Life insurance is the foundation of a sound financial plan. It provides financial security for your family by protecting your financial resources, such as your present and future income, against the uncertainties of life. More specifically, life insurance provides cash to your family after your death. This cash (the death benefit) replaces the income you would have provided and can meet many important financial needs: It can help pay the mortgage, run the household, send your kids to college, and ensure that your dependents are not burdened with debt. The proceeds from a life insurance policy could mean that your family won't have to sell assets to pay outstanding bills or taxes. What's more, there is no federal income tax on life insurance benefits.

Most people with dependents need life insurance. While there's no substitute for evaluating your specific situation, one rule of thumb is to buy life insurance equivalent to five to ten times your annual gross income. To determine how much, if any, life insurance you need, start by gathering all your personal financial information and estimating what your family will need after you're gone. Include ongoing expenses (such as day care, tuition, or retirement) and immediate expenses at the time of death (like medical bills, burial costs, and estate taxes). Your family also may need funds to help them readjust: perhaps to finance a move, or pay expenses while job hunting.

Choosing a life insurance product is an important decision, and it can be complicated. As with any major purchase, it is important that you understand your family's needs and the options open to you.

Here are some commonly asked questions that can help you make your decision easier:

What is Life Insurance?
What is term insurance?
What are the main advantages of term life insurance?
Do I Really Need Life Insurance?
How does term life work?
When is Term the right choice?
Term Insurance Advantages
Term Insurance Disadvantages
How much insurance do I need?
Does term insurance have a cash surrender value?
What other types of life insurance policies are out there?
How do I get started?
LIFE INSURANCE GLOSSARY

What is Life Insurance?
Life insurance is a contract between you and an insurance company and is a way to protect your family in case of your death, by providing funds to pay outstanding bills or taxes. Some life insurance policies accumulate cash over time. Your need for life insurance can change over a lifetime. At any age, you should consider your individual circumstances and the standard of living you wish to maintain for your dependents. In most cases, you need life insurance only if someone depends on you for support. Your life insurance premium is based on the type of insurance you buy, the amount you buy and your chance of death while the policy is in effect. See also our Life Insurance Glossary.

Top of page   Get A Quote!

What is term insurance?
As its name indicates, term life insurance insures you for a specific term or span of years. If you die during the term, your beneficiary is paid the coverage amount subject to your policy terms. Because it provides "pure" insurance without any cash value accumulation, term coverage is generally less expensive initially than permanent coverage. Term insurance provides a great answer to the question: How will your family manage financially if you die prematurely?

What are the main advantages of term life insurance?
Term life insurance helps to provide peace of mind for you and your family. It also helps you protect the assets you've worked so hard to attain. And all this security reaches up to 30 years into the future, at guaranteed level premiums you can afford today to offer valuable protection for your family or business partnership at affordable rates.

Do I Really Need Life Insurance?
If there is someone who would suffer economic hardship if you died, then the answer is yes... you need life insurance! Families with young children have a clear need for life insurance. If both spouses work, the loss of one income will cause the family immediate economic hardship and make it harder for them to realize future goals, such as paying for the children's' education. But even if one spouse works "inside the home" and doesn't bring in a formal income, his or her death will require the surviving spouse to hire childcare, housekeepers and other professionals to help run the household - and that can be a significant new expense. If you are married without children or single, then you may need life insurance to protect your partner or surviving family members against the costs associated with your death. Funeral expenses, probate and administrative fees, outstanding debts, special obligations to charities, and federal and state taxes are costs that all of us must consider. And, they can add up quickly. Unless you already have sufficient financial resources, your survivors will probably need life insurance to cover these expenses.

Top of page   Get A Quote!

How does term life work?
Term life insurance policies are sold for a specific number of years. Ten- and 20-year terms are the most common. The "term" in term insurance means the following: Number of years your policy coverage lasts. A term life insurance policy's death benefit is only paid if the policyholder dies during the coverage period. If the term ends or the policyholder stops paying premiums, the policy lapses. A lapsed policy is a worthless policy. Number of years you are required to pay premiums. Term life insurance requires you to pay premiums regularly in order to maintain policy coverage. Term life insurance does not build up cash value the way premiums do for permanent life insurance. Larger premiums when renewing the policy. When you first buy a term life policy, you may decide you only want coverage for 10 years. Ten years later, however, your circumstances may have changed. You may decide to renew the policy.

