Life Insurance FAQ

1. How much life insurance do I need? 
Experts recommend that you have coverage of at least five to eight times your annual income, but you may find you need more, depending on your family situation. You can combine various types of life insurance policies to meet the changing needs of your family over the course of a lifetime. Here are some factors to consider:

  • In the event of your death, how much cash would your family have to cover unexpected expenses, such as hospital bills, funeral expenses and debts like car loans and credit cards?
  • How much do you spend on day-to-day expenses like grocery and mortgage bills, daycare, utilities, taxes and other month-to-month expenses? Multiply this amount by the number of months or years until your family could replace your monthly income.
  • How much do you think it will cost to pay tuition for your children’s education, to replace the family car, or to support aging parents?
  • If you are a dual-income household, consider life insurance for each income producer in the family.
  • If you are a single parent, consider how much it will cost to pay to care for your children, twenty-four hours a day, seven days a week.

In addition to these considerations, it’s important to think about how long your family will need the protection. Most families’ life insurance needs peak when children are young and decrease when the children have completed college — a span that lasts about 20 years.

If your children are close to college age now, a shorter-term policy may be better for you. But if you want to lock in level premiums for a longer period of time, or if you think that a change in your health might make it more difficult to re-qualify for coverage in the future, a longer-term policy or permanent insurance might be a better choice. In some situations, it may be wise to combine shorter- and longer-term policies to accommodate your changing needs.

2. How often should I update my life insurance?
It’s a good idea to periodically review your insurance portfolio,especially after a major life change, to be sure that it provides the protection you need. You may find you need to purchase additional coverage, or that you can take advantage of lower rates. Even if you bought a policy within the last few years, your savings could be significant. You can compare rates from some of the country’s top Term Life insurance providers by visiting the Wells Fargo life insurance shopping service.

3. Can I really “borrow” money from my life insurance?
If you have a permanent form of life insurance that has a cash value you may be able to obtain a policy loan from the insurance company. This is an advantage of permanent insurance. However, if you have any loans outstanding at the time of your death, they must be repaid or they will be deducted from your survivors’ death benefit.

4. What is an Accidental Death benefit?
Some permanent life insurance policies and some group life insurance policies offer an optional Accidental Death benefit, also called double indemnity, for an additional premium. Accidental Death doubles the death benefit if a person dies in an accident as opposed to dying from natural causes. For example, if a person died in an accident and the death benefit in the policy was $25,000, the benefit would be doubled and the insurance company would pay $50,000.

5. Will my insurance policy earn dividends? 
Some insurance companies may share their profits in the form of dividends, as a feature on permanent forms of life insurance policies. They can be sent to the policyholder in cash, held by the insurance company to accumulate interest for the policyholder, used to offset premiums or used to purchase additional insurance. In most cases, permanent insurance policies that pay dividends cost more than other policies.

6. Are life insurance premiums fairly consistent among different insurance companies?
Premiums for similar policies can vary significantly, so it is wise to shop around and compare prices from a number of different companies.

7. How do I know which insurance companies are reputable?
Most insurance companies have financial strength ratings from independent organizations such as A. M. Best Company, Standard & Poors’ and Moody’s Investor Services. Look for companies with “A” ratings or better. Your State Department of Insurance can provide you with information regarding the complaint history of various insurance companies.

8. Who can I call for advice?
Life insurance should be one component in a financial plan that is designed to help you and your family achieve your dreams – even if one of you dies prematurely. Create a plan. Talk to your accountant, financial planner, personal banker, trust officer, insurance agent or attorney.

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