assign enough of it to the lender to pay off the loan in case the borrower died was pretty common. The requirement disappeared as competition amongst lenders heated up but now it’s back.

In most cases, a term life insurance policy is enough. Just make sure the face value (the amount paid if the insured person dies) is enough to pay your share of the loan and any other costs your business might incur if you die suddenly. If there are other loan participants or guarantors they’ll need life insurance as well.

There are two basic types of term life insurance:

1. Level premium: The payment stays the same for a guaranteed period of time, which is generally between 5 and 30 years.
2. Annual renewable term: The premium goes up each year, starting lower than level premium term life insurance but quickly getting more expensive for the same face value.

If you have long-term or more complicated life insurance needs you may want to obtain a lot more term life insurance. Then this insurance can function on multiple levels in the event of an unexpected death by acting as a loan guarantee, providing key-person insurance for business liquidity needs, and possibly funding a buy-sell agreement.

If you want this life insurance to endure beyond the period required for a loan guarantee you have to keep in mind that (1) if you choose term life insurance, make sure the level-premium period (the term) is equal to the period you plan to be in business and (2) annual renewable term life insurance probably won’t work here.

To get maximum functionality out of your life insurance policy, you may need to consider one of the many forms of “permanent” life insurance. This is much more expensive but offers a wealth of options and flexibility.

Before making any choices about life insurance you should consult a financial services professional licensed for life insurance and an attorney who specializes in small business matters.

It’s generally not a good idea to deduct life insurance premiums. Deducting the premiums may seem like a good tax break now but it means that if the policy ever pays off the proceeds will likely be fully taxable. If you don’t deduct the premium payments the proceeds are usually considered a “return of premiums paid” and are therefore tax-free.

Once you’ve been approved for and actually purchased the life insurance, you’ll need an “assignment form” of some sort to make the lender the beneficiary of enough of the proceeds to pay off the loan balance if you die. This form is usually provided by the insurance company but may come from the lender. Using this form, you make the lender the beneficiary of whatever amount is needed to pay off your loan (not a fixed dollar amount). You also name the normal beneficiary or beneficiaries who will receive the balance.

Until you have the insurance and have assigned the lender its fair share, you probably won’t get loan approval. Life insurance takes time, so plan accordingly.

Note that while a lender can normally require you to get enough life insurance to pay off a loan, lenders usually aren’t allowed to require you to buy insurance through them, their subsidiaries, or any place they recommend.

https://www.allbusiness.com/getting-life-insurance-to-secure-a-loan-12602377-1.html

Janet Arrowood is the managing director of Write Source. She can be reached at writerjan526@yahoo.com.

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Term or permanent life insurance?

New York Life

WHICH ONE MEETS YOUR NEEDS?

The term versus permanent life insurance debate has gone on for years, as if it were possible to say that one type of coverage is all good, the other all bad. Sorry, it’s just not that simple.

Term insurance is designed to help people purchase the protection they need when they can’t afford to purchase all permanent insurance or when they only need coverage for a specific period of time. Term life insurance has a guaranteed death benefit, but no cash value, and the premiums will increase at pre-determined intervals such as after one year, five years, 10 years, and 20 years.

It is also very often the product of choice when protection needs may be high for a period of time, then drop back, such as when your family is growing. Term insurance can also be an effective way to supplement permanent insurance during high-need years, such as when family and other financial responsibilities are outpacing income.

In these situations, term coverage allows you to obtain crucial death benefit protection without breaking your budget. Also, if the coverage is convertible (the coverage can be “converted” to a comparable cash value policy, without the need to provide evidence of insurability), you can get the coverage you need today—with the ability to obtain permanent coverage in the future. In this respect, term insurance meets a valuable need.

THE TRUE COST OF TERM INSURANCE.

However, term insurance has its drawbacks. It certainly isn’t right for all people or under all circumstances. Among its weaknesses, be aware of the following:

1/ You DO have to “die to win.” As unpleasant as that sounds, it’s true. Term life insurance provides a death benefit only, for a specific period of time. When the term coverage expires, so does your protection. Also, if you stop paying premiums, the coverage ends. Period.

2/ Let’s say that you own $500,000 of term insurance. You’ve kept the coverage in force for 10 years, and the policy expires at midnight on December 31. If you die at 11:59 on New Year’s Eve, your beneficiary receives the full $500,000 in death benefit proceeds. However, if you die at 12:01 on January 1, your beneficiary receives NOTHING under the policy, since the contract has expired.