While your insurer is unlikely to deny coverage, it will charge you a higher premium. Let's face it: you're 10 years older and death is that much more certain. Your insurer will demand a higher premium to compensate it for the higher probability of your death in the renewal period. Term life insurance provides insurance coverage in exchange for a premium that is generally cheaper than a premium for permanent life insurance. Also, term life insurance is often paid with level premiums, at least until it's time to renew the policy.

The following table shows how premiums generally are generally quoted according to your health, age, and gender. The table shows a range of level premiums from one of the many Web sites that provide free online quotes for term life insurance premiums. (You will still need to obtain a certificate of insurability from a physician to verify that your health condition is as good as you claim it to be.)

These quotes are intended only as a sample to show the relative ranges of premiums. These are not intended as marketable quotes. You see that the quotes for women are cheaper, reflecting a longer average life span and lower fatality rate from accidents.

In addition, you see how the premiums increase for the 20-year term. The higher premiums incorporate the higher mortality risk associated with the longer period. A 50-year-old has a greater probability of dying within 20 years than within 10 years.

When is Term the right choice?
If the lowest dollar outlay is your main concern, and your insurance need is for a period of 20 years or less, term may have an advantage. If your need for coverage will last beyond 20 years, a low cost Universal Life or Whole Life policy may be more effective. Should your life insurance needs change, many term policies carry a conversion privilege that will allow you to covert your term coverage to permanent Universal Life or a Whole Life policy without a medical examination. It is important to check the conversion privileges of the term policy before you make your purchase.

Term Insurance Advantages:

• Initially, premiums are generally lower than those for permanent insurance, allowing you to buy higher levels of coverage at when the need for protection often is greatest.
• It's good for covering specific needs that will disappear in time, such as mortgages or family income needs for children. Term insurance is an effective way to get the most coverage at a low cost for up to 30 years.

Term Insurance Disadvantages:

• On most policies the premium may increase after the guarantee period expires.
• Coverage may terminate at the end of the policy term or may become too expensive to continue.
• Generally, the policy doesn't offer cash value or paid-up insurance.

Top of page   Get A Quote!

How much insurance do I need?
Life insurance provides payments to your beneficiaries that replaces some or all of your income if you die during the coverage period. These payments make up what is called a death benefit.

In exchange for insurance coverage, the insured person (insuree) makes periodic payments called premiums to the insurance company (insurer). To determine a policy premium, the insurer uses a method called underwriting. The insuree is also called the policyholder.

In order to be eligible for coverage, the insuree receives a certificate of insurability. This is an endorsement of the insurance company's willingness to sell a policy. A certificate of insurability is sometimes required for certain changes in policy coverage.

Most life insurance policies are taken out to replace family income in the event of an untimely death. As a result, these policies often designate a spouse, child, sibling, or parent as beneficiary. The policy may also designate more than one beneficiary.

Some types of life insurance allow you to change your premiums or stop paying them for a while. These premiums are called flexible premiums. This situation occurs if the investments that are funded by some of your premiums earn a higher-than-expected rate of return.

An expedient way of determining the right amount of coverage is to take a multiple of your annual salary. For example, a multiple of 5 and annual salary of $50,000 would equal policy coverage of $250,000. The following five steps can help you to more accurately estimate your coverage needs:

1. Determine your coverage period. For example, if you think the next 20 years of your life are essential to provide for a young family, a 20-year coverage period would be appropriate.
2. Calculate the expenses that require coverage. If you are a main breadwinner in the family and die suddenly, the family is sure to feel the financial impact. You might decide to buy a policy that insures half of your salary for the first 10 years of the policy and 25% for the subsequent 10 years. Additionally, your death will have some expenses associated with it. Funerals routinely cost a few thousand dollars or more. You may also have other debts or funds that either need to be repaid immediately or replenished when you die.
3. Reduce the amount of required coverage by available assets and income. Assets that you own today can be sold to pay off debts or raise cash. Selling these assets might reduce the amount of necessary policy coverage. Additionally, any future income that your beneficiaries are expected to receive will reduce the coverage amount.
4. Add estimates for inflation, interest rates on savings, and taxes. Inflation leads to higher expenses in the future. If your beneficiary's income fails to grow at the same rate, your coverage may be inadequate. On the other hand, if interest rates on your savings keep pace with inflation, you shouldn't have to increase your coverage. For taxation of life insurance benefits, see IRS Pub. 525: "Taxable and Nontaxable Income."
5. Find other ways to lower your premiums. Since your health is a large determinant of your premiums, consider avoiding tobacco and alcohol. A healthy medical history helps.

Skydiving, motorcycle riding, and scuba diving are activities with higher accident and fatality rates. Avoiding these kinds of "insurance risks" can help to lower your premiums.

Top of page   Get A Quote!

Does term insurance have a cash surrender value?
Cash surrender value is also called cash value. It is the accumulated value of your paid-in premiums that exceeds the expenses of paying for the actual policy. Features of a life insurance policy's cash value include:

• Cash value is found with permanent life insurance. All major types of permanent life insurance—universal, variable, whole, and variable universal life— accumulate a cash value. ·
• Cash value is not found with term life insurance. Unlike permanent life insurance, term life insurance does not accumulate cash value. As a result, there is no reserve to pay future premiums on a term life policy. The policy lapses, or expires, if you stop paying premiums. ·
• Cash value is a personal asset. The cash value that has built up in your life insurance policy is yours to claim. You can withdraw it or use it as collateral for a loan. Keep in mind that your death benefit is reduced by the amount of cash value that you may have withdrawn.
• Cash value grows on a tax-deferred basis. The benefits of tax-deferred investments are hard to beat: your money grows faster with the advantage of compounding than if it were in a taxable account.
• Reserve for paying future premiums. Cash value can generally be used to pay future premiums. In particular, universal and variable universal life insurance allows you to pay flexible premiums, tapping cash value to pay future premiums. A trade-off is that you first have to liquidate investments.
• Cash value can be annuitized. If you decide to withdraw the cash value from an insurance policy, your insurer can either give you a lump-sum amount or pay you an annuity. An annuity from the cash value of a life insurance policy provides a tax-exempt stream of income to you or your heirs.

Top of page   Get A Quote!

What other types of life insurance policies are out there?
Universal life insurance
Variable Life Insurance
Whole life insurance

Universal life insurance
The first type of permanent life insurance that we look at is universal life insurance. Universal life insurance is also called adjustable life insurance. Remember that, with permanent life insurance, some of your premium is invested. Features of universal life include:

• Flexible premiums. After you pay an initial premium, universal life insurance provides flexibility in paying your premiums. For example, if the portion of invested premiums is growing, you can pay future premiums from this buildup in value.
  
  Of course, the investment performance determines how much, if any, flexibility you have to modify your premiums. With universal life insurance, you invest a part of your premiums in a money market account or similar investment that earns a stable, positive rate of return. Insurance companies also offer universal life insurance with a guaranteed minimum rate of return.
  
  
• Cash value feature. The portion of invested premiums accumulates a cash value. This cash value is held in an accumulation fund. You can withdraw the cash value from a universal life insurance policy. Or you can claim it as an asset when you apply for a loan. Any withdrawals from the accumulation fund are deducted from the policy's cash value.
  
  While the invested premiums of a universal life insurance policy are generally restricted to safe, low-yielding investments, a variable universal life insurance policy lets you invest a portion of premiums in riskier investments such as stocks and bonds. Variable universal life is a hybrid. It combines features of universal life and variable life insurance.
  
  
• Death benefit. With universal life insurance, your beneficiary receives a death benefit when you die. Your beneficiary generally does not owe federal income taxes on the death benefit. Death benefits are also free from probate costs and can be protected from creditors in case of bankruptcy. Because of these features, universal life insurance is often used in estate planning.
  
