Life Insurance
Life insurance is a simple concept: You buy a policy that pays your beneficiary or beneficiaries when you die. In most cases, that means protecting your family’s home and lifestyle in case something should happen to you. Basically, you buy life insurance to make sure that everybody who’s important to you is cared for.
Not everyone needs life insurance:
- If a person has no dependents, or if both partners in a relationship make enough money to support them in case one of them died, life insurance is may not be needed.
- If there are sufficient funds available to provide for the dependent survivors’ long-term needs without depleting the financial resources, there may not be a need for life insurance.
But other groups of people do need life insurance:
- If a person has dependents – a spouse, children, parents, even charitable organizations - who rely on their financial support.
- If a person provides a service that would have to be provided by (and paid to) somebody else after their death.
When you consider buying life insurance, you should make sure that it provides enough of a benefit to meet your family’s or beneficiaries’ needs if you (and your salary, service, or payments) aren’t there.
Start off with a number in mind of what your family must have in terms of a death benefit – consider payments for mortgage, cost of living, debt, college, and retirement.
There are basically two different types of life insurance:
- Term Life, which is good for a certain period of time. Term Life policies provide coverage for specific periods of time, including a 30-year mortgage, or raising children. Term Life coverage can be purchased at a fixed premium rate for various term lengths – 5, 10, 20 or even 30 years. This will avoid the potential for huge annual premium increases. However, when the term ends, so does the insurance coverage. Term Life Insurance will only pay if you die within the term.
- Permanent, Whole Life or Cash-Value Life Insurance, which covers you for your entire life. Permanent life insurance is often used if you have significant assets, if you want to be sure that estate taxes are covered, if you want to support a surviving partner’s retirement funds, or if you want to be sure to have enough money to pay for your funeral expenses. Permanent life insurance will pay when you die – no matter how old you get. Permanent Life insurance is based on a client paying higher rates (making overpayments) in the early years, and comparatively lower rates later on, when health, age and mortality rates would call for much higher rates. The overpayment made in the early years is set aside, and can be accessed by the client. By law, the insured is entitled to a refund of the overpayment when the policy is canceled – hence the term “Cash Value”.
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