While insurance isn't an investment, it's an important part of sound, savvy
personal financial management. Insurance is protection. It protects everything
you've worked so hard to earn. It protects your spouse in the event of
premature death. It sends the kids to college. It holds together a family at a
time when money shouldn't be a concern.
You need insurance but shopping for the right coverage to protect your
family and your assets is like learning a new language. Term life, whole life,
universal life, actual cash value, dividends, loans against policy - it's a
maze of insurance products out there and finding the right coverage for your
needs may take a little research.
Here's a starter course on getting the most for the least in life insurance
and still have the protection you and your family need.
Types of Life Insurance
There are two basic types of life insurance with numerous variations on a
theme.
Term life insurance is the simplest to understand. It's also
the most economical protection you can buy.
Term life insurance is paid when the insured (you) pass on within a defined
term - a defined length of time your life insurance coverage is in effect. Term
life comes with a variety of time frames: five-, ten- even thirty-year terms
are available.
The younger you are, the lower the cost of the monthly premium - the dollar
amount you pay for protection each month. Premiums are calculated based on two
factors - your age (and general health) and the dollar amount of protection you
need. It's simple. A $100,000 term life insurance policy won't cost as much as
a $500,000 policy because you're buying less protection.
With term life, you keep things simple. The insurance company pays X amount
of dollars to the beneficiaries when the insured individual
passes on, as long as the policy is in effect, that is, the death occurs during
the term of the policy, thus the name term life
insurance.
Term life policies don't accumulate value, you can't borrow against them
and, if you choose a short term and your health changes, you could end up
paying more for your term life insurance than you would if you buy a long-term
policy - one that covers you for the long term.
To determine how much term life you need, add up funeral costs, outstanding
personal debt, mortgage debt, the prospect of paying tuition and other large
expenses that would drain family resources. Figure what it would cost your
family for a single year.
Then multiply by a factor between 5 and 10. Use the lower factor if you
don't have a lot of debt and the higher factor if you're carrying a couple of
mortgages and you have three kids to put through school. That's how much term
life you need to protect your family and all their expectations.
The other class of insurance is whole life insurance, also
called permanent insurance, universal insurance, variable universal insurance
and other product names, but all fall into the general class of coverage called
whole life insurance.
The first difference between term and whole life is that whole life covers
you from the day you buy the policy until you die. Of course, this assumes that
you pay your whole life insurance premium each month. There is no term (length
of time coverage is in effect) to whole life. Buy it when you're young and your
premiums will be low and you'll start building cash value.
That's the other main difference between term and whole life insurance
coverage. Whole life pays dividends. Not a lot, but dividends that can be used
to lower monthly premiums, or they can be allowed to accumulate earning
interest.
Once the whole life policy has accumulated enough cash value you can borrow
against that cash value to buy a house or cover some tuition bills. The
downside to taking loans against the value of a whole life policy is that it
lowers the payout to family in the event of the insured individual's death.
However, a whole life policy does increase in value while providing
protection for your family. The cost of coverage is also higher. Expect to pay
more for $500K of whole life versus $500K of term life insurance, simply
because the insurer is paying interest on your monthly premiums.
Calculate your coverage needs using the criteria listed above. Don't think
of whole life as a money-maker. It's not intended to increase your wealth.
That's a side benefit. An important side benefit, but the primary reason for
purchasing whole life is to protect your family in the event of your pre-mature
death.
Life Insurance Sources
There are hundreds of insurance companies and even more life insurance
products so talking to a knowledgeable professional is a good first step.
An insurance broker can advise you but, keep in mind, each insurance broker
carries a "line" of products from a limited number of insurance
providers so each broker will tell you her products are the best value.
If you do the math yourself, you know going in, how much coverage you want
to buy, at which point, it's just a matter of finding a reputable insurance
company offering competitive rates and the benefits you're looking for.
Another resource is your local bank - often the best place to start
researching your life insurance needs. Banks sell a broad range of life
insurance products and, because insurance isn't the primary
business of a bank, you're more likely to get straightforward answers to your
questions.
Another reason to visit your bank's insurance rep is that your bank knows
the financial you - how much you have in accounts, how much
comes in and goes out on a month to month basis, your tax status and other
personal finance information needed to get the right kind of life insurance at
the right price.
Talk to your employer. Life insurance may be a benefit along with health
care and two weeks vacation, but you may also be able to increase the dollar
amount of coverage with money deducted from your paycheck painlessly.
Unions, associations, your local Chamber of Commerce and other
organizations are also sources for low-cost term or whole life coverage.
Purchasing life insurance coverage through an industry association, for
example, gets you group rates that translate into more coverage at a lower
monthly premium. On the other hand, when you purchase term or whole life
through your union you usually don't have a choice of insurers and that's an
important point to consider.
Go with an insurance company that's ranked highly by Standard and Poor or
some other rating organization. Your broker or banker will steer you toward
quality of coverage so you get more for your money.
Life insurance sounds complicated but, when you break it down into simple
terms, it's something you can do with a trusted advisor to point you down the
right path.
Get life insurance. Get term life if you want lower premiums; get whole
life if you want your insurance to build cash value against which you can take
loans.
It's your choice. Making the right one saves money and delivers the peace
of mind that only quality life insurance protection delivers.
No one likes to think about buying life insurance. It's depressing. It's
also essential to protect your family and your assets. What kind of life
insurance is right for you? Here's what you need to know before talking to an
insurance agent or company.
Article Source: https://EzineArticles.com/expert/Paul_Lalley/232873