  
  

Variable Life Insurance
Variable life insurance is similar to universal life insurance. As the cash value of your policy accumulates, you can modify your policy's death benefit.

The two main differences between variable and universal life insurance are: 1) Variable life does not have flexible premiums, and 2) Variable life allows you to invest in riskier investments such as stocks, bonds, and mutual funds. (Universal life insurance is generally restricted to safe investments that earn a lower rate of return.)

As a result of the riskier investments, your cash value is likely to fluctuate more with a variable life insurance policy. This fluctuation means your death benefit is more likely to change from one month to the next. You may share in the upside potential, but you also share in any downside potential.

Before buying a variable life insurance policy, you should be aware of the risks involved in investing. It pays to be familiar with basic investment principles. For more on investing principles, see our other services menu.

Top of page   Get A Quote!

Whole life insurance
Whole life insurance is also called ordinary or straight life insurance. With whole life insurance, you pay a level premium over the life of the policy. The amount of your death benefit is also fixed.

Similar to other forms of permanent life insurance, whole life insurance builds up cash value in a tax-deferred accumulation fund. You can withdraw or borrow against the cash value. Unlike universal or variable life insurance, the cash value of a whole life policy is not used as a reserve to pay premiums.

Instead, whole life insurance policies pay dividends to policyholders if premiums are excessive. A dividend from a life insurance company is a return of premiums. Unlike a dividend earned on a stock or mutual fund, it is not a company's distribution of profits. Dividends can be used to pay future premiums.

How do I get started?
Complete the a quote questionnaire and let a Catholic Term Life representative help you determine which type of life insurance policy is right for you.

Top of page   Get A Quote!

LIFE INSURANCE GLOSSARY

Agent - A licensed person or organization authorized to sell insurance by or on behalf of an insurance company.

Beneficiary - A person or entity that is named as legal recipient of proceeds from an insurance policy, annuity, or will.

Binder - A temporary or preliminary agreement which provides coverage until a policy can be written or delivered.

Broker - A licensed person or organization paid by you to look for insurance on your behalf.

Cancellation - The termination of insurance coverage during the policy period. Flat cancellation is the cancellation of a policy as of its effective date, without any premium charge.

Cash Value - A dollar value that is returned to an insurance policyholder if the policy is canceled. Cash value is also called cash surrender value (CSV). Cash value is a feature of a permanent life insurance, including whole, variable, and universal life. Cash value fluctuates with the investment performance of a life insurance contract. In some cases, it may be guaranteed. Cash value may be used as a source of borrowing for the policyholder and is treated as a tax-deferred investment.

Certificate of Insurability - An insurance company's verification that you are entitled to receive insurance coverage. For life insurance, a certificate may require that you complete a health condition questionnaire and pass a health exam.

Claim - Notice to an insurer that under the terms of a policy, a loss maybe covered.

Claimant - The first or third party. That is any person who asserts right of recovery.

Contingent Beneficiary - Person or persons named to receive proceeds in case the original beneficiary is not alive. Also referred to as secondary or tertiary beneficiary.

Conversion Privilege - Allows the policy owner, before an original insurance policy expires, to elect to have a new policy issued that will continue the insurance coverage. Conversion may be effected at attained age (premiums based on the age attained at time of conversion) or at original age (premiums based on age at time of original issue).

Convertible Term - A policy that may be changed to another form by contractual provision and without evidence of insurability. Most term policies are convertible into permanent insurance.

Coverage Period - The interval of time that an insurance policy provides protection. If the policy lapses, the coverage period is considered to have ended.

Death benefit - An amount that is paid to the beneficiary of a life insurance policy upon the death of the policyholder. The amount may be a lump sum or annuity. The IRS generally considers a death benefit to be nontaxable income. For variable annuities, a death benefit is paid to the beneficiary if the contract owner dies before annuity payments begin.

