How To Protect Yourself And Your Family If You Die
How to protect yourself and your family if you die...
what everyone must know about life insurance.
Life insurance is a simple concept - you buy a policy that pays to your beneficiary or beneficiaries tax-free when you die.
However, deciding what kind life insurance to buy how much you need and how much you'll pay for it are extremely complex.
There are more than 2,000 companies selling life insurance in the United States today.
Some are very good, financially solid companies - others are not so much.
A company's financial strength is crucial to know because, hopefully, no one is going to collect on your life insurance for a long time.
You want to make sure your life insurance company will be around for a long time.
How do you know that? You can consult a life insurance expert, which is probably your best bet, or you can look at how various independent organizations "rate" the life insurance companies you are considering.
Ratings are like grades, A+, A, A-, B+, etc.
You'll want to do business with companies that are rated A or better by most rating organizations just for starters.
Then if they'll still be around when it's time to pay a death benefit for you, your money hasn't gone to waste.
Life Insurance has many purposes.
Life insurance is more than just a decision of how much to buy, when to buy, and who to buy from.
Depending on your financial situation, life insurance can be used for a variety of purposes, like:
You can buy a lot of it or a little.
Life insurance differs from auto insurance in that, depending on the type of policy you buy, you can pay a lot or a little for the same death benefit.
Keep in mind that the younger and healthier you are, the less you will pay for coverage over a long period of time.
How much life insurance do I really need? The correct answer is: It depends.
Your death benefit should be about eight to ten times your annual income, but there are other things you should consider to get the right life insurance for you and your family.
Think of it like this: Whatever kind of policy you buy, you should make sure it provides enough cash to meet your family's needs if you aren't here.
So when you buy life insurance, start off with a number in mind that will allow your family to continue their current standard of living for at least the next 10 years.
This is your "magic" number.
It will put into perspective for you the amount of cash your family will have to have to continue in their lifestyle without having to make any major changes, like getting a second job, selling the house, moving into an apartment, or having the kids change schools.
What kinds of life insurance policies are there? There are only a couple of basic policy types, but the terms and costs of the policies vary widely among insurers.
There are two basic types: 1) Term Life, which will last only for a certain period of time, or term.
2) Cash-Value, which is "permanent" insurance that also includes a cash account, or investment account, in addition to your death benefit.
You can borrow against your cash value, with the opportunity to pay it back.
Or you can withdraw some of that cash value, without the opportunity to pay it back, but if you choose this option, your death benefit will be reduced by the amount you withdraw.
What is "cash value?" It's the part of a permanent life insurance policy not needed to pay your actual "cost of insurance.
" The younger you are, the less it costs to insure you because you are not likely to die.
The older you get, the higher the "cost of insurance" because you are more likely to die.
When young, healthy people get life insurance, they have a very claim cost to their insurer (which is why life insurers are so willing to provide coverage to the young and healthy).
The older you get, not so much.
Term Life Insurance.
Term life policies are good only for specified periods of time, like 5, 10, or 15 years.
Most life insurance companies allow you to annually renew term life policies.
However, there's a big risk here if you get sick during the term.
If your health does change, you probably won't be able to buy another life policy without your premiums skyrocketing, if you are able to buy another policy at all.
Some bad health risks will automatically disqualify you from ever getting another policy.
You should ask your agent what the premium will be if you continue to renew the policy.
You should also find out if your policy will expire when you reach a certain age.
Because term life is the least expensive option, it's usually a good choice for young families in good health who can't really afford to buy more permanent options early in life.
Here are some term life options: Renewable Term - This is coverage for a longer term, 5, 10, 15 or 20 years.
The longer term also means that the cost of insurance is spread out over the term, so you will have a level premium and avoid huge annual premium increases when your cost of insurance increases.
Convertible Term Life - This is a term policy with an option for you to convert it to a permanent policy anytime during the term.
This term policy has the lowest cost of insurance and highest death benefit options.
It can be a good choice for younger families who can't afford permanent coverage, but still need a large death benefit and the option to convert to a permanent policy down the road.
Permanent, or Cash Value Life Insurance.
Permanent life policies have premiums that are higher at the beginning than they would be for the same amount of term insurance.