3/ Purchasing term insurance is often compared to renting a house. When you rent, you get the full and immediate use of the house and all that goes with it, but only for as long as you continue paying rent. As soon as your lease expires, you must leave. Even if you rented the house for 30 years, you have no "equity" or value that belongs to you.

4/ There is the very real danger of becoming uninsurable when the term coverage expires. While many term policies are convertible to permanent coverage, others may not be. Most of all, even if the coverage is convertible, there are time limits. If the policy is allowed to expire, you may be required to reapply. If you are found to be uninsurable at that time, you will be without coverage.

5/ Since premiums increase at each renewal, the long-term cost of term can be burdensome. Many people buy term coverage when they’re in their 20s because it seems more affordable when compared to a cash value life insurance policy with the same death benefit amount. By the time they’re in their 40s, the coverage seems a bit pricey, as the rate goes up. In their 50s, the cost has generally outstripped the cost of permanent coverage. Finally, in their 60s, if not sooner, they drop the policy — not because they no longer need the protection, but because they usually can’t afford it. Meanwhile, the person who may have paid more for that permanent policy in his or her 20s may still be paying the same premium. That’s why the term policy’s conversion privilege is so important. This valuable feature is usually available in the first few years of the policy, and allows you to convert to permanent insurance without submitting evidence of insurability. Converting to a permanent policy lets you "lock in" a fixed and level premium, and your coverage can never be canceled provided premiums are paid.

THE VALUE OF PERMANENT LIFE INSURANCE.

Cash value life insurance can be a strong long-term solution for many people. The reasons:

1/ Cash value life insurance provides life-long insurance protection, provided premiums are paid. With few exceptions, once you have been approved for the coverage, your policy cannot be canceled by the carrier. Regardless of your health, the insurance will remain in force.

2/ Despite higher initial premiums, cash value life insurance can actually be LESS EXPENSIVE than term in the long run. Most permanent policies are eligible for dividends, which are not guaranteed, if and when they are declared by the insurance company. Many companies offer the option to apply current and accumulated dividend values towards payment of all or part of the premiums. If dividend values are sufficient, out-of-pocket premium payments may end or be reduced after several years, yet coverage can continue for life. So while premiums must be paid under both the permanent and term insurance plans, long-term out-of-pocket cost of permanent life insurance may be lower compared to the total cost for a term policy.

3/ It can eliminate the problem of future insurability. Cash value life insurance does not expire after a certain period of time. Also, some policies contain guaranteed purchase options, which allow you to buy additional coverage at specified times, regardless of your health.

4/ It builds CASH VALUE. This amount—part of which is guaranteed under many policies—can be used in the future for any purpose you wish. If you like, you can borrow cash value for a down payment on a home, to help pay for your children’s education, or to provide income for your retirement. (Note: Borrowing cash value from your policy requires the payment of loan interest and will reduce your cash value and death benefit.) Plus, if you decide to stop paying premiums and surrender your policy, the guaranteed policy values are yours.

RECOMMENDATION.

When purchasing coverage—renewing or converting a term policy—look at more than just the premium.

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Auto and Home Insurance Careers

There is a tremendous opportunity to sell both types of insurance to the same client

What Is Auto and Home Insurance?

Agents are usually licensed to sell both auto and home insurance; therefore this section will cover both types of insurance careers. Auto and home insurance policies protect the insured from financial losses due to damages to their cars and homes. Auto policies protect against damages from accidents, theft, bodily injury and medical claims. Home policies protect against damages that arise from accidents and acts of nature. An agent with an insurance career in auto and home insurance must also be aware of additional coverage that pertains to each policy, such as, adding glass coverage to an auto policy or adding personal articles coverage to a homeowner’s policy.

People who want an insurance career selling auto and home insurance will need to decide if they want to be a “captive” agent who can only sell one company or work through an insurance “broker” who can offer policies under many different companies.

Why Choose an Insurance Career in Auto and Home Insurance?

The auto and home insurance industry is booming. The Bureau of Labor Statistics anticipated a 13% increase in jobs for insurance sales agents between 2006-2016. Most states require drivers to have auto insurance policies to be able to operate a vehicle. When starting an insurance career in auto and home insurance getting your Property and Casualty License allows you to sell both policies, so there is a tremendous opportunity to sell both types of insurance to the same client. Also, most carriers offer discounts to clients for purchasing both policies together.

With this insurance career, agents can either be paid on commission or salary depending on the arrangement with the agency. According to PayScale.com, salaries can range between $20,000 and $90,000 annually.

Who Would Excel at an Insurance Career in Auto and Home Insurance?

Those interested in an insurance career in auto and home insurance need to be able to sell insurance and possess strong customer service skills. To be successful in an auto and home insurance job, an agent needs to learn the ins and outs of the policies they are selling and work to understand and listen to the specific needs of their clients.

