|Why consider life insurance?|
|Life insurance is an integral part of
financial planning. The chief function of life insurance is to
financially safeguard your loved ones in the event of death by providing
them with a lump sum of tax-free money after your death. This money,
also called a death benefit, can help your family meet important financial
needs by replacing your income and paying for expenses.
Life insurance, in short, protects your family from economic tragedy. There are various life insurance options available to you. Some policies provide coverage for a specific number of years. Certain policies allow you to combine different types of insurance and even build up cash value. Your decision should be based on needs of you and your family and what you can afford.
|How much insurance is enough?|
|The majority of Americans are under
insured. The following information will give you a basis to follow
in determining how much life insurance you need to protect your loved
Most professionals believe there are three essential parts of the puzzle:
The general consensus is that the replacement of the breadwinner's income is the most important. The basic role of thumb when calculation for the lump sum needed using life insurance is to take an interest rate factor that you are comfortable with and multiply that rate by $100,000.
For example: $100,00 X 4.8% = $4800 in annual interest income. If your family needed $48,000 of net income you would need $1,000,000 of life insurance coverage.
|Term life -vs.- permanent life|
|The main difference
between term life insurance and permanent life insurance is simply that
term life insurance comers you for a
a specific period of time, or term,
while permanent life insurance covers you for your entire life.
Term life insurance will give you the maximum coverage at a lower initial premium. However, the premiums of term life insurance increase as you get older and once the the time period of term life insurance has expired your policy and coverage is no longer in force.
Permanent life insurance cannot be canceled as long as you pay your premiums. Although the premiums for permanent life insurance are generally higher, this policy builds cash value which can be used to curtail the payment period. There are several types of permanent life insurance - whole life, universal life, and variable life.
|Types of insurance|
Term life insurance covers you for a specific period of time, called a term, instead of for your entire life. So if the insured dies within that particular period of time, then the beneficiary receives the the payment of the death benefit. However, if the insured lives past the time frame, then the beneficiary receives nothing as the policy is no longer in force. People often purchase term life insurance to cover shorter-term debts like a mortgage or car loan. While term life premiums are usually lower than permanent life premiums, they increase as you get older. Term life can include the option to convert the policy into a permanent policy in the future.
- Top of Page -