LIFE INSURANCE:
ENSURING YOUR FAMILY'S FUTURE
Like the name implies, life insurance is about life-ensuring the lives of your family in your absence. With so many types to choose from, it can get complicated. Make it easier on yourself by learning what kind of life insurance will be the most valuable to you and your family and how to save when making this important purchase.
Life Insurance FAQs
Do I Need Life Insurance?
Life insurance is essential for providing for your family when you cannot. You are a candidate for life insurance if you are the sole breadwinner for your family or contribute a significant amount of your income to your family's total earnings. Even if you are a stay-at-home spouse who provides child-care and maintains the home, you should get life insurance to cover your replacement in the home.
Why Do I Need Life Insurance?
Life insurance ensures your family's financial future. It can offer support for unexpected legal, medical or funeral costs, in addition to supplementing the loss of your income.
How Do I Determine How Much Life Insurance I Need?
Life Insurance is designed to compensate for your lost income until you retire. Take your pre-tax income and estimate how many years you have left until retirement. If you are a stay-at-home spouse, approximate what you'd have to pay an employee annually to maintain your home and/or care for your children.
Learn the Types
Term and Permanent life insurance are the two main types of policies. Which one you'll need depends on your age, your family size and your financial status. Within each type are several forms that allow you to find a policy that is the best fit for your specific situation.
Term Life Insurance : Term life insurance is more flexible and less expensive than permanent life insurance. It's best suited for younger families with several dependents, but without the financial means to pay the higher premiums of permanent whole or universal policies. This type of life insurance last only the number of years you elect. However if you choose this term life insurance, make sure it's annual renewable or convertible, otherwise it can become quite expensive.
- Level Term : Premiums and coverage are fixed over a certain time period.
- Increasing/Decreasing Term : While premiums stay the same, the amount of coverage increases or decreases over a designated amount of time.
- Renewable Term : Your term life insurance inevitably increases as you age, but your health is less predictable. A renewable term policy allows you to renew your policy without another medical examination.
- Convertible Term : This type of policy works well if you are planning to buy permanent life insurance in the future. It allows you to convert your term policy into a permanent one after a designated amount of time.
- Group Term : This insurance is usually purchased by an employer and covers several people, so the premiums may be reduced.
Permanent (Cash Value) Life Insurance: The premiums for permanent life insurance are five to ten times as much as for term life insurance. Permanent life insurance usually covers you for your lifetime and often offers a cash value-you can actually accrue money throughout the life of your policy.
- Traditional Whole Life : If you pay the premiums, this policy won't expire. Many whole life policies have a cash value, or savings account. Part of your payment goes toward the cost of the insurance and the remainder is put in your cash value savings account. This type of life insurance is intended to cover the higher cost of your premiums as you age.
- Universal Life Insurance : This type of life insurance is the most flexible. As your financial needs change, so can your premiums. As with whole life, universal life has a savings account feature in which part of your premium payments are placed. Once a substantial amount has amassed, you can use all or part of this amount for your future premium payments. However, once the savings get used up, you have to begin paying again or risk losing your life insurance.
- Variable Life Insurance : This type of policy offers a savings account that you can invest in stocks, bonds and mutual funds. Your money grows more quickly than with whole or universal policies, but there is more risk. However, many variable policies guarantee your death benefit won't fall below a minimum level.
- Variable Universal Life Insurance : This type of life insurance combines the theory of the universal policy and the variable policy. It collects your money in a savings account that can be invested or used to pay future premiums.
Maximize Your Money
Finding the right policy is paramount. Buying the wrong benefits just for the savings is a bigger waste of money than having slightly higher premiums with the right coverage.
Shop Around
When you compare rates from several companies, you save. You have the advantage because they are competing for your business. Often, you can find similar policies for hundreds of dollars less
Pay Less, Get More
When you buy specified amounts of insurance, companies may offer a discount. For example, if you buy $500,000 of life insurance, you may actually pay less in premiums than for a policy worth $450,000.
Crunch the Numbers
It's difficult to compare two policies because there are many variables to consider, such as whether it offers a cash value or how quickly the premiums increase. That's where the net cost index comes in. It combines all the variables, giving you one number-the lower the better. However, you should disregard small differences because the indexes are based on estimations, and they may not reflect an actual difference in value. The insurance company you work with can provide those index numbers.
Fractional Premiums
Usually, the less often you pay premiums each year, the less money you pay overall because many companies charge fractional premiums, in essence penalizing you for paying more frequently. Also, some companies charge less if they can take the money directly from your checking account.
Look For Renewal Guarantees
Guaranteed renewable life insurance is important if you're looking to purchase a term life insurance policy. It ensures that you will be able to renew your policy when it expires without having to undergo another medical exam. You will still pay a slightly higher premium based on your age, but you won't have to shop for insurance again or risk paying a much higher premium, if you have declining health.
Protect Your Health
Your health is a main factor a company uses to determine your insurance rate. So it only makes sense to maintain or improve it in order to save money on your premiums. Don't smoke, maintain a healthy weight and exercise-and watch your insurance rates drop.
Don't hesitate-get your life insurance today and protect your family's future!