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Life Insurance Basics
There are many different kinds of life insurance. Which kind of policy you should buy depends upon:
- How much protection you need
- How long you will need it
- What you can afford to pay
Advantage of Life Insurance:
- No matter what kind of insurance is right for you, there are many advantages in addition to the specific ones built into your policy
- Your Families essential financial needs and objectives are addressed
- Your death benefit is pass to your beneficiaries free from federal income tax
- The death benefitis paid to your beneficiaries without the expense, delay or publicity of probate
- Your premium is based on your age and health. The earlier you buy the less it costs
As with all insurance, life insurance plans are about preparing for the unexpected. We don’t plan to have a heart attack or meet an untimely end. We may fret about the unforeseen, but there are few ways to prepare for it. Life insurance provides a way to be prepared and get peace of mind.
The main reason to buy life insurance is for financial protection for your family and dependents. If you are the sole income earner or the major provider in your family, then life insurance definitely makes sense. If you should die unexpectedly, your policy will help your loved ones pay your final expenses and potentially receive ongoing support. The amount they receive will depend upon the size of policy you buy.
Life insurance causes more confusion for people than perhaps any other type of insurance, partly because there are several different types of life insurance products, and partly because the best life insurance is unique to each individual. Should you buy term life or permanent life insurance? Do you need a broker or can you get life insurance from an agency? Should you buy life insurance coverage online or is that too risky?
While you can buy online life insurance, it may be difficult to know what you are getting and whether it will adequately meet your family’s needs. Buying life insurance is a very personal decision. You may want a policy that builds cash value over time, or you may simply want to purchase coverage that will provide a death benefit if you should pass away within a specific term.
Depending upon the ages of your children and how long it is until they graduate from college, a 10-year, 20-year or 30-year life insurance term policy might be appropriate for you. Or, you may need life insurance to cover only your final expenses. These choices are individual, and for this reason it is smart to consult with a knowledgeable life insurance agent.
Permanent life insurance provides coverage for an insured’s lifetime. It generates cash value that accumulates tax-deferred, and which can be borrowed against to cover college expenses or supplement income
There are many types of permanent life insurance
Whole Life – provides a level death benefit, generally at a level premium. There are a variety of whole life policies, including those with limited, single or step-rated premium-paying durations
Universal Life – provides an adjustable death benefit. Cash values are based on the company’s current interest earnings and premiums are flexible so long as there is suffcient cash value to cover all policy charges and expenses each year.
Variable Universal Life – like Universal Life, the death benefit is adjustable. Cash values are based on the performance of separate investment accounts held inside the policy. Your policy’s value is linked to the investment performance of these separate accounts. Premiums are flexible provided there is sufficient cash value to cover all policy charges and expenses each year. Because earnings are tied to the market, it is possible for the policy to fluctuate up or down.
Survivorship Life – provides coverage for two people, usually spouses, under one contract. The death benefit is paid to the named beneficiary at the second death. Premiums are based on the age and rating of each insured.
In addition, a variety of riders can be added to a policy to customize it to yor unique needs and objectives:
|Term Insurance||Permanent Insurance|
|Main Purpose||Short term financial liabilities||Long term financial liabilities and cash accumulation|
|Cost||Lower in early years, increase with age based on term duration||Initially higher than term, but level premium can become more cost effective as you age|
|Coverage Duration||Limited Time – generally 5-20 years||Lifetime|
|Accumulates Cash Value||No||Builds cash value on a tax deferred basis|
|Access to Cash Value||Not Applicable||Yes, through loans and withdrawals *|
*certain limitations may apply to loans or withdrawals. Policy loans and withdrawals will reduce the benefit and cash values, and may be taxable under certain circumstances.