Many individuals and their financial planners consider life insurance as the cornerstone of their financial plan.
– One of the most common reasons for buying life insurance is to replace the loss of income that would occur in the event of your death. Proceeds from a life insurance policy make cash available to support your family almost immediately upon your death.
– Life insurance is also commonly used to pay any debts that you may leave behind. Life insurance can be used to pay off mortgages, car loans, and credit card debts, leaving other remaining assets intact for your family.
– Life insurance proceeds can also be used to pay for final expenses and estate taxes. Finally, life insurance can create an estate for your heirs.
Just the facts on life insurance: The classic argument to avoid life insurance runs, “”If I die, why do I need money?”” You don’t — but your family, your business or your favorite charity might. So anyone with dependents, human or otherwise, might need life insurance.”
Life insurance basics: Life insurance is an agreement between you (the policy owner) and an insurer. Under the terms of a life insurance policy, the insurer promises to pay a certain sum to a person you choose (your beneficiary) upon your death, in exchange for your premium payments. Proper life insurance coverage should provide you with peace of mind, since you know that those you care about will be financially protected after you die.
There are two major types of life insurance—term and whole life. Whole life is sometimes called permanent life insurance, and it encompasses several subcategories, including traditional whole life, and universal life. In 2003, about 6.4 million individual life insurance policies bought were term and about 7.1 million were whole life.
Term Life Insurance: Term life insurance covers the policyholder for a specific amount of time, which is known as the “”term.”” The term’s length varies according to the product and the term that the individual chooses. Terms typically range from 10 to 30 years and frequently increase in 5-year increments. Typically it’s the most affordable insurance, designed to protect your family, home or savings should anything happen to you.
There are two basic types of term life insurance policies—level term and decreasing term.
– Level term means that the death benefit stays the same throughout the duration of the policy.
– Decreasing term means that the death benefit drops, usually in one-year increments, over the course of the policy’s term.
Whole Life/Permanent Insurance:
Whole life or permanent insurance pays a death benefit whenever you die—even if you live to 100! In the case of traditional whole life, both the death benefit and the premium are designed to stay the same (level) throughout the life of the policy. The cost per $1,000 of benefit increases as the insured person ages, and it obviously gets very high when the insured lives to 80 and beyond. The insurance company could charge a premium that increases each year, but that would make it very hard for most people to afford life insurance at advanced ages. So the company keeps the premium level by charging a premium that, in the early years, is higher than what’s needed to pay claims, investing that money, and then using it to supplement the level premium to help pay the cost of life insurance for older people.”
How much life insurance do you need?
Your life insurance needs will depend on a number of factors, including whether you’re married, the size of your family, the nature of your financial obligations, your career stage, and your goals. For example, when you’re young, you may not have a great need for life insurance. However, as you take on more responsibilities and your family grows, your need for life insurance increases.
There are plenty of tools to help you determine how much life insurance coverage you should have. Your best resource may be talking with a financial professional at our office.
At the most basic level, the amount of life insurance coverage that you need corresponds directly to your answers to these questions:
– What immediate financial expenses would your family face upon your death?
– How much of your salary is devoted to current expenses and future needs?
– How long would your dependents need support if you were to die tomorrow?
– How much money would you want to leave for special situations upon your death, such as funding your children’s education, gifts to charities, or an inheritance for your children?
We’re currently partner with several big names in the life insurance industry including Manhattan Life, Fedelity Life, CAL Star Benefits; AIG Living benefit, National Life Group, Nationwide.
Our office will assist you in choosing the most suitable life insurance for your need and affordability.