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Advantages Disadvantages
" As long as the premiums are paid, protection is guaranteed for life.
" Premium costs can be fixed or flexible to meet personal financial needs.
" The policy accumulates a cash value against which you can borrow. (Loans must be paid back with interest or your beneficiaries will receive a reduced death benefit.) You can borrow against the policy's cash value to pay premiums or use the cash value to provide paid-up insurance.
" The policy's cash value can be surrendered, in total or in part, for cash or converted into an annuity. (An annuity is an insurance product that provides an income for a persons lifetime or a specific period.)
" A provision or rider can be added to a policy that gives you the option to purchase additional insurance without taking a medical exam or having to furnish evidence of insurability.
" Required premium levels may make it hard to buy enough protection.
" It may be more costly than term insurance if you don't keep it long enough

After meeting with you and carefully reviewing your family's needs, the agent will recommend a life insurance policy that he or she thinks will meet your needs. Look at the recommended policy with care to be sure it fits your personal goals.

Carefully study your agents recommendation and ask for a point-by-point explanation. Make sure the agent explains items you don't understand. Because your policy is a legal document, it is important that you know what it provides:

If your agent recommends a term policy, ask: " How long can I keep this policy? If I want the option to renew the policy for a specific number of years or until a certain age, what are the terms of renewal?

" When will my
premiums increase? Annually? Or after a longer period of time, such as five or ten years?

" Can I convert to a permanent policy? Will I need a medical exam when I convert?
If your agent recommends a permanent policy, ask:
" Are the premiums within my budget?

" Can I commit to these premiums over the long term? If not buy the Term Life Policy now and convert some or all of it later, usually without a medical exam. Some companies will give you monetary credits or subsidize your conversion from a Term Life to Permanent Life Policy.

" How much will I receive if I surrender the policy?
Keep in mind that permanent insurance provides protection for your entire life. If you don't plan to keep the policy for many years, consider another type. Cashing in a permanent policy after only a few years can be a costly way to get short-term insurance protection.

NJ Life Insurance Education Online and Consumer Resources

How much Life Insurance do you need?

Well, the answer isn't really how much life insurance you need... it's how much investment capital your family will need at the time of your death. Their need for capital on a gross basis is really a function of two variables:

(1). How much will be needed at death to meet immediate obligations; and

(2). How much future income is needed to sustain the household.

The first category is fairly easy to estimate. It's the sum of final expenses (including uncovered medical costs, funeral expenses and final estate-settlement costs) and other lump-sum obligations (such as outstanding debts, mortgage balance, and college costs).

The second variable is a bit trickier. It involves calculating the "present value" of future needed cash-flow streams. By meeting with a Professional Agent in person you can get a rough sense of the needs for capital that might exist at your death.

A few tips:
A financial analysis of your needs depends upon the answers you provide. Please answer all questions your agent will need to ask to help you. If you do not understand a question, tell them to "slow Down" or speak regular English, and we'll explain what we're driving at.

A Professional Agent will provide a rough sense of your potential life insurance needs. To the extent that you or your beneficiaries are eligible for Social Security benefits, those benefits (unless you want them included) are usually not included in this analysis. Social Security benefits, if available, will somewhat reduce the need for life insurance. For a more accurate and detailed analysis, contact a professional life insurance agent.

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Life insurance helps to ensure that your family and loved ones are protected against financial difficulties in the event of a premature death. Combined with investments, retirement and estate planning, life insurance is a fundamental part of a sound financial plan. With the help of an insurance professional you can develop a complete plan that will protect you and your family. This Web Page will give you basic information about various types of life insurance, how to choose a professional agent, conducting a needs analysis, and the basics of estate planning.

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 (in most cases).

Most people with dependents need life insurance. Give your child or grandchild a head start towards financial security-get a Globe Young American Plan! 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. The best way to evaluate your specific needs is to contact a life insurance professional.

Choosing a life insurance product is an important decision, but 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.

term Life Insurance provides protection for a specific period of time. It pays a benefit only if you die during the term. Some term insurance policies can be renewed when you reach the end of the term, which can be from one to 30 years. The premium rates increase at each renewal date. Many policies require that you present evidence of insurability at renewal to qualify for the lowest rates.

The following points can help you determine if
term insurance best suits your needs.

Advantages Disadvantages
Initial premiums generally are lower than those for permanent insurance, allowing you to buy higher levels of coverage at a younger age when the need for protection often is greatest.
It is good for covering needs that will disappear in time, such as mortgages or car loans.
Premiums increase as you grow older.
Coverage may terminate at the end of the term or become too expensive to continue.
The policy generally doesn't offer cash value or paid-up insurance.