The auto and home insurance industry is a reactive industry; therefore this career is not as sales and marketing oriented as a life or annuities insurance career.

However, with this job, it is service intensive. As an agent in this career you are required to assist clients with claims and service their account on a regular basis.

There is usually no requirement that those looking for an insurance career in auto and home insurance need to hold a college degree to obtain a license. However, an agent must prepare for and pass a state Property and Casualty license exam to obtain a license to sell insurance before he or she can start writing business. In some states you may need to register your fingerprints. The section below outlines how to get started in an insurance career selling auto and home insurance.

How to Start an Insurance Career as an Auto and Home Insurance Agent

An agent in an auto and home insurance career is required to obtain a Property and Casualty License from the state that he or she wishes to sell policies in. The following is a short list of the basic process of starting an insurance job in auto and home insurance.

1/ Complete Pre-Licensing Education: Learn the rules and regulations of your state’s insurance industry. You may be required to attend classes, but some states allow you to study at your own convenience. You will be issued a certificate for completing these state certifications and at that point you are permitted to take the state exam to become licensed as an auto and home insurance agent.

2/ Take the State Property and Casualty Exam: Contact your state’s insurance department to find contact information for your local testing center. In addition to the self-study option, there are in-person and online schools/courses that you can attend. Once completed, you will bring the course completion certificate to the testing center on the day of your exam. After you have successfully completed the state Property and Casualty exam and paid the licensing fees, you are then issued your Property and Casualty license.

3/ Buy Errors and Omissions Coverage: As an individual insurance agent, most carriers require you to have Errors & Omissions insurance. This liability policy protects you and your career against financial loss related to your involvement in the sale or service of an individual insurance policy.

4/ Get Contracted: To start your insurance career and begin selling auto and home insurance, you can work directly for a carrier or decide to work through an established agency or brokerage firm. Working for an insurance company provides more structure for someone new to the industry. Working for an established agency or brokerage firm typically provides more income potential as you are basically working for yourself with the support and training of a brokerage firm. Additionally as an independent broker agent, you can offer multiple carriers’ plans to your clients, which is an advantage if you have a client who may not meet a specific company’s criteria or who may need a lower monthly rate.

5/ Get Started: Your insurance career starts NOW! Contact us to launch your career as an Auto and Home Insurance agent today.

http://www.insurancecareer.com/auto-and-home-insurance-careers/

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Becoming An Insurance Agent

By Ken Clark | Updated December 28, 2015 — 2:04 PM EST

Few industries outside of the financial services industry offer the potential for relatively inexperienced professionals to make significant income within their first year of employment. Within the financial services industry itself, few careers match the opportunity for as quick and large a paycheck as does being a life insurance agent. In fact, a hard-working insurance agent can easily earn more than $100,000 in his or her first year of sales.

But, success as an insurance agent doesn't come without a cost. Insurance agents hear "no" far more than they hear "yes". It's not uncommon for the "no" to come mixed with a fair amount of obscenities and the proverbial door in the face. Additionally, many people hold insurance agents in low regard, with some people equating them to glorified con men. But, for those who can stomach the potential rejection, the paycheck and flexibility are worth the effort.

Overview of the Insurance Field

While there are many kinds of insurance (ranging from auto insurance to health insurance), the best money in the insurance field is for those selling life insurance. Agents focusing on this end of the insurance market help families, businesses, employers, and other parties to protect against a financial loss that occurs when someone dies. (To learn more about insurance, see our Insurance 101 feature.)

Insurance agents selling this type of coverage are either "captive" agents, which means they only sell insurance from one company, or "non-captive", meaning they represent multiple insurance carriers. Either way, the typical insurance agent is going to spend the bulk of his or her time engaging in some type of marketing activities to identify people who might be in need of new or additional insurance coverage, providing them with quotes from the companies they represent and then persuading them to sign the new insurance contract.

Typically, a life insurance agent receives anywhere from 30-90% of the amount paid (also known as the premium) by the client in the first year. In later years, the agent may receive anywhere from 3-10% of each year's premium, also known as "renewals" or "trailing commissions".

Let's look at an example:

Example - Insurance Sales Commissions

Bob the insurance agent sells Sally a whole life insurance policy that covers her for the rest of her life, as long as she continues to make her premium payments. Bob\'s insurance company pays a 90/5% commission on whole life policies, which means the selling agent receives 90% of the first year premium and 5% of future renewals.

