Navigating Life Insurance
Almost everyone can benefit from life insurance. It is the best way to provide financial assistance to your survivors.
Do I need a life insurance policy?
Life insurance serves several purposes.
» It can provide mortgage protection.
» It serves as replacement for income lost by a family wage earner.
» It can help pay for services provided to family members.
How much life insurance do I need?
Since the goal generally is to provide for loved ones over a period of time, a common rule is that each provider in the household should have at least ten times their annual salary or annual contribution value. Any outstanding mortgage balance or other large debts should also be considered in your calculation; however, this amount should be in addition to the amount purchased to provide income protection.
Here's a link to a Life Insurance Needs Calculator.
How often should I review my life insurance needs?
As your life changes, your needs do, too. A common recommendation is that you should review life insurance protection at least every five years or sooner if a major life event such as marriage, divorce, a new child, home purchase, new job, starting a business or retirement.
Term Life Insurance
Term Life insurance is life insurance that you pay for during a specified length of time or term – generally one to 30 years. You select the amount of the death benefit or face value to meet your needs.
Premiums, or payments, which can be the same amount or increase with time, must be made monthly, quarterly, semi-annually, or annually. If you die during the term of coverage, the face amount of your policy will be paid to your beneficiaries. Term insurance policies do not accumulate cash value and usually offer lower premiums than other life insurance products with the same face value.
Universal Life Insurance
Universal Life is permanent insurance that has the potential to accumulate cash value. However, it offers additional features and options. For example, you can increase or decrease your policy's face amount to accommodate your changing protection needs. You can also increase or decrease the dollar amount of your premium payments and make additional lump sum payments to your policy. Since a Universal Life policy accrues cash value, you can borrow against for any purpose.
You have the option to skip premium payments if your account has accrued sufficient value. A Universal Life policy also has the potential to earn a higher rate of return than a whole life policy, although there is a risk that your rate of return could drop.
Whole Life Insurance
Whole Life Insurance is life insurance that you own for your entire lifetime. The amount of the death benefit or face value can be selected to meet your needs.
Premiums, or payments, are fixed and can be paid monthly, quarterly, semi-annually, or annually. As more premiums are paid, your policy accumulates a cash value that grows on a tax differed basis. In essence, whole life is like buying a house versus renting it. The monthly cost is higher than it would be for a term life policy, but with each payment, you make you gain equity. You can borrow against a Whole Life policy for any purpose. Loans, however, require you to pay interest and any borrowed amount you do not pay back is deducted from the payout to your beneficiary at the time of your death.
Final Expense Insurance
Your family means the world to you. The last thing you want is to leave them with major expenses after you’re gone. Final Expense insurance is life insurance that helps provide the money you need to pay medical bills, funeral expenses, legal fees or unpaid bills. It is an insurance policy that lets you decide how your assets are distributed. By planning ahead, you can protect your loved ones from unnecessary financial stress when you die. And, you can distribute your assets in the manner you decide!
How much life insurance do you need? Here's a link to a Life Insurance Needs Calculator.
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