FAQs — Life Insurance
Answers to questions we hear most about life insurance.
What is life insurance?
While most people go about their daily lives without giving it a thought, the possibility that an accident or illness could result in disability or death is all too real. Should tragedy hit one of a family’s breadwinners, the resulting loss of earning power could prove ruinous.
Long ago, people learned the wisdom of sharing such costs, so that no one needed to face complete financial disaster alone. That is how life insurance came about.
Basically, life insurance relies upon the cooperation of many persons in distributing losses. Each of a large number of people wishing to have protection against the risk of death or disability pays a small sum regularly, in order to be relieved of a great financial loss, should unfortunate circumstances arise. Thus, life insurance is a cooperative risk-sharing plan which makes it comparatively easy for people to provide for the inevitable time when income ceases, either through retirement, declining health, or death.
Why do I need life insurance?
A life insurance policy is a key component of sound financial planning. The benefits of having life insurance are numerous. It can be used to:
• Protect your loved ones from financial catastrophe or a reduced lifestyle in the event of your death by replacing your income and/or paying off your mortgage.
• Pay final expenses, such as burial costs, estate planning and administration costs, debts and medical expenses, so that your family will not be unexpectedly burned by these costs.
• Provide an inheritance for your heirs.
• Pay estate taxes.
• Pay for education or fund your retirement if the policy allows you to build cash value, which can be withdrawn or borrowed against.
• Make planned charitable gifts.
Why should children have life insurance?
Children need life insurance for the same reasons adults do: to begin a program of saving, to provide future funds for college education, and if necessary, to provide for final expenses.
There are advantages to purchasing life insurance early in life. As rates are based on age, young people are usually able to purchase permanent life insurance protection at a fixed low rate. And because young people are usually in good health, they are more easily able to meet the company’s standards of insurability.
What types of life insurance does the Association of Catholic Foresters offer?
The Foresters offer two basic, yet distinctly different types of life insurance: Whole Life insurance and Term Life insurance.
What is Whole Life insurance?
Whole Life insurance provides permanent, lifetime protection for the insured for a fixed amount of premium. Typically, Whole Life has a higher premium rate than the same amount of Term Life insurance. That’s because Term Life policies are designed to expire before the ages at which most deaths occur.
The Whole Life insurance policies offered by the Society are called Limited Payment Whole Life policies, because your premiums are paid over a specified period. Because of you typically pay premiums over a shorter amount of time, premiums may be somewhat higher than those for regular Whole Life insurance.
We offer:
• Single Premium Whole Life insurance, in which the policy is paid for in one lump sum at the time of purchase.
• Twenty Year Payment Whole Life Insurance, in which the premium is paid over a twenty-year period.
• Whole Life Insurance Paid-Up at Age 80, in which premiums are paid up by the time the insured reaches age 80.
A Whole Life insurance policy builds a cash value which grows with interest compounded annually. As the insured, you would have the right to cancel the insurance without forfeiting the cash value, This right, called the non-forfeiture right, gives you the flexibility to adapt your protection to meet changing needs. Today many people buy Whole Life insurance policies for the dual purpose of providing a death benefit and serving as a savings plan.
What is a non-forfeiture right?
When Whole Life insurance is purchased on a level premium plan—meaning your premium is the same amount, every time you pay it—the money received by the insurance company in the earlier years of the policy is greater than the amount required to pay current death claims. As this money accumulates, it becomes cash value for the insured. Unlike a Term Life insurance policy, which offer no cash value, a Whole Life policy accumulates a cash value which grows with interest compounded annually. This is called the non-forfeiture value of the policy. Even if you decide to end the insurance policy, you will not forfeit this accumulated value. Minimum non-forfeiture values are established by law. Provided your insurance policy has been in force for a set period of time, as stated in your insurance certificate, the non-forfeiture value can be claimed in four ways: cash surrender value, paid-up insurance, extended term insurance, or automatic premium loan.
What is cash surrender value?
Cash surrender value is the amount of money that will be paid to the Whole Life policy holder upon surrendering, or ending the policy. As required by law, this value is guaranteed in the certificate you received from us at the time you purchased your policy. Changes in your financial or insurance needs may lead you to cash surrender your Whole Life policy. Occasionally, people purchase this insurance with the intention to cash surrender the policy for a specific future purpose; such as financing a college education or retirement. The cash surrender value can also be useful in a time of emergency or financial difficulty. Thus, Whole Life insurance also serves as a savings plan, as well as protection.
What is paid-up insurance?
The paid-up insurance provision enables you to obtain a paid-up policy by applying the cash surrender value of their current policy, less any indebtedness or unpaid premiums, to the purchase of a new Single Premium Whole Life insurance. This will be at your current age and premium rates.
What is extended term insurance?
Extended Term insurance is insurance protection obtained by applying the cash value of your current insurance policy, less any outstanding loan or indebtedness, to the purchase of paid-up Term Insurance, usually for the full face value of the policy surrendered. The insurance protection will continue for the period of time as allowed by the cash value, when applied as a single premium payment at your current age and premium rates.
