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Content Overview

Life Insurance 101



A life insurance policy pays an agreed upon amount of money to another person (your "beneficiary") if the insured dies while the policy is in effect. Not all policies are alike. There are different types of policies that permit life insurance to be personalized for various needs.

In addition to the traditional reasons to purchase life insurance such as to protect your dependents or business relationships, life insurance can provide a source of cash for people who have been diagnosed with a serious chronic or life-challenging condition. For instance, you can obtain money from:

  • The Cash Value in a Life Insurance policy.
  • A Living Benefit (also known as an "Accelerated Death Benefit") from the life insurance company.
  • Loans from friendly sources or commercial lenders or banks.
  • A sale of your policy as a Viatical Settlement or a Life Settlement (also known as a Senior Settlement).
  • Any Cash Surrender value in the life insurance policy.

If you have a group life insurance policy, it needs to be converted to an individual policy before it can be sold or otherwise be a source of cash. Converting doesn't cost anything. The only question is whether it is permitted under your particular group plan.

While purchasing life insurance after a diagnosis can be difficult, it is not impossible. Alternatives include the following:

  • Searching for life insurance that may be available in your state or one nearby or a state to which you travel. Depending on your health history, you may qualify for standard issue life insurance - possibly with a higher than average ( "Rated") premium. If not, you may be able to obtain a simplified or guaranteed issue policy.
  • Going to work for a new employer. As a general rule, potential employers cannot ask about your health condition.
  • If you work for an employer that offers life insurance to employees, you can wait for an open enrollment period during which you can purchase life insurance with no questions asked.
  • Through a partner or spouse.
  • By joining an organization that offers life insurance.
  • Credit life, both in the form of credit insurance and mortgage life insurance.

If you own or are considering buying any kind of life insurance, it is advisable to carefully address the question of whom you name as beneficiary -- the person or people who will receive the money in the event of your death.

It is also advisable to revisit your beneficiary designation at least once a year to be sure it remains up-to-date.

A provision in a life insurance policy which waives premiums if the insured becomes disabled is known as a "Disability Waiver of Premium." There are five steps to applying for a disability waiver of premium. See How To Apply For A Disability Waiver of Premium Under A Life Insurance Policy

NOTE: There are income tax breaks for money accumulated in a life insurance policy. On the other hand, contrary to what many people think, life insurance you own at the date of your death is included in your estate for estate tax purposes. (To learn the amount of assets you can have before there is any estate tax, visit offsite link.  Search on Estate Tax Exemption.In 2015, the amount is over $5,300,000)

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