Permanent or Whole Life Insurance provides lifelong protection. Click hereto get a free life insurance quote. As long as you pay the premiums, the death benefit will be paid. These policies are designed and priced for you to keep over a long period of time. If you don't intend to keep the policy for the long term, this may be the wrong type of insurance for you.

Permanent policies are known by a variety of names: whole, ordinary, universal, adjustable, and variable life. Most have a feature known as cash value or cash-surrender value. This feature,
not found in most term insurance policies
, provides you with some options: " You can cancel or surrender the policy in total or in part and receive the cash value as a lump sum.
" If you need to stop paying premiums, you can use the cash value to continue your current insurance protection for a specified time or to provide a lesser amount of protection covering you for your lifetime.
" You usually can borrow from the insurance company, using the cash value in your life insurance as collateral. Unlike loans from most financial institutions, the loan is not dependent on credit checks or other restrictions. You ultimately must repay any loan with interest or your beneficiaries will receive a reduced death benefit. With all types of permanent policies, the cash value of a policy is different from the policy's face amount. The face amount is the money that will be paid at death or policy maturity. Cash value is the amount available if you surrender a policy before its maturity or your death. Moreover, the cash value may be affected by your insurance company's financial results or experience, which can be influenced by mortality rates, expenses, and investment earnings.

There are several types of permanent insurance: Whole life or ordinary life" is the most common type of permanent insurance. The premiums generally remain constant over the life of the policy and must be paid periodically in the amount indicated in the policy.

" Universal life allows you, after your initial payment, to pay premiums at any time, in virtually any amount, subject to certain minimums and maximums. You also can reduce or increase the death benefit more easily than under a traditional whole life policy. (To increase your death benefit, the insurance company usually requires you to furnish satisfactory evidence of your continued good health.)

" Variable life provides death benefits and cash values that vary with the performance of a portfolio of investments. You can allocate your premiums among a variety of investments offering different degrees of risk and reward: stocks, bonds, combinations of both, or accounts that guarantee interest and principal. You will receive a prospectus in conjunction with the sale of this product.

The cash value of a variable life policy is not guaranteed and the policyholder bears that risk. However, by choosing among the available fund options, you can allocate assets to meet your objectives and risk tolerance. Good investment performance will lead to higher cash values and death benefits. If the specified investments perform poorly, cash values and death benefits will drop.

Some policies guarantee that death benefits cannot fall below a minimum level. There are both universal-life and whole-life versions of variable life.
The following points can help you determine if permanent insurance best suits your needs.
Table of Contents


Defining Your Needs

Choosing the Amount

Choosing the Type of Life Insurance

Availability of Life Insurance

Finding a Good Policy

Reliability and Stability of Companies

Information Sources

Are you Considering Changes to Your Life Insurance Policy?

Glossary of Life Insurance Terms

If you are going to make a good choice when purchasing life insurance, you need to understand what type of Life Insurance policies are available. If one type of policy does not fit your needs, then ask and find out about other available Life Insurance policies. You can research more information on life insurance policies by checking with a licensed life insurance agent or a licensed life insurance company. You can also consult life insurance books that are available in your public library, as well as life insurance information available on the Internet.

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Defining Your Needs
When you buy life insurance, you want a policy that fits your needs at a reasonable cost. Your first step is to determine how much life insurance you need. Next, you need to decide how much money you can afford to pay. Finally, you must choose the type of policy that meets your coverage goals and fits into your overall financial plan. Once you have completed these steps, you will be able to move ahead and contact several life insurance companies (through an agent or broker) to shop for the right type of policy for you.

There are many reasons for purchasing life insurance, among which are the following:

  • Insurance to provide family protection and financial security to surviving family members upon the death of the insured person.
  • Insurance to cover a particular need such as paying off a mortgage or other debt upon the insured's death.
  • Business insurance to compensate a company on the death of a key employee or to provide a surviving partner the resources to buy out the deceased partner's share of the business.
  • Insurance to provide funds to pay estate taxes or other final obligations necessary to settle a deceased person's estate.
  • Insurance to provide the funds necessary for the deceased person's burial expenses.
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Choosing the Amount
Simply stated, you should elect an amount of life insurance that is determined necessary to meet the needs you are trying to satisfy. To be over insured can negatively affect your budget and long range financial goals almost to the degree that being underinsured can. While each person must individually assess their responsibilities, life situation and comfort for risk, it is important to be careful to choose an amount of life insurance that reflects your specific circumstances without underinsuring or over insuring.

Back to Top Choosing the Type of Life Insurance
There are two basic types of life insurance: term life insurance and cash value life insurance. There are many policy variations on these two types of life insurance.

