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National Life Insurance

General Purposes of Life Insurance:
Life insurance is a unique asset which is a valuable addition to your overall estate due to its potentially high yield and tax-favored benefits. Life insurance can be used for any number of reasons. Some of the most common uses are:

How much life insurance should an individual own?
Rough "rules of thumb" suggest an amount of life insurance equal to 6 to 8 times annual earnings. However, many factors should be taken into account in determining a more precise estimate of the amount of life insurance needed. Important factors include income sources (and amounts) other than salary/earnings, whether or not the individual is married and, if so, what is the spouse's earning capacity, the number of individuals who are financially dependent on the insured, the amount of death benefits payable from Social Security and from an employer-sponsored life insurance plan, whether any special life insurance needs exist (e.g., mortgage repayment, education fund, estate planning need), etc. It is recommended that a person's insurance advisor be contacted for a precise calculation of how much life insurance is needed.

How much will it cost?
The cost for life insurance varies widely depending on the health and age of the person to be insured and the coverage amount of the policy. Individuals are rated by their age, health history and in some cases, by their careers. All other things being equal, younger people will generally have lower premiums that older people. The best way to find out how much life insurance will cost is to get quotes from multiple carriers.

What about life insurance for a spouse or children?
In certain circumstances, it may be advisable to purchase life insurance on children; generally, however, such purchases should not be made in lieu of purchasing appropriate amounts of life insurance on the family breadwinner(s). It is of utmost importance that the income earning capacity of the primary breadwinner be fully protected, if possible, through the purchase of the required amount of life insurance before contemplating the purchase of life insurance on children or on a non-wage earning spouse. In a dual-earning household, it is important to protect the income earning capacity of both spouses. Life insurance on a non-wage earning spouse is often recommended for the purpose of paying for household services lost at this individual's death.

What's the difference between term and cash value life insurance?
Although a difficult question--one whose answer will vary depending on circumstances--several principles should be followed in addressing this issue. It must first be recognized that in any life insurance purchasing decision, there are at least two basic questions that must be answered:

The question contained in (a) involves an "insurance" decision and the question contained in (b) requires a "financial" decision. The "insurance" question should always be resolved first. For example, the amount of life insurance that you need may be so large that the only way in which this needed amount of insurance can be afforded is through the purchase of term insurance with its lower premium. If your ability (and willingness) to pay life insurance premiums is such that you can afford the desired amount of life insurance under either type of policy, it is then appropriate to consider the "financial" decision--which type of policy to buy. Important factors affecting the "financial" decision include your income tax bracket, whether the need for life insurance is short-term or long-term (e.g., 20 years or longer), and the rate of return on alternative investments possessing similar risk.

What is mortgage protection term insurance?
The face amount under mortgage protection term insurance decreases over time, consistent with the projected annual decreases in the outstanding balance of a mortgage loan. Mortgage protection policies are generally available to cover a range of mortgage repayment periods, e.g., 15, 20, 25 or 30 years. Although the face amount decreases over time, the premium is usually level in amount. Further, the premium payment period often is shorter than the maximum period of insurance coverage--for example, a 20-year mortgage protection policy might require that level premiums be paid over the first 17 years.

Can a life insurance policy provide payment for an outstanding mortgage loan?
Yes. An existing term or cash-value life insurance policy, can be used for many purposes, including paying off an outstanding mortgage loan balance in the event of the insured's death.

What are the taxes on life insurance cash values, dividends and death benefits?
The "interest build-up" portion of the annual increase in the policy's cash value is not taxed currently to the policy owner. Dividends generally are considered to be a "return of premium" and are also not taxable to the policy owner. Although in the typical case, life insurance death proceeds will not be subject to income taxation, these proceeds may be subject to federal estate taxation. If the insured has any elements of ownership in the policy at the time of his/her death, the proceeds are includable in the insured's gross estate for federal estate tax purposes. State inheritance taxes and federal gift taxes may also apply to life insurance policies/proceeds under specific circumstances. You should contact your tax advisor regarding questions concerning the possible income, estate and gift tax consequences surrounding any life insurance that you currently own or are contemplating purchasing.

What is participating whole life insurance?
Participating (par) whole life insurance has been marketed for many years in the U.S. The participating feature allows for the payment of dividends to policy owners when actual experience justifies such payment. Substantial amounts of participating whole life insurance is still sold today, principally by the large mutual's.

Which type of cash value life insurance policy is a "better buy"?
There is no simple answer to this question. The best performing product (from a financial perspective), whether universal life, whole life or some other type of cash value life insurance, will likely be the one offered by the insurer that enjoys the best future experience as it relates to interest earnings, actual expenses and mortality costs. Insurers earning the highest investment income, and who also incur the lowest expenses and the lowest mortality costs, are in the best position to offer life insurance at the lowest cost. This is true whether the cash value life insurance product being offered is universal or whole life. Thus, it will be necessary for prospective insurers and their advisors to carefully examine the financial aspects of each product under consideration, irrespective of what type the product is.

Is credit life insurance a good buy?
Credit life insurance is frequently more expensive than traditional term life insurance. Further, if you already own a sufficient amount of life insurance to cover your financial needs, including debt repayment, the purchase of credit life insurance is normally not advisable due to its relatively high cost.

*NOTE: Credit life insurance is frequently recommended in conjunction with the taking out of an installment loan when purchasing expensive appliances or a new car, or for debt consolidation.

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