The policy costs Sally $100 per month, or $1,200 per year. Thus, in the first year, Bob will make a $1,080 commission on selling this life insurance policy ($1,200 x 90%). In all subsequent years, Bob will make $60 in renewals as long as Sally continues to pay the premiums ($1,200 x 5%). An agent selling one or two policies per week at this level could make $50,000 to $100,000 in his or her first year as an agent.

Insurance Agent Qualifications

As mentioned before, life insurance is not a profession for the thin-skinned or faint-at-heart. In fact, more than any other factor, including education and experience, life insurance agents must possess a fighting spirit. They must be people who love the thrill of the hunt, the rush of a sale and see rejection as a stepping-stone to eventual success. A career in life insurance sales is not ideal for those who view themselves as introverted, soft-spoken, or afraid of conflict.

The vast majority of life insurance companies have no formal education requirements for becoming an agent. While many prefer college graduates, this general rule is constantly overlooked in favor of the "right" candidates. Previous experience in the insurance industry is not required because most medium and large insurance carriers have internal programs to train their salespeople about the products they're going to sell.

While it may prove easy for a tenacious go-getter to get hired at a reputable insurance company, there is one non-negotiable hurdle that stands between a potential insurance agent and his or her commissions: state licensing. Insurance agents are currently licensed by the individual state or states in which they'll be selling insurance. This generally requires passing a state-administered licensing exam as well as taking a licensing class that typically runs between 25-50 hours.

Getting Hired

If you feel like a career in life insurance sales is for you, there are a couple steps to take in finding your first job. First and foremost, you'll need to put together a resume that highlights your entrepreneurial spirit. You'll want to include anything that shows you taking initiative to make things happen, whether it was starting your own business or taking someone else's business to the next level. Life insurance agents have to be driven and have the ability to be self-starters. Resumes that show a track record of that kind of behavior will help you get your foot in the door.

Once you've got your resume polished, you'll want to begin finding positions and applying. It's really important that you don't feel pressured to take the first position that comes along, as working for the wrong company can both burn you out and haunt you for the rest of your insurance career. Ideally, you want to work for a well-known company that has a good reputation among consumers, other agents and the insurance rating agencies.

Perhaps the best place to start in deciding where to apply is to visit the insurance company rating websites for A.M. Best, Moody's, or Standard & Poor's. From here, you'll be able to build a list of companies that have ratings of "A" or higher in your state. These companies will typically offer the most secure products at reasonable prices, with an emphasis on compensating and keeping quality agents.

Keep Plugging Away 

Once you've created this list, you should visit your favorite internet search engine and begin looking up each one of these companies. Due to the high turnover rate of insurance agents, most companies prominently post their job listings by geographical area, which makes them easily searchable for you. When you find a company in your area that seems to fit your personality, go ahead and apply for the position as the company instructs on its site.

But don't stop there. Be sure to follow up with regular phone calls on a weekly basis until you hear an answer either way. Many insurance company recruiters won't even interview a potential agent who doesn't first make a follow up call, because this is a strong indicator of a potential agent's tenacity. During your interview, continue to communicate your entrepreneurial and "never say quit" personality, because most managers will hire someone based on these factors over all the others combined.

If you're lucky enough to land the job, you can expect your first 12 months to be spent handing out a lot of business cards and making a lot of phone calls. Your sales manager will be the first to remind you that your only purpose in life is to find potential clients. In fact, they'll be far more interested in how many contacts you're making each week than how well you know their product line. (To learn how to cold call clients, see Cold Call Without Getting The Cold Shoulder and Alternatives To The Cold Call.)

Do expect to struggle financially for the first few months until your first sales and their commissions start rolling in. While some companies offer a salary to keep newbies from starving, this is becoming more and more rare. Many agents are now lucky to be compensated for one to two months of training before being put on a "commission-only" basis.

A Few Warnings

While the life insurance industry promises great rewards for those who are willing to work hard and put up with a good amount of rejection, there are two other pitfalls you need to be aware of. First, you will most likely be expected to market to your friends and family. While that might be tempting and seem like a great idea to get you started, it can also burn a lot of bridges with people you care about.

Second, you should visit your state insurance commissioner's website and check out the complaint history against companies that you're considering working for. What you'll typically find is that insurance companies that maintain less than an "A" rating, as well as those that sell insurance using multilevel marketing, have a much higher incidence of complaints than the larger, more established companies.

The Bottom Line

In both of these situations, accepting a job with the wrong insurance company will go a long way toward burning you out and ruining your dreams of a promising career. If a career in life insurance sales is something you truly desire, take your time and wait for the right opportunity at the right company. Doing so will maximize your chances of long-term success.

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