Learn the Basics

about Life Insurance

Generally speaking, life insurance is a contract between you, as the insured, and an insurance company as a way to provide protection against the economic loss caused by your death.

The main reason for life insurance is to provide income replacement to your beneficiaries when you die. However, if your needs include estate planning, cash accumulation, wealth transfer, or estate tax liquidity, life insurance can help you achieve these goals as well.

Income replacement: For most people, their key economic asset is their ability to earn a living. If you have dependents, then you need to consider what would happen to them if they no longer can rely on your income.

Pay outstanding debts or long-term obligations: Life insurance can play an important role when planning for you and your family's future financial needs. Consider the expenses your family may have at the time of your death - mortgage bills, car payments, college, or even medical expenses. Life insurance provides a measure of additional protection that can help bridge the gap between what you have now and what your family may need when you pass away.

Estate planning: One of the greatest benefits life insurance offers you is that it passes to your beneficiaries - the people who will receive the life insurance benefit - generally income tax-free. Moreover, because of its design, your family may not experience the burden of extra income tax at your death or have the money go through a lengthy probate process. The proceeds of a life insurance policy can be structured to pay estate taxes so that your heirs will not have to liquidate other assets.

Charitable contributions: If you have a favorite charity, you can designate that all or part of the proceeds from your life insurance go to that organization.

Term Insurance
Term insurance, as the name implies, is coverage that is in place for a certain length of time, generally referred to as the "term period." Typically, you can purchase it in term periods of 5, 10, 15, 20, or 30 years. Should you die before the end of the term period, your family, or beneficiaries, will receive the death benefit.

Term insurance does not have cash value; however, many policies offer an optional benefit that may allow you to receive back all of your payments at the end of the term period less any benefits paid out to you, which is typically referred to as a return of premium. The return of premium feature may not be available in all states.

Permanent Insurance
There are several types of permanent insurance including Universal Life and Whole Life. In general, permanent insurance offers protection for your entire life and it builds cash value which is generally accessible in the form of a loan or a withdrawal during your lifetime. Typically, cash values are credited with an interest rate that can either be fixed or based on the performance of a market index, such as the S&P 500 Index®.

"Standard & Poor's®", "S&P®", "S&P 500®", "Standard & Poor's 500" and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by Americo Financial Life and Annuity Insurance Company. This product is not sponsored, endorsed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representations regarding the advisability of purchasing this product. The S&P 500 Index is a market-valued weighted price index which reflects capital growth only and does not include dividends paid on stocks.

Universal Life
Universal Life is a flexible-premium, adjustable-benefit life insurance contract which accumulates cash value. Flexible premium means that (subject to certain limitations) the policyowner may pay more or less than the premium stated in the contract. Depending on certain factors, premium payments could be skipped in particular years at the policyowner's discretion. The adjustable benefit allows the policyowner to increase or decrease the stated death benefit, subject to certain guidelines.

Whole Life
Whole Life is the most basic type of permanent life insurance. Your premium will purchase a specific death benefit and produce a specific cash value, which are guaranteed for the life of the policy as long as the premiums are paid. Whole Life premiums are usually higher than term premiums, but are guaranteed not to increase.

Permanent insurance is great for people who want to ensure that they are covered for a lifetime, and like the idea of building cash value.