The part of the premium not used to cover the cost of insurance plus expenses is invested by the company and builds up in a cash value account attached to the policy that really come in handy.
Some examples of permanent life insurance include: Whole Life - Like other cash-value policies, this is permanent coverage, where the cost of insurance is stretched out over your entire life, or what the insurance company expects your entire life period to be.
Life insurers have tables that tell them how long, on average, someone of your age and physical health will live.
Say you want $500,000 in coverage.
The insurance company's rates are based on how much it needs to charge you in order to allow the company to recoup the eventual death benefit while you are alive.
The premium and the death benefit don't change much in whole life policies.
You pay so much a month for a given death benefit.
However, dividends to policyholders can increase the coverage or decrease the premium.
This is the first kind of permanent policy made available during the Civil War to soldiers and their families in the US.
Universal Life - Otherwise know as flexible life insurance.
You can change your premium and your death benefit at any time, although a substantial increase in the coverage usually requires you to prove you are still in good health by re-taking all your para-med exams.
Variable Life - This is a universal life policy where the death benefit and cash values are solely determined by it's investment performance.
And you get to choose the investment vehicle for your premiums, mainly through mutual funds.
If your investments do well, your policy's cash value and death benefit will increase.
If not, they'll go down, but most variable life policies won't let your death benefit drop below a certain level.
Most companies charge you for that guaranteed death benefit.
So what policy is best for me? In general, if you have significant assets, it's a better solution to have a permanent policy.
It's always more important to buy the coverage from an insurance company that'll hopefully be around when you die.
Remember, there are more than 2,000 companies selling life insurance in the United States.
As a result, you have thousands and thousands of options.
This makes it even more crucial that you have a life insurance expert look at your financial situation and determine what kind of policy and insurance company is best for your individual needs.
Be a smart consumer...
but don't try to be your "own agent.
" Protection for you and your family requires constantly vigilance...
and a partnership between you and your professional agent.
what everyone must know about life insurance.
Life insurance is a simple concept - you buy a policy that pays to your beneficiary or beneficiaries tax-free when you die.
However, deciding what kind life insurance to buy how much you need and how much you'll pay for it are extremely complex.
There are more than 2,000 companies selling life insurance in the United States today.
Some are very good, financially solid companies - others are not so much.
A company's financial strength is crucial to know because, hopefully, no one is going to collect on your life insurance for a long time.
You want to make sure your life insurance company will be around for a long time.
How do you know that? You can consult a life insurance expert, which is probably your best bet, or you can look at how various independent organizations "rate" the life insurance companies you are considering.
Ratings are like grades, A+, A, A-, B+, etc.
You'll want to do business with companies that are rated A or better by most rating organizations just for starters.
Then if they'll still be around when it's time to pay a death benefit for you, your money hasn't gone to waste.
Life Insurance has many purposes.
Life insurance is more than just a decision of how much to buy, when to buy, and who to buy from.
Depending on your financial situation, life insurance can be used for a variety of purposes, like:
- Estate Planning
- Cash Growth
- Wealth Transfer to the next generation, and
- Estate Tax Liquidity
You can buy a lot of it or a little.
Life insurance differs from auto insurance in that, depending on the type of policy you buy, you can pay a lot or a little for the same death benefit.
Keep in mind that the younger and healthier you are, the less you will pay for coverage over a long period of time.
How much life insurance do I really need? The correct answer is: It depends.
Your death benefit should be about eight to ten times your annual income, but there are other things you should consider to get the right life insurance for you and your family.
- The size of your family.
- Whether your spouse works and their guesstimated earning capacity now and into the near future.
- How many people are financially dependent on you and how long you think they will be.
- If you think you'll be receiving any Social Security Benefits and what kind of Life insurance plan you have at work.
- Any other expenses you'll have like mortgages, college tuition and estate planning.
Think of it like this: Whatever kind of policy you buy, you should make sure it provides enough cash to meet your family's needs if you aren't here.
So when you buy life insurance, start off with a number in mind that will allow your family to continue their current standard of living for at least the next 10 years.
This is your "magic" number.
It will put into perspective for you the amount of cash your family will have to have to continue in their lifestyle without having to make any major changes, like getting a second job, selling the house, moving into an apartment, or having the kids change schools.
What kinds of life insurance policies are there? There are only a couple of basic policy types, but the terms and costs of the policies vary widely among insurers.
There are two basic types: 1) Term Life, which will last only for a certain period of time, or term.
2) Cash-Value, which is "permanent" insurance that also includes a cash account, or investment account, in addition to your death benefit.
You can borrow against your cash value, with the opportunity to pay it back.
Or you can withdraw some of that cash value, without the opportunity to pay it back, but if you choose this option, your death benefit will be reduced by the amount you withdraw.
What is "cash value?" It's the part of a permanent life insurance policy not needed to pay your actual "cost of insurance.
" The younger you are, the less it costs to insure you because you are not likely to die.
The older you get, the higher the "cost of insurance" because you are more likely to die.
When young, healthy people get life insurance, they have a very claim cost to their insurer (which is why life insurers are so willing to provide coverage to the young and healthy).
The older you get, not so much.
Term Life Insurance.
Term life policies are good only for specified periods of time, like 5, 10, or 15 years.
Most life insurance companies allow you to annually renew term life policies.
However, there's a big risk here if you get sick during the term.
If your health does change, you probably won't be able to buy another life policy without your premiums skyrocketing, if you are able to buy another policy at all.
Some bad health risks will automatically disqualify you from ever getting another policy.
You should ask your agent what the premium will be if you continue to renew the policy.
You should also find out if your policy will expire when you reach a certain age.
Because term life is the least expensive option, it's usually a good choice for young families in good health who can't really afford to buy more permanent options early in life.
Here are some term life options: Renewable Term - This is coverage for a longer term, 5, 10, 15 or 20 years.
The longer term also means that the cost of insurance is spread out over the term, so you will have a level premium and avoid huge annual premium increases when your cost of insurance increases.
Convertible Term Life - This is a term policy with an option for you to convert it to a permanent policy anytime during the term.
This term policy has the lowest cost of insurance and highest death benefit options.
It can be a good choice for younger families who can't afford permanent coverage, but still need a large death benefit and the option to convert to a permanent policy down the road.
Permanent, or Cash Value Life Insurance.
Permanent life policies have premiums that are higher at the beginning than they would be for the same amount of term insurance.
The part of the premium not used to cover the cost of insurance plus expenses is invested by the company and builds up in a cash value account attached to the policy that really come in handy.
Some examples of permanent life insurance include: Whole Life - Like other cash-value policies, this is permanent coverage, where the cost of insurance is stretched out over your entire life, or what the insurance company expects your entire life period to be.
Life insurers have tables that tell them how long, on average, someone of your age and physical health will live.
Say you want $500,000 in coverage.
The insurance company's rates are based on how much it needs to charge you in order to allow the company to recoup the eventual death benefit while you are alive.
The premium and the death benefit don't change much in whole life policies.
You pay so much a month for a given death benefit.
However, dividends to policyholders can increase the coverage or decrease the premium.
This is the first kind of permanent policy made available during the Civil War to soldiers and their families in the US.
Universal Life - Otherwise know as flexible life insurance.
You can change your premium and your death benefit at any time, although a substantial increase in the coverage usually requires you to prove you are still in good health by re-taking all your para-med exams.
Variable Life - This is a universal life policy where the death benefit and cash values are solely determined by it's investment performance.
And you get to choose the investment vehicle for your premiums, mainly through mutual funds.
If your investments do well, your policy's cash value and death benefit will increase.
If not, they'll go down, but most variable life policies won't let your death benefit drop below a certain level.
Most companies charge you for that guaranteed death benefit.
So what policy is best for me? In general, if you have significant assets, it's a better solution to have a permanent policy.
It's always more important to buy the coverage from an insurance company that'll hopefully be around when you die.
Remember, there are more than 2,000 companies selling life insurance in the United States.
As a result, you have thousands and thousands of options.
This makes it even more crucial that you have a life insurance expert look at your financial situation and determine what kind of policy and insurance company is best for your individual needs.
Be a smart consumer...
but don't try to be your "own agent.
" Protection for you and your family requires constantly vigilance...
and a partnership between you and your professional agent.
Source...