  • NJ Term Policies provide life insurance for a specified period of time. These policies provide benefits in the event of death, but they generate no cash value. If you have a limited amount to spend, and only need insurance for a finite period of time, you may be able to get more coverage by buying term insurance than by buying cash value insurance. Keep in mind that the cost of term insurance increases as you get older, which may make it more expensive than cash value insurance in the long run. Today's term policies usually have two sets of premiums -guaranteed maximum premiums and current premiums. Current premiums are usually much lower, but they can be changed by the insurance company. The insurance company cannot increase the current premium above the guaranteed maximum premiums shown in the policy. When you buy term insurance, you need to make a choice as to how long you want the Life Insurance protection. You may renew the policy without a physical examination for the period of years specified in the Life Insurance policy. Some term insurance can be converted to cash value insurance up to a specified age with no physical examination. Premiums for the converted insurance will most likely be higher than the premiums you would be paying for the term insurance.
  • Cash Value Insurance combines death benefits with an accumulation feature. The buyer of a cash value policy pays more in the early years than for term insurance, but the premium not needed to pay for the cost of the death benefit accumulates at interest. If the Life Insurance policy is surrendered before the insured person dies, there may be a cash value paid to the owner. Make sure the agent/broker provides you with the method by which the Life Insurance cash value is determined and that they obtain this information based on the policy's guaranteed value. As a general rule, it is not a good idea to buy a cash value life insurance policy if you plan to surrender early. If all premiums are paid, cash value insurance usually lasts for the whole life of a person and pays death benefits to the beneficiaries named in the policy upon the death of the insured. The Life Insurance cash value can be used as loan collateral for borrowing funds at the interest rate specified in the policy. Any outstanding loans are deducted from policy proceeds at death or at policy surrender.

Some of these Life Insurance products may enjoy tax advantages. A Life Insurance policy lapse or surrender may create a taxable event and may generate a Form 1099. Be sure to check with your tax advisor. Some of the most popular types of cash value insurance are described below:

  • NJ Whole Life Insurance (also known as straight life, ordinary life, and traditional permanent insurance) has guaranteed premiums and death benefits, and a minimum interest rate, which will be credited to the funds accumulated in the policy. On some whole life policies, higher interest rates may be credited to those funds depending on the future performance of the insurance company's investments.
  • NJ Universal Life differs from whole life insurance in that it allows the policy owner to vary, with limitations, the amount and timing of premium payments and the death benefit. Cash values are accumulated by crediting premium payments and interest to a fund from which deductions are made for expenses and cost of insurance. The rates at which the interest is credited are declared by the company or may be specified in the contract. Like term insurance, universal life insurance policies usually have two sets of premiums-guaranteed maximum premiums and current premiums. Current premiums may be lower, but they can be changed by the insurance company up to the maximum. They also can include a minimum interest guarantee. Because of its flexibility, a universal life policy can also be structured to operate like term insurance.
  • NJ Variable Life differs from whole life insurance and universal life insurance in that policy owners direct the distribution of their premium payments among several different accounts or funds rather than by the company's choosing. Typical account choices for variable life are common stock, bond, mortgage, and money-market accounts. With this type of policy, the death benefit and cash value benefits vary in relation to the value of the investments underlying the Life Insurance policy. If the value of the account increases, so will the benefits; if the value of the account decreases, so will the benefits, subject to a minimum guarantee. Variable life insurance is more risky to the policy owner than the other forms of cash value insurance, but there is a possibility of greater returns.
  • Variable Universal Life Insurance combines the flexibility of universal life insurance with the investment account features of variable life insurance.

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Availability of Life Insurance

NJ Life insurance Agents
Most people apply for life insurance through a licensed agent, who may represent one or more companies. If you use an agent, choose carefully. Agents earn a commission on your business. A professional agent will do more for you than just sell you a Life Insurance policy. They should assess your needs, answer your insurance questions, and help you establish your goals. They should advise you and help you update your insurance. If you are considering the purchase of a variable policy, the agent must have an insurance license and a registration with the National Association of Securities Dealers, as variable products usually involve securities.

NJ Group Insurance
Many employers offer life insurance under a group plan and sometimes pay part or all of the premium. A medical exam is usually not required for insurance purchased this way, and the insurance can be less expensive than coverage purchased as an individual. The converted policy will probably be much more expensive than the group insurance. Some employers will allow insurance companies to send agents or enrollers to their premises in order to offer insurance to their employees. Policies offered in this manner are different from group insurance, and you should evaluate the materials shown to you in the same way as if you were considering a purchase of an individual policy through an agent.

Insurance by Mail Order or Through the Internet
Some insurance companies solicit by mail or through the Internet. In most cases, the prospective buyer mails a completed application directly to the company. These methods of purchasing insurance may cost less because you receive little or no personal assistance, but they may also cost more because of the expense involved in mass mailing. Also, both Internet and mail order marketing may not provide a complete range of choices as target marketing often involves offering only one type of policy. Before you buy by mail or through the Internet, consult an expert who can help you determine the best policy for you.

