Many experts agree that an important part of a well-rounded financial plan is term life insurance. Life insurance provides death benefits to your beneficiaries and that can be invaluable. The insurance money can replace some of the income you were earning. This can help provide a stable financial future for your spouse and preserve any investments, savings, or other assets you intended on paying off.
Term Life Insurance:
Term life insurance is a policy that provides coverage to the insured over a certain length of time. This makes this policy an assset to your overall financial portfolio. One key advantage of level term life insurance is that the monthly premiums remain level for the life of the policy (whether it be 5, 10, 15, 20, 25, or 30 years).
The benefits in the different types of life insurance should not be overlooked. Before you buy a life insurance policy you should evaluate the overall condition of your financial portfolio. Yearly renewable term life insurance has a lower initial premium. However, the premium rises each year. Yearly renewable term life insurance is only cost effective for a few years because of the increasing premiums. If you are looking for term life insurance that runs more than a few years then a level term life insurance policy can cost less.
Reasons For Buying Term Life Insurance:
For starters, term life insurance will cost less than permanent insurance. A potential buyer may have serveral dependents at home and he/she has to protect his/her income. They may have bought a house and now have a 30 year mortgage for $300,000. In this scenario you can plainly see a good reason to purchase a level term life insurance policy for $300,000 30 year term to cover their mortgage. If something were to happen to the proposed insured between now or anytime over the next 30 years the insurance company would write a check for the full face amount of the term life insurance policy for the survivor. This would allow the survivor to pay off the mortgage and the balance would be paid to the designated beneficiary.
Term Life Insurance Conversion Option:
You can convert all or part of the term insurance to a permanent life insurance product without having to prove evidence of insurability. This type of "conversion" is called a convertible term life insurance policy and means that during a specified time the policy can be converted from term life to permanent insurance. For instance, if you took out a term life insurance policy the amount of coverage you need may change down the road. The need for some life insurance may still exist. The conversion option on a term life insurance policy gives you the option to convert over a certain amount of the policy to cover final expenses.
Term life insurance can be bought at an extremely low price and can be very attractive to young families. You can lock in a term rate at an early age while you are young and healthy and the rate is guaranteed for the full length of time on a guaranteed level term.
However, some clients like to combine different types of insurance plicy for even greater benefits. You can use term life insurance with a permanent life insurance policy so that during the earlier years of the policy you will have more coverage. As you get older you may not need as much insurance as you originally applied for. For example, the children are grown and/or the house is paid off so the need for so much coverage is not there. At that point you could allow the term insurance policy to expire and still have the permanent insurance that was put in force at the same time the term insurance was issued. If you take advantage of this opportunity you will still have the permanent life insurance to pay off final expense benefits down the road.
Why You Need Life Insurance:
1. Protect your family's home by allowing them to pay off your mortgage.
2. Maintain your family's standard of living.
3. Give your spouse retirement income and peace of mind.
4. Provide income to pay off any outstanding debt you may have incurred.
5. Use insurance payments in the family business.
Term Life Insurance Policies:
1. Term policies are a practical way to receive the most coverