A Guide to Life Insurance Basics

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LIFE INSURANCE A GUIDE TO LIFE INSURANCE BASICS

CONTENTS WHAT IS LIFE INSURANCE?

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WHY DO I NEED LIFE INSURANCE?

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TYPES OF LIFE INSURANCE: TERM LIFE INSURANCE

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PERMANENT LIFE INSURANCE

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HOW MUCH LIFE INSURANCE DO I NEED?

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HOW DO I GO ABOUT GETTING LIFE INSURANCE?

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CONCLUSION

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W H AT I S L I F E INSURANCE? Consider this:

your family or dependents. The main difference between normal asset

You buy yourself a car. You pay a monthly insurance fee so that if the car is stolen, the insurance company pays you out the value at which you insured it. You replace your car. Life insurance works in more or less the same way. You insure your life i.e. your future earnings. You pay a fee (or a “premium”) to the insurance company, if you lose your life the insurance company pays out the value for which

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you insured your life and gives it to

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insurance (like car insurance) and life insurance is that you can choose how you’re paid out. You can get a lump sum payout (as you would with car insurance) which is called a “death benefit” or the death benefit plus a smaller, continuous monthly payout (annuity). Often times the death benefit is non-taxable at the federal level so if you buy a million dollars in life insurance, your beneficiaries will receive a million dollars tax-free.

WHY DO I NEED LIFE INSURANCE? When you buy an asset, like a car or a home, you insure the asset so that in the event of it being stolen, damaged or destroyed, you have access to sufficient cash to replace or repair it. Life insurance is there to protect THE most important asset you have. You!

Let’s assume that you are a 35 year old

When an income earner passes away,

doctor, your current annual income is

the survivors are often left to make

$250,000 and you plan on retiring at

drastic changes to their lifestyle at a

age 60. This means that your career

very emotionally difficult time. Having

potential is around $5 million i.e. if

sufficient life insurance can provide

you work until 60 you will have earned

financial peace of mind during such a

$5 million. That’s a lot of money!

time.

Congrats! If you were buying a $5 million valued house, you would probably make sure to insurance it, right? Well, the same logic applies to your life. Our guess is that you have some great plans for the earnings you expect to receive. Maybe you want to ensure you and your spouse have enough to comfortably retire or send your kids to college? Well, life insurance ensures that those plans don’t get derailed if

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you are not around.

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TYPES OF LIFE INSURANCE There are many different types of life insurance: universal, term, variable, whole, renewable, convertible... the list goes on and on. But in essence life insurance can be broken down into two general categories: Term & Permanent.

TERM LIFE INSURANCE: As the name suggests, Term Insurance works with a set term or period of time e.g. 10-year, 30-year, etc. Term insurance is generally used to protect against premature death that will pay the death benefit if the policy owner passes away within the set term. So your family (dependents) will get paid a lump sum of the total amount you insured your life for. There are pros and cons to this type of life insurance. Least expensive type of life insurance It will allow you to buy a large death benefit amount for significantly less than a permanent policy. Term insurance is simple and therefore you don’t have to worry about hidden fees or complex investments within the policy. The most important reason to get life insurance is to protect your future earnings so that you can still ZOE FINANCIAL | LIFE INSURANCE | 2017

provide for your family if you were

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to pass away. For most people, term insurance is enough. Disadvantage: Term limitations It only pays the death benefit if the policy owners die during the policy term i.e. if you die a day after the policy end date, no death benefit is paid to your beneficiaries. Keep in mind that your greatest need for life insurance is when your children “depend” on you, so term insurance when you are 65 is not as important to have versus when you are 40 because ideally you will be able to “self-insure” by the time the policy ends. If your term comes to an end and you are still alive, you have the choice to either go without life insurance or be underwritten for an additional term (often at a higher premium). Additionally, the premiums already paid are also kept by the insurance company

  • similar to a car insurance policy.

PERMANENT LIFE INSURANCE: As opposed to coverage for a set amount of time like term insurance, permanent insurance is put in place for the entire life (until death) of the policy owner. So no matter when the policy owner dies, the life insurance will be in effect. In addition, permanent policies allow a portion of the premiums paid to accumulate into a pool of money, known as the “cash value” that can be accessed before death. Permanent life comes in many different forms including whole, universal, and variable with the main difference being how much cash value can be accumulated and how it is managed by the insurance company or policy owner. Advantage: Cash Value The pro of permanent insurance is the cash value. The cash value is

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essentially a fund that grows as you

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make your annual contributions. As the policy holder, you are able to access this fund. This money can be used towards a number of different goals, can earn a return and grow, and is given preferential tax deferred treatment. It is an extra source of cash in addition to the death benefit that will be paid out upon death. Disadvantage: More expensive It is much more costly than term insurance since it is covering for the entire life of the policy owner. This often leads to people under insuring themselves because of the high costs. It can be much more complicated than term insurance Please note: there are a number of bells and whistles that can be added to a permanent policy. In the interests of simplicity we have just explained the basics.

HOW MUCH LIFE INSURANCE DO I NEED? There are a number of different variables to consider when trying to decide how much life insurance to get, including (but not limited to) income, marital status, and dependent children. Additionally, things like funeral costs, consumer debt, mortgages, and dependent university costs should be accounted for.

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HOW DO I GO ABOUT GETTING LIFE INSURANCE?

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There are many insurance companies

or agencies are affiliated to certain

and brokers that are more than willing

insurance products. This means

to help establish a policy for you or

that they earn a commission on the

your loved ones. When choosing an

products that they sell. This is not

insurance provider it is important

necessarily a bad thing but in some

to consider the credit rating of the

cases brokers may suggest products

insurance company and whether or

that earn them a higher commission

not the broker abides by a fiduciary

when perhaps they are not entirely

standard. Often insurance brokers

ideal for you, their client.

CONCLUSION

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At Zoe, we only work with independent brokers and agencies, which means that there is no affiliation with products, and the insurance products suggested to the client are done so with the client’s best interest as the main priority. We believe that deciding what type of insurance, how much to get, and where to get it should not be taken lightly. We’re always here to help you make the best decisions based on your long-term goals, current situation, and individual needs.

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PLEASE NOTE: All investing is subject to risk, including the possible loss of the money you invest. The projections or other information generated by Zoe Financial, Inc. regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not a guarantees of future results. The information contained in this document should not be taken as financial advice. For professional advice please contact a registered financial professional.

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