The Basics on Life Insurance
Life Insurance is one of those items that most
folks don't care to discuss, but is critical to
your overall financial plan. In this months newsletter
we will list some common reasons to have life
insurance along with the different types of insurance
Why have Life Insurance?
1. To provide for your family's financial wellbeing.
2. To pay off debts
3. To provide liquidity for your estate
4. To keep a family business operating
5. To leave a legacy with a donation to college,
non-profit or foundation.
How Much Coverage?
Unfortunately, this is not an easy answer.
It all depends on personal assets, desired goals
and potential for estate tax. A rule of thumb
commonly used for young families is 10 times the
wage earners salary. Actually going through the
process of developing a financial plan gives us
more accurate data.
What's the difference in Term and Permanent:
Think of term life as renting a house and permanent
life as buying the house. The term life is purchased
for a set period of time (10, 15 or 20 years)
in which you have level premiums and are able
to leverage a lot of coverage for a smaller premium.
The downside is that the coverage expires at the
end of the term. This type of coverage is suitable
for individuals looking for coverage of items
1,2 and 4 up to retirement age.
Permanent life is designed to build cash value
and to be in effect throughout your lifetime.
So in effect if you want to guarantee that the
life insurance is in place even if you pass away
at 90, then permanent coverage is the answer.
The downside is that it's not cheap. Since the
insurance companies realize they are going to
have to eventually make good on the benefit the
premiums are much higher than term life. More
prevalent to items 3,4 and 5.
Types of Insurance:
1. Term Life: coverage that is in place for a
certain amount of time.
2. Permanent - Whole Life: designed to build
a cash value and have the premiums paid through
age 99. That's the actuarial date that the cash
value will equal the face amount of the coverage
3. Permanent - Universal Life: similar to whole
life but comes in much larger amounts and offers
the ability for higher funding of the policy to
build more cash value. The account grows at a
projected fixed rate based on the performance
of the insurance companies investment manager.
4. Permanent - Variable Universal Life: similar
to universal life but the investment options for
the cash value are chosen by the policy holder.
The investment values will fluctuate with the
market depending on your underlying investment
picks. This policy is one of the most oversold
and least understood ones out there. Many consumers
have a misunderstanding that this type of policy
has a guaranteed return. Not so, in fact it can
lose cash value and ultimately crash. Should only
be purchased after review by a financial advisor
not selling the product.
Selecting the appropriate amount and type of
insurance is challenging for most consumers. The
life insurance analysis in most financial plans
will help simplify this and arm you with enough
information so that you can confidently shop for