Life Insurance Guide

When buying life insurance, the most important consideration is purchasing a policy that best fits your underlying need. Life Insurance can help resolve multiple personal and business objectives.

The first question to ask is what is the purpose for the coverage? Keep in mind the major reason for purchasing life insurance is to cover the financial impact of an untimely or unexpected death. However life insurance can be used as a planning tool, some common strategies with life insurance are:

Family Protection/Income Replacement.

Life insurance can provide a source of income if you have children or family members dependent on you for financial support.

College Planning

As tuition costs continue to rise, protect your children’s college savings and cover the future costs of education by adding life insurance coverage.

Real Estate/Mortgage Protection.

Cover the unpaid or remainder balance of your home mortgage or real estate loan. Typically, enough insurance is purchased to pay off the principle amount of the loans and not any future interest.

Estate Planning/Final Expenses.

A life insurance policy is a great way to give your loved ones the means to cover your funeral or burial costs as well as the ability to honor any final bequests. Estate tax concerns are another big reason for coverage, the life insurance proceeds can be used to help pay the tax due or replace any assets lost to taxes.

Children with disabilities.

The death benefit can be used to fund a trust that will provide for a child with disabilities after the death of the second parent or guardian.

Business Continuation.

Life insurance is not only a personal planning tool. It can be a valuable tool for business as well. Protect an important or key person in the company or ensure smooth transfer of ownership upon an owner/shareholder’s death, disability, or retirement with a buy sell agreement funded with life insurance.

Charitable gifts.

This coverage can help create a living legacy for a favorite charitable organization after both spouses’ needs have been provided for.

The several types of Insurance:

Whole Life Insurance

Is the traditional form of permanent insurance and provides life time coverage as long as your premiums are paid. Premiums are generally level and can be paid for as long as you live or can be set up for shorter periods such as 15 or 20 years. These policies earn dividends which along with the cash value are used to continue paying the premium for the life of the policy.

Universal Life Insurance

Is a flexible kind of policy that lets you adjust your premium and the amount of coverage. The premiums you pay (less expenses) go into the policy account and earn interest. Coverage will remain inforce as long as your premiums plus earned interest is more than the policy charges to the account. A variation of the universal policy is called Guaranteed Universal Life, which provides fully guaranteed premiums and death benefits.

Variable Life Insurance

Provide lifetime coverage and builds cash value, however both depend on the performance of one or more investment accounts within the policy. Your investments performance will determine how much your death benefits increases and how fast your cash values will grow. There are variable policies which offer a guaranteed death benefit for a higher premium. It is important that you review the company’s prospectus when purchasing a variable life policy. Once you have a better idea which type of policy meets your goals, the next important step is how to determine the right amount of coverage.

Term Insurance

Covers you for a specified time period or term (10-30 years). The death benefit is paid only if you die within the term of the policy. Term insurance premiums are much lower since the coverage is not lifetime and the policy generally does not build any cash value. Most term insurance policies offer a conversion period in which you may change your term policy for a permanent or cash value policy. This option can be valuable if you need to maintain the insurance protection.