Understanding Life Insurance

Life Insurance is designed to replace lost income or pay for special needs your family would have if you were around. The big question is, "Do I need it? How much to get? and What Kind?" Let's go over each question.

Do I need it?

If you have a spouse, children, or aging parents who depend on you, life insurance is a great option to consider. Here are some examples:

  • If you are a wage earner, you'll want to replace your salary plus provide for any additional needs, such as paying off the mortgage, college tuition or career training for a spouse who may be forced to re-enter the work force.

  • Would your working spouse want to take some time away from their job to be with family after a loss? If so, what would that cost?

  • If you are a stay-at-home parent, what would it cost to hire help performing tasks you routinely do such as housekeeping, financial management, cooking, or shopping.

  • If you're caring for a family member with special needs, what would it cost to insure that person is provided for if you die?

  • If you are at or near retirement, how would your spouse's income change if you weren't around or vice versa? Depending on your accessibility of retirement savings, you may not even need life insurance.

How Much Should I buy?

Once you have an idea of what you're replacing, tally it up. How much would your family need per year if you were not around?

Then calculate how much it would take, investing conservatively, to generate that amount annually without ever touching the principal. 

What Kind Should I get?

Term

Term is the simplest form of insurance to understand and the type most financial experts recommend because it allows you to purchase the most coverage for the least amount of money. You purchase a policy for a specific amount that will cover you for a specific amount of time. (term)

Term Universal Life

A new hybrid that offers more flexibility than a term policy. Term UL let you extend the term of the policy after you are in the plan. Unlike term, you can choose from 10 options, tailoring the policy to your current financial state. 

Whole Life

Rather than covering you for part of your life, (as with term) whole life will cover you for your entire life as long as you keep up the premiums. Whole life is more expensive than term, and part of the premium will be set aside in an account designed to help cover the cost of the premium as you get older.

Blended Life

A blended life insurance policy starts out as a combination of term coverage and permanent coverage. Future dividends are paid on the policy are used to convert the term coverage into permanent coverage.

Universal Life

UL covers you for as long as you make premiums and contains an investment component. (In one variation, known as "universal variable," you choose the investment vehicle.) Beneficiaries either receive a face value or the face value plus the cash value of the investment account. The face value can rise and fall with the value of the investments.

Variable Life

Similar to universal life, but usually offering more investment options, including stocks, bonds and mutual funds. The face value can rise and fall with the value of the investments.

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