What is automatic premium loan?
An automatic premium loan is a special provision of insurance plans offered by the Society. This may be helpful to you in the event of emergency. The Society will automatically pay any overdue premiums by means of a policy loan to the extent that the amount on loan never exceeds the policy’s cash value. The insurance policy will continue to remain effective until the total outstanding indebtedness equals the cash surrender value. At that time, the insurance will be terminated without further value. The automatic premium loan currently has a 5% interest rate, which cannot exceed 6 %.
What is Term Life insurance?
Term Life insurance is death protection for a “term” of one or more years. Death benefits are paid only if the Insured dies during that defined period of time. Unlike Whole Life Insurance, Term Life insurance is temporary insurance. In general, Term Life insurance provides the largest amount of immediate death protection per premium dollar.
The Society offers two Term Insurance Plans: Juvenile Insurance to Age 25 and Twenty-Year Level Term Insurance. All of our Term Life insurance policies are Guaranteed Convertible. This means that during the conversion period, you may exchange your Term Life insurance policy for a Whole Life policy, without either evidence of insurability or proof of good health. The premiums for your new Whole Life insurance policy will be based on the premium rate and your age at the time of conversion.
With a Twenty-Year Level Term Insurance, your policy is Guaranteed Renewable for additional terms to the age of 80 regardless of your health. Each time the insurance is renewed, the premium rates increase based on your age and premium rate at that time.
Term Life insurance is particularly useful for temporary contingencies. A Term policy can be used to augment permanent insurance. By providing low premium insurance protection, Term Life insurance can be a good choice when children are young, assets are small, and incomes are growing. During such periods, people need maximum insurance protection for a minimum premium expenditure. Term policies can be used to guarantee the repayment of the mortgage on the family home in the event of the death of either of the family’s financial providers.
What are Term Life insurance riders?
Term insurance riders can be attached to some of the Term and Whole Life insurance plans (see specific provisions). In order to apply for a Term Rider, the application must be submitted at the same time as the application for the life insurance certificate to which it will be attached: Term riders may not be attached at a subsequent date. The Foresters offer the Accidental Death Benefit Rider, Twenty-Year Term Rider and a Waiver of Premium Benefit Rider.
Which is better? Term Life or Whole Life?
The answer depends on your needs, preferences, and financial situation. It may be helpful to compare life insurance to owning a home or to renting an apartment in order to understand the differences between Whole Life and Term Life insurance.
Term Life Insurance
Temporary protection
Just as an apartment lease is in effect for a fixed period of time, so is a Term insurance policy. For example, you can elect to be insured for a twenty year period or longer.
Renewable:
Just as a landlord permits the apartment lease to be renewed, in most cases, a Term insurance policy can also be renewed.
Low initial payments:
Renting an apartment is often the only affordable choice for some people. The same holds true for insurance: while Term insurance can initially provide more protection per premium, your premium increases each time the policy is renewed, because the risk of death increases with advancing age. At some point, as with apartment rent increases, rising premium rates make ownership a better choice.
Convertible:
Just as apartments can be converted to condominiums and an apartment renter becomes a condominium owner, Term insurance can be converted to Whole Life insurance.
No cash value:
When a person rents an apartment, that person does not build equity. The same holds true for Term insurance; it does not build cash value the way Whole Life does.
Whole Life Insurance
Permanent protection:
Having a permanent Whole Life insurance policy is like owning a home; the insurance may be kept for a lifetime and may provide protection for the family.
Fixed rate payment:
As there are different types of mortgages, there are different ways of paying for Whole Life insurance. The Foresters offer one-time payment, twenty-year payment, payment until the age of 80. All of our Whole Life insurance plans have premium rates based upon the latest standard mortality table. Whole Life policies offer choices to meet a wide range of needs and to provide flexibility.
Cash value:
The cash value of Whole Life insurance is similar to the equity that builds up as a home owner makes mortgage payments.
Cash surrender:
As a home owner can sell a home for its cash value, a person insured with Whole Life insurance is able to “sell” the insurance by surrendering it for its cash value.
Automatic premium loans:
Through a loan, the Whole Life insurance policy’s cash value can be used to pay premiums, in much the same way a home owner can borrow against the equity of the home.
What happens to the premiums I pay?
A portion of each premium dollar collected by the Foresters is set aside in a legal reserve fund. Reserves that are not used to pay current death claims are invested at interest to provide for future benefits. The investment of life insurance reserve funds is an important source of capital in support of American business and industry enterprises.
What is a participating policy?
A participating insurance policy may offer the policyholder premium refunds, called dividends. All of the Term Life and Whole Life insurance plans offered by the Foresters today are participating policies. After the insurance has been in force for two years, dividends may be declared and paid to the policyholder at the option of the Society, if earnings permit. What are dividends? Dividends represent the portion of the collected premium that was not needed to pay death claims; to be set aside as legal reserve funds for future claims; to meet the operating expenses of the business; or to provide for future contingencies.
