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Life Insurance
provides protection against the loss of
income that results from the death of a wage
earner. It can also be used to build savings
for retirement. Periodically evaluating your
life insurance needs should be an important
part of your financial planning.
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Life
insurance can be used to replace a family’s
lost income caused by the death of a
breadwinner. It can provide estate
liquidity, that is enough cash to protect
your heirs from any estate taxes that would
be payable. It can also be used to build or
increase your retirement fund.
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You can
estimate your family’s annual living
expenses and determine where that money will
come from. You can include Social Security,
savings, assets that can be sold, as well as
any group life insurance you may have. The
“gap” left would be your life insurance
need. Many financial advisors use anywhere
from 5 to 10 times annual income as a rule
of thumb.
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There are
some companies that will write a “joint life
policy” covering two people for the same
amount of insurance. This can be for a
husband and wife in a personal need, or used
in a business situation.
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This can be
a valuable addition to a life policy. The
company promises to “waive” future premiums
if the insured becomes totally and
permanently disabled, and that could mean
all future payments are to be paid for by
the company during the insured’s lifetime.
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The purchase
of life insurance on children can be an
important decision. Many people are
reluctant to do so, as the discussion
regarding the death of a child is rather
difficult. But the purchase of coverage at
an early age can guarantee a very low
premium for the length of the policy. In
addition, you can secure coverage at a young
age and avoid a potential un-insurability
problem in the future.
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It is
generally not a good idea for a minor to be
listed as a beneficiary, especially if
proceeds from a life insurance policy would
be needed immediately to pay final
expenses. The proper naming of
beneficiaries, use of trust accounts, and
implementing of a will, would all be
important in the planning process.
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Insurance carriers are rated in their
ability to pay claims, as well as their
strength as a financial institution.
Standard & Poors, A.M. Best, and Duff &
Phelps are companies who offer their ratings
on various companies.
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The guaranteed elements in a life policy are
the premium and benefits that are determined
at issue, and guaranteed for the length of
the policy. Premiums not guaranteed after a
certain period of years can be subject to
change by the carrier, and actual results
may be more or less favorable.
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Insurance
proceeds are not income taxable, but can be
taxed for federal estate tax purposes. It is
important that a review of your potential
estate tax situation be completed on a
regular basis and when purchasing life
insurance.
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If one has a family,
supports a household, has a mortgage or
plans to send their children to college,
insurance can fulfill the financial burdens
created by one’s death. The dreams one has
for their loved ones won't die along with
them. Life insurance is one of the greatest
gifts one can give to their family.
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All life insurance
policies work on the same basic premise. You
make payments called premiums to an
insurance company, which guarantees to pay
your chosen beneficiaries a sum of money
upon your death.
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Enough money to
provide for your dependents' immediate cash
needs and their on-going living expenses. As
a general rule, you will require between 5
to 10 times your annual income depending on
your lifestyle, number of dependents and
other sources of income.
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The cost varies
depending on the amount and type of
insurance you buy as well as your life
expectancy based on your current age,
gender, health and lifestyle.
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| Term Insurance
is straight forward and often the least
expensive type of coverage. You can buy it
one year at a time or for a specified number
of years, hence the name Term. Most term
policies are renewable at the end of the
term although premiums will likely be
higher. If you die during the term, your
beneficiaries are paid the amount of the
policy. If you are alive when the term ends
there is no pay out.
Whole Life
Insurance
combines a death benefit with a savings
plan. Part of the premium you pay goes
towards building a cash value. Premiums are
fixed and the policy will remain in force
for your entire lifetime provided premiums
are paid. When you die, your beneficiaries
are paid the amount of the policy. There are
a variety of Whole Life policies to fit your
individual needs.
Universal Life
Insurance
is a variation of Whole of Life insurance.
It offers flexibility in the amount of
coverage, rate of savings accumulation and
the payments of premiums. You can decrease
or stop premium payments temporarily as long
as there is a cash value to cover the
premiums as they become due. Once you resume
paying premiums, you can increase those
payments to build back your cash value.
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Initial premiums
generally are lower than those for permanent
insurance, allowing you to buy higher levels
of coverage at a younger age when the need
for protection often is greatest. It's good
for covering needs that will disappear in
time, such as mortgages or car loans.
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Premiums increase as
you grow older. Coverage may terminate at
the end of the term or become too expensive
to continue. The policy generally doesn't
offer cash value or paid-up insurance.
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Term
insurance is temporary insurance. A loan or
a mortgage is also a temporary need and can
be covered by term insurance. Permanent
insurance is coverage until death, and
eventually result in a claim being paid.
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It depends on the
type of policy you have. You can't borrow
against a term policy. Borrowing is
permitted on the cash value portion of Whole
Life and Universal Life policies. Loan rates
are usually below prevailing market rates.
You may or may not be required to repay the
loan, however any unpaid portion of a loan
will be deducted from the policy's death
benefit. Therefore, loan repayment is always
encouraged in order to restore your policy's
original value.
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You could delay
purchasing life insurance. You may feel you
can't afford it right now. But in reality
you can't afford to be without insurance.
Consider this, if your family is having a
difficult time managing on your salary now,
think about the difficult time your family
will face without your salary. Not having
life insurance is a huge gamble with
potentially devastating consequences. Life
insurance can guarantee the security of your
family's financial future.
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The information
provided is intended for informational purposes only and
does not necessarily reflect your particular situation.
This website does not nor does it intend to dispense legal,
tax or financial advice.
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