Life Insurance Basics
What Is Life Insurance?
Life insurance is protection against financial loss resulting from your death.
Life insurance can be used to cover the costs that arise after your death –
funeral costs, taxes, probate costs, childcare or your mortgage and other
Who Needs Life Insurance?
Everyone should use good insurance planning to prepare for more than just
replacing a lost income. Life insurance can provide for future needs of your
family or business.
- Funeral – Provide the funds needed for a proper funeral and burial
- Estate Taxes – Preserve the value of your estate by using life insurance
funds to cover federal estate and state inheritance taxes.
- Mortgage Protection – Pay off the balance of a mortgage or provide an
income stream to pay monthly mortgage or rent payments.
- Income Replacement – Provide a supplemental income stream to ensure that
your surviving family members are able to maintain the same standard of
- Debt – Cover personal loans, credit cards, student loans and other
- Future Education – Ensure that the education costs of your children are
- Charitable Donations and Gifts – Fund a donation to a charity or a gift to
a family member.
- Key-Employee Protection – Protect against the financial loss to your
company from the unexpected death of a key employee.
- Business Continuation – Fund a buy/sell agreement plan to arrange for the
orderly transfer of your business at your death, disability or retirement by
using life insurance policies with either death benefits or cash values.
- Executive Benefits – Build an attractive benefits package for selected
employees by paying premiums for life insurance.
- Salary Continuation/Deferred Compensation – Provide supplementary income to
selected key employees and their families in the event of the death, disability
or retirement of the key employee.
Whatever your need for life insurance, that need can change over time. At
any age, you should consider your individual circumstances and the standard of
living you wish to maintain for your dependents.
How Much Life Insurance Do I Need?
To determine how much life insurance you need, start by gathering all your
personal financial information and estimating your burial costs and what your
family or business will need after you are gone.
What Types of Life Insurance Policies Are Available?
Individual life insurance coverage generally falls into one of two categories,
permanent or term.
Permanent Life Insurance
Permanent life insurance, which includes whole life and universal life, is
an appropriate way to meet long-term needs. Over time, it may be the least
expensive form of life insurance since premiums are fixed and the policy
accumulates cash value on a tax-deferred basis.
Whole life insurance provides continuous protection, generally up to age
100, as long as premiums are paid when due. Whole life is designed to have a
level premium for the duration of the policy and provides a guaranteed death
benefit. Whole life builds cash value that can be used during the insured’s
lifetime to help meet “living” needs such as college expenses, buying a home,
emergency funds or retirement funds. Premiums must generally be paid as long as
the policy is in force.
Universal life insurance is similar to whole life insurance because it
provides continuous protection and cash value build up. It also provides the
advantage of premium and death-benefit flexibility that allows the policy to
keep pace with changing life circumstances. You can select a level or
increasing death benefit. Universal life differs from whole life in that its
cash value earns a current interest rate that is sensitive to current economic
conditions. In addition, premiums paid are credited to the policy surrender
value from which the cost of insurance is deducted monthly. As long as the
policy has sufficient cash value to cover the monthly cost of insurance, the
policy will remain in force even if you miss a premium payment.
Consider permanent life insurance when you:
- have a long-term need
- like flexibility on death benefits and premium payments
- want a policy that accumulates a tax-deferred cash value
Term Life Insurance
Term life insurance protects you for a specified period of time – ranging from
one to 30 years – and pays a death benefit only if you die during that
specified term of the policy. That’s why it’s commonly referred to as
“temporary” life insurance.
Over the short run, term insurance generally provides the greatest amount of
protection for the least amount of premium. It can be a cost-effective choice
if you face growing responsibilities on a limited budget, if you expect your
financial responsibilities to decrease after a limited period or if you simply
want to free your funds for other uses.
One of the drawbacks of traditional term life insurance is that you pay
premiums for a financial benefit that may never be used. An exception to this
rule is a return of premium term policy. With these nontraditional policies,
the initial premiums are higher than that of traditional term policies.
However, the premium payments you pay during the guaranteed term period are
returned to you, which may or may not include rider or substandard
Consider term life insurance when you:
- have a temporary need
- need a large amount of insurance protection but have a limited budget
- have a specific business need such as key-employee, executive benefits or
Contact an Agent
Cincinnati Life serves you exclusively through a select group of agencies that
perform as the premier insurance organizations in their local communities.
Contact a professional
independent agent in your community for a life insurance quote. Coverage
and product availability varies by state. Underwriting requirements apply. This
is not a policy.