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Finding a Good NJ Life Insurance Policy
When shopping for a life insurance policy, you determine the guarantees on premiums, death benefits, expenses, cash value, mortality changes, and cost of insurance. It is critical to get all promised guarantees in writing.

Sales Illustrations
It is likely that an agent will show you one or more life insurance sales illustrations. An illustration consists of a series of numbers indicating how the policy works. The illustration usually shows the guaranteed results under the Life Insurance policy for each year in the future, and the results if all the non-guaranteed items continue at their present level. This will probably not happen as actual results may be better or worse than the non-guaranteed amounts shown in the illustration (but not worse than those that are guaranteed).

Using Indexes
Your chances of finding a good buy on a life insurance policy is better if you use the index numbers that have been developed to aid you in shopping for life insurance. The Buyer's Guide that each insurer is required to provide to a purchaser explains these index numbers in detail. They are good tools to help you compare the merits of similar policies.

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Reliability and Stability of Companies
Recently, high-risk investment strategies have threatened the solvency of some companies and thus the safety of policy benefits. Be sure to check out the insurer's industry rating (as provided by independent rating services) before committing your funds. Also, make sure that your life insurance company is licensed to sell insurance in your state.

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Information Sources
Additional information about the Life Insurance companies can be found by reading insurance company rating service reports. Five major insurance rating companies grade insurers based on their financial health and ability to pay claims. These companies are as follows: A.M. Best, Standard & Poors, Moody's Investor Service, Duff & Phelps, and Weiss Research. You should check two or three of these services to get a good look at the company's condition. Often times the reference section of local library will carry materials from insurance rating companies. You may contact the CDI for more information on insurance rating organizations.

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Are You Considering Changes to Your NJ Life Insurance Policy?
Many consumers are approached by life insurance agents or life sales representatives and are asked to consider canceling their current life insurance policy in order to purchase a replacement policy. In most cases, the cash value of the current life policy is used to buy more insurance or a new policy. While a decision to replace an existing life insurance policy may be a good one, sometimes this may not be in your best interest. More than likely you purchased your policy with a long term financial plan in mind. Replacing or changing your insurance policy at this point may affect the intended results of your overall financial plan. If you are considering replacing or changing your life insurance policy, you should first assess your needs and determine what is in your own long term best interest. It is also important to consider the interests of those you are protecting. Deciding how much insurance you need, how long it is needed, and which policy provides the best coverage is crucial to your financial security.

Your financial needs should be thoroughly evaluated before changes are made in existing Life Insurance policies. Any change in your personal circumstances since you first purchased life insurance may require a different strategy. A comprehensive evaluation may indicate that replacing or changing your policy is in fact advisable. However, certain cautions are appropriate when considering replacing or changing your life insurance. For example:

  • You may have to pay "start up" costs again.
  • You may be required to wait one or two years before a new Life Insurance policy passes through the contestable period. During the contestable period the insurer is contractually entitled to cancel the policy or refuse to pay a claim based on mistaken or untrue statements in your application.
  • You may pay a higher premium for new insurance over the duration of the policy because you are older than when you first purchased life insurance.
  • The financial strength of a new insurer may be different from that of your present Life Insurance insurer.
  • There may be specific tax consequences when you replace or change your current Life Insurance policy.
  • You may find different loan provisions in a new policy, or you may find that you cannot take tax advantaged loans in the new policy.
  • If you use the cash value of one Life Insurance policy to pay for the premium on a new Life Insurance policy, the values used may not be sufficient to support the new policy in future years, and may result in the need to make additional premium payments to keep the insurance in force.
  • You may not have immediate access to your money in a new policy. You may have to wait a considerable period of time, or pay a monetary penalty, to access the cash value in the policy.
  • Tax consequences may occur if you take cash from an annuity or mutual fund that started as a replacement policy for your original life insurance policy.
  • When considering Life Insurance policy replacement, it is important to note that you may have the ability to amend or convert your current policy to a newer product within the same insurance company without any loss of rights or accumulated cash value. It may be in your best interest to contact your current agent or company and to inform them of your intent.

Life Insurance Illustrations are utilized by life insurance agents to highlight certain features of their life policies. Illustrations should never be the only factor used in deciding to replace or change your policy. Life Insurance Illustrations that are presented for comparison purposes may not give a complete picture of the new Life Insurance policy's future. To insure that your insurance policy meets your financial objectives, it is recommended that you obtain a second opinion, as well as consult with your current agent. Given the complexities involved in counseling a consumer regarding insurance purchases, you may want to inquire about your current agent's and new agent's professional qualifications.

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last updated November, 2013 NJ Life Insurance

NJ Life Insurance Org Website