Dividends come from three sources: decreased operating expenses; the difference between actual and estimated mortality loss; and interest earned on the investments in excess of the interest needed to maintain legal reserve funds.
Dividends can be projected, but they cannot be promised or guaranteed. Should your policy earn a dividend, you’ll have the choice to receive it in cash, leave it on deposit to accumulate with interest; apply it toward premium payments on your existing policy; use it to purchase additional “paid-up” insurance.
How secure is my investment?
Life insurance benefits are safeguarded by state laws that legally require a portion of the premium payments to be set aside to provide for future benefits. The ability of an insurance company to meet its present and future obligations is reflected in its solvency ratio. This is based on the ratio of the company’s assets to its liabilities. A high solvency ratio is a strong indication that the insurer is financially secure. At the close of 2009, the Foresters had a solvency ratio of 193.55%. This is considerable higher that the average solvency maintained by most other life insurance companies.
How does a life insurance policy work?
A life insurance policy is the Society’s promise to pay a specified sum of money at a specified time. This money goes either to the person(s)named as the beneficiary in the insurance certificate, at the time of the insured’s death or to the insured person, while living, on a future date as stated in the policy. This sum, the benefit amount, is called the face value of the insurance policy. The promise to pay this benefit is given in return for the policy owner’s agreement to regularly pay an agreed upson sum of money called a premium to the Society.
How are life insurance premium rates determined?
Premium rates are calculated according based on an individual’s life expectancy. Using mortality figures for a large sample of the population, actuaries are able to predict with substantial accuracy, the number of deaths to be expected at any given age. These statistics are complied into a mortality table from which premium rates are determined.
In order to keep you from having to deal with premium rates that rise as you age, the life insurance policies offered by the Foresters are issued on a level premium basis, whereby premiums are fixed at a level rate throughout the life of the policy. Under this method, you will pay more than the actual cost of protection in the early years of your policy and less than that cost in the later years. The additional money paid to us in the early years is invested to yield interest, which is added to the reserve funds to offset the undervalued premiums in later years.
While Whole Life insurance premiums are based on a level premium system, Term Life insurance premiums are not. Therefore, premium rates for Term policies increase at each renewal.
Is life insurance a wise investment for me?
An investment in life insurance is an investment in your family. Sufficient life insurance to protect and to provide financial security for family members and dependants is the best proof of personal and family responsibility. Having life insurance means caring enough about loved ones to financially provide for them, even after death.
The loss of any member of the family is almost always followed by inescapable debts: medical bills, funeral expenses, and unpaid taxes, as well as any outstanding indebtedness, such as a mortgage, loan, or credit card debt. These final expenses are demand obligations, which mean they must be met immediately. A life insurance policy large enough to cover these items and made payable to the family or estate can be indispensable to those who are left behind.
Standards of living cannot be changed immediately when death strikes. If one of a family’s financial providers were to die, a necessary period of financial readjustment would follow. Having insurance protection means the family has the money for needs survival during the readjustment period. Having enough insurance protection to cover a financial provider’s income for at least one year will ease the readjustment period for the surviving family.
The education of children is another important reason to invest in life insurance. Many parents would like their daughters and sons to go to college. The death of one of the family’s financial providers does not have to deprive the children of this important opportunity. Since permanent life insurance policies build cash values, a life insurance policy purchased when a child is young may be surrendered in later years to pay college tuition. Thus, life insurance can provide for children’s education.
The ability to repayment of mortgage is another important reason to invest in life insurance. A home with a mortgage can prove to be a burden, instead of a comfort, especially in the event of the death of one of the family’s financial providers. The proceeds of a life insurance policy can be used to pay off the balance of the mortgage, alleviating the financial burden for those left behind.
How do I apply for insurance through the Association of Catholic Forestsers?
First, you’ll meet with one of the Society’s insurance sales agent so you can complete the necessary application forms together. You’ll also be asked to provide information about your present physical condition and medical history, either by filling out a questionnaire, or by taking a paramedical or medical exam. This will be decided by the Society based on specific underwriting guidelines. Prior to submitting your application, your agent will examine it carefully to make sure that all of the necessary information in place. Then all signed forms will be submitted to the Home Office for underwriting, without undue delay.
Once your application is received, it is submitted to our Medical Examiner who will review the information to determine whether your policy will be approved or declined. At times, additional information such as a credit report may be requested. Once you have been approved for insurance, you will be issued a Life Insurance Certificate signifying that you are now insured.
What are your standards of insurability?
If there were no health requirements or occupational restrictions for life insurance, the cost would become prohibitive, and there would be a tendency for those in good health to postpone their purchase, while people in hazardous occupations or in ill health would be buying large sums.
Therefore, insurance only operates successfully and equitably on the basis that every applicant meets certain standards of insurability. For the Foresters, this means either passing a physical examination or meeting other health requirements, and having a non-hazardous occupation, good family background, and good general character. In this way, the cost of insurance protection remains fair for all our members.