Decline - The company refuses to accept the request for insurance coverage. Endorsement - Amendment to the policy used to add or delete coverage. Also referred to as a "rider." Exclusion - Certain causes and conditions, listed in the policy, which are not covered. Face Amount - The dollar amount to be paid to the beneficiary when the insured dies. It does not include other amounts that may be paid from insurance purchased with dividends or any policy riders.

First To Die Insurance - Insurance policy whose death benefit is paid to the surviving insured upon the death of one of the insured's. There is no longer a benefit once the benefit is paid, however, the surviving insured usually has the option of purchasing a policy of the same amount without providing evidence of insurability.

Grace Period - A period (usually 31 days) after the premium due date, during which an overdue premium may be paid without penalty. The policy remains in force throughout this period.

Guaranteed Insurability - An option that permits the policy holder to buy additional stated amounts of life insurance at stated times in the future without evidence of insurability.

Incontestable Clause - A clause in a policy providing that a policy has been in effect for a given length of time (two or three years), the insurer shall not be able to contest the statements contained in the application. In life policies, if an insured lied as to the condition of his health at the time the policy was taken out, that lie could not be used to contest payment under the policy if death occurred after the time limit stated in the incontestable clause.

Insured - The policyholder: the person(s) protected in case of a loss or claim.

Insurer - The insurance company.

Level Premiums - Life insurance premiums may be level or flexible, depending on the type of insurance. A level premium is the same as a fixed, or unchanged, premium. A flexible premium may fluctuate as a result of the investment performance of previously paid premiums. If the investments do well, they are able to fund future premiums for a while.

Life insurance - A policy that will pay a specified sum to beneficiaries upon the death of the insured.

Limit - Maximum amount a policy will pay either overall or under a particular coverage.

Mortality Risk - The statistical probability that an insuree will die, resulting in the insurer paying a death benefit to the beneficiary.

Permanent Life Insurance - A life insurance policy other than term insurance issued for the remainder of the policyholder's life. Permanent life insurance policies may have either fixed or flexible premiums and include a cash value that the policyholder can borrow against. Also called cash-value insurance.

Policy - The written contract of insurance.

Policy Limit - The maximum amount a policy will pay, either overall or under a particular coverage.

Policy Holder - The policyholder is the insured person who buys an insurance policy for the benefit of a beneficiary. The policyholder is also called the insuree.

Premium - The amount of money an insurance company charges for insurance coverage.

Probate - The legal procedure settled by a state court of law that identifies the heirs to your estate and determines their legally entitled share. Probate is time consuming and expensive. The cost ranges between 6 and 10 percent of the value of your estate, according to the National Association of Financial & Estate Planning.

Quote - An estimate of the cost of insurance, based on information supplied to the insurance company by the applicant.

Secondary Beneficiary - An alternate beneficiary designated to receive payment, usually in the event the original beneficiary predeceases the insured.

Standard Risk - Person who, according to a company's underwriting standards, is entitled to insurance protection without extra rating or special restrictions.

Substandard Risk - Person who is considered an under-average or impaired insurance risk because of physical condition, family or personal history of disease, occupation, residence in unhealthy climate or dangerous habits.

Surrender - To terminate or cancel a life insurance policy before the maturity date. In the case of a cash value policy, the policyholder may exercise one of the nonforfeiture options at the time of surrender.

Underwriting - The process of selecting applicants for insurance and classifying them according to their degrees of insurability so that the appropriate premium rates may be charged. The process includes rejection of unacceptable risks.

Variable Life - A form of permanent insurance that allows the policyholder to invest a portion of the cash value of the policy in a portfolio of stock, bond and money market investments. Premiums are fixed and a share of them is allocated to the investment portfolio. The policyholder bears the risk from these investments in the form of a cash value and death benefit that fluctuates with the performance of the investment portfolio.

Variable Universal Life Insurance - A type of permanent insurance that combines the features of variable and universal life insurance. Specifically, the policy allows the policyholder to change his premiums based on income and needs (which is characteristic of a universal life policy) with the flexibility of investing a share of the premium in a portfolio of stock, bond and money market investments (which is characteristic of a variable life policy).

Waiting Period - A period of time set forth in a policy which must pass before some or all coverages begin.

Top of page   Get A Quote!