Life Insurance Basics
You need life insurance to keep you and your family prepared for the unexpected. Your financial priorities probably include things like protecting your mortgage, preserving your income, funding a child's education, minimizing debt and staying ahead of everyday living expenses.
If your family was suddenly without income, it would have a dramatic impact on the financial well-being of the people you care about the most. The money you earn helps put food on the table, meet day-to-day expenses and plan for the future of your loved ones. Without it, your family may not be able to maintain their standard of living – so it's important to protect it.
There are many different types of life insurance, available from hundreds of companies, but most policies fall into one of two basic groups: term life insurance and whole life/permanent insurance.
- Term life insurance provides protection for a specific, limited amount of time, usually 10, 15, 20, 25 or 30 years. Level term provides the same protection and features rates and coverage amounts that stay the same for the duration of the policy. Annual renewable term life insurance is also available and provides coverage up to age 85 with premiums that increase each year.
- Whole life insurance is designed to stay in force for an individual's entire lifetime.
Financial planners often suggest a life insurance amount equal to seven to 10 times your annual income. However, this is just a rule of thumb, and many other factors should be considered before determining the amount of life insurance you need. We offer a free, simple income-based calculator to help you determine the approximate amount of life insurance you may need to help protect your family.
The annual increase in a policy's cash value and dividends do not incur income tax. However, if the cash value and dividends are withdrawn, any excess over premiums paid may be taxable.
Typically, life insurance death proceeds will not be subject to income taxation for the beneficiary. If the insured has ownership in the policy at the time of death, the proceeds may be counted in the insured's estate for federal estate tax purposes.
State inheritance taxes and federal gift taxes may also apply to life insurance proceeds in certain situations. You should consult with your tax adviser if you have any questions.
You will need the insurance policy, information regarding the manner and cause of death, and a certified copy of the death certificate. In some instances, we may need to obtain medical history information, including doctor's names and medical treatments. An Amica representative is always available to assist and make this process as easy as possible.