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What Do I Need To Know About Life Insurance Coverage?

The Effect On Family.

As part of your overall compensation package, your employer might offer you a life insurance policy that's worth one, two, or three times your annual earnings. The Internal Revenue Service considers group life insurance a benefit to the worker that is taxable like regular income, with the first $50,000 in coverage exempt.

For an additional fee (that you pay), you can enhance the value of this policy to be worth any value ($50,000, $100,000, $250,000 or more). When you're hired and initially receive this benefit, you'll be required to determine who the policy's beneficiaries will be (who will get paid if you die). You may also be given the option to purchase additional life insurance policies covering your spouse and/or children. Depending on the size and value of the policy, you may choose to consult your own insurance agent and purchase an additional policy outside of what your employer offers.

Just as with any type of insurance, there are several types of life insurance (whole life and term life being the two major categories.) The price you'll pay for a policy will be based on your age, the value of the policy, whether or not you smoke, and other related criteria. The younger and healthier you are, the cheaper a life insurance policy will be.

When determining how much life insurance you need, The American Council on Life Insurance suggests, "Before buying life insurance, you should assemble personal financial information and review your family's needs. There are a number of factors to consider when determining how much protection you should have. These include: any immediate needs at the time of death, such as final illness expenses, burial costs, and estate taxes; funds for a re-adjustment period, to finance a move or to provide time for family members to find jobs; and ongoing financial needs, such as monthly bills and expenses, day-care costs, college tuition or retirement."

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 a specific period, which can be from one to 20 years.

Depending on the type of policy of annuity you hold, there can be significant tax implications for surrendering or exchanging your policy or annuity, especially if you are under 59 years old. Insure.com offers a life insurance and annuity tax tool through which you can determine the potential tax impact of certain actions.

Copyright © 2000 Jason Rich; All Rights Reserved, The Unofficial Guide to Earning What You Deserve, Published Under License from Hungry Minds, Inc.

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