Life Insurance 101: Who Needs It?
If you are someone that wants your spouse or children to be protected in the event of your untimely death, you will want to purchase a life insurance policy. A life insurance policy can buy time for your spouse to secure a new job, if needed; pay for childcare services, up to and including college expenses; and even pay for your funeral expenses, burial fees and estate taxes. How Much Life Insurance Do I Need? At the least, you need as much life insurance as you can afford. It won’t do any good to purchase a $1,000,000 life insurance policy if it lapses due to nonpayment. Be realistic. At most, you will want to consider your current assets and debts and future expenses. James Hunt, former state insurance commissioner of Vermont and author of Taking A Bite Out Of Insurance, suggests that you multiply your annual net income by five. Having this much coverage will build in inflation costs while at the same time giving you peace of mind that your loved ones will be financially secure following your death. Term Or Whole Life Insurance? Term life insurance is a life insurance policy that is in force for a designated term (or amount of time), such as 10, 20 or 30 years. If you purchase one of these policies, you will have a guaranteed premium amount for the duration of the policy. You will want to have your life insurance policy cover through the years of your greatest expenses. Therefore, younger people need longer-term policies. A whole life policy is a permanent policy that is active until your death or until the policy lapses. When you purchase a whole life policy, the insurance company takes a portion of your payments and keeps then in a reserve fund, like a savings account, that accrues interest over time. Whole life policies have much higher monthly premiums than do term policies and their returns have lagged in comparison to other investment options. However, individuals that purchase whole life policies often see them as an investment, a tax shelter or a way to pay off estate taxes without burdening their heirs. How Do I Qualify For A Life Insurance Policy? First talk with a licensed insurance agent about your health history. Your life insurance policy will be rated by your height and weight, your general health and by test results that the insurance company requires. If you are purchasing a small life insurance policy, some companies don’t require any type of medical procedures. However, the more insurance you buy, the more tests you may have to endure. If you only need to have lab work done, some companies contract with mobile units that will come directly to your home or place of business to draw your blood. This will only take a few moments of your time. Buy Your Life Insurance Policy From A Credible Company This sounds like a no-brainer, but be sure and check out the financial strength of a life insurance company before you make your final choice. Your policy is only as good as the financial strength of the company that sells it to you. Ask yourself this question: Is this insurance company likely to be in business in 10, 20, 30 or more years when my heirs need the cash benefit? To check on the financial strength of an insurance company you can look at the following insurance raters: A.M. Best |