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Is life insurance necessary?
Many people wonder if they need life insurance. The answer is yes. Even single people without any dependents should invest in life insurance. In the future you may have dependents. If you purchase life insurance when you are young, you are less likely to have any health problems. This means you can get "locked in" coverage at a reasonable cost.
Life insurance will give your surviving spouse and perhaps children, economic peace of mind. Life insurance can be used to pay immediate costs, such as funeral expenses and unpaid medical bills. In the long term, life insurance can be used to care for dependents, and college expenses.
You can discuss life insurance amounts with you insurance agent.
Do I need life insurance?
The ability to earn an income can be considered your family's most valuable asset because your income allows you to obtain other assets, particularly the necessities of life and, of course, comfortable living standards. Unfortunately, the ability to earn an income is not guaranteed. The need for income may continue for those who were financially dependent upon you. Consequently, your need for life insurance and the amount will depend upon your personal and financial circumstances. If any of the following statements apply to you, you probably do need to consider life insurance:
- You have a spouse.
- You have dependent children.
- You have an aging parent or disabled relative who depends on you for support.
- You have another loved one that you wish to provide for.
- You have business or estate planning needs that life insurance can satisfy.
- Your retirement pension and savings are not enough to insure your lived ones' futures against a rising cost of living.
What is life insurance?
Life insurance is a written agreement between the insured and the insurer. The primary function of the agreement is to establish the fact that the insurer will pay a certain sum of money to a beneficiary when the insured dies. In exchange for this, the insured makes premium payments.
Are there different kinds of life insurance policies?
Two basic types of life insurance, term and permanent, are available.
Term Insurance:
Term insurance policies provide life insurance protection for a specific period of time, or a term. If the insured is to become deceased during the covered term, the specified beneficiary named in the policy will receive the policy death benefit. If the insured is not deceased during the term, then the beneficiary is to receive nothing.
Who's it for?
- People with a temporary need for life insurance protection.
- Those who need a large amount of insurance protection but have limited budgets.
- People with specific business needs .
Benefits:
- It provides insurance protection for a low cost (at least initially).
- If your needs change, most policies allow you to convert your term policy to a permanent life insurance policy without having to take a medical exam or provide other information about your health.
- Term insurance is a good way to supplement other coverage when you have added financial responsibilities for a given period of time (e.g., mortgage, college expenses).
- Death benefits are generally received free from income tax.
Some Drawbacks to Consider:
- Premiums generally increase with age and they could become unaffordable later in life.
- There is no cash value element, so you miss the tax-deferred cash value of permanent life insurance policies, such as Whole Life.
- Once the term period expires, the insurance coverage ceases and the policy has no further value.
Permanent Insurance:
Permanent insurance policies provide life insurance protection for the insured's entire life span, pending the policy remains in force. Permanent insurance policies build internal cash values, which can easily be described as a savings account within the policy.
Types of permanent insurance policies
- Whole life
- Variable Universal life
- Ordinary Level Premium Whole life
- Joint life
- Limited-pay Whole life
- Survivorship
- Current Assumption Whole life
- Variable life
- Adjustable life
- Universal life
Who's it for?
- If your need for life insurance is long term.
- Want to accumulate a cash value to provide funds for education, retirement or other future goals.
- Want to take advantage of the tax-favored treatment of cash value life insurance policies.
Benefits:
- Over time, permanent insurance may be more economical than term insurance since premiums do not increase with age and the policy can build a cash value.
- Earnings, and certain withdrawals and loans, may qualify for tax-favored treatment.
- Policy loans and withdrawals provide access to your cash value.
- If you cancel the policy, the accumulated cash value is yours to use as you wish. Surrender charges and taxes may apply.
Some Drawbacks to Consider:
- Permanent insurance is initially more expensive than term insurance.
- Unlike term insurance, permanent insurance offers no conversion option - the ability to exchange it for another type of plan later. Make sure the policy you buy is the one you really want.
- Loans, withdrawals, and any unpaid loan interest generally reduce the death benefit, which could leave beneficiaries inadequately protected.
What if I already have life insurance coverage?
Even if you have life insurance, keep in mind that life changes, therefore you should review your policy every few years. The following are life changes that would prompt you to review your policy.
- You have recently married or divorced
- A child or grandchild has been born or adopted
- Your health or your spouse's health has deteriorated
- You have begun to provide care or financial help to a parent
- A loved one will require assistance or long term care
- You have recently purchased a new home
- Your children or grandchildren are about to enter school or college
- You or your spouse retired or will retire early
- You or your spouse has been promoted recently
- You have refinanced your home mortgage in the past six months
- You or your spouse has received an inheritance
How can I conserve costs?
Here are some ways you can save money when purchasing the life insurance that's right for you.
Don't buy insurance if you don't need it, and don't buy more insurance than you actually need to provide for your loved ones.
Shop for a competitively-priced policy while you are in good health. Don't smoke. Take care of yourself by exercising regularly and maintaining a moderate weight.
If you buy term insurance, look for guaranteed renewable policies. That way you won't have to shop for a new policy (with higher premiums) when you're older.
Buy additional riders, which are optional forms of coverage, only if you need them.
Participate in your employer's sponsored life insurance program, even if you have to contribute or pay for it. This form of life insurance coverage, known as group insurance, pools good, average and poor risks to offer a benefit that can be less expensive than comparable plans offered outside of work. You may be able to obtain coverage up to a certain level without providing evidence of good health, a key advantage. Group insurance plans often provide for continued coverage during periods of disability. Many plans are administered through payroll deduction, a very convenient way to pay for coverage. Many plans allow you to continue your coverage even after you leave employment by continuing payment of premiums or converting coverage to an individual policy.
Where can you acquire a life insurance policy?
Group life insurance plans can be offered by an employer, or through an association of which one is a member. Individual life insurance policies can be purchased through a licensed insurance company. For more information contact your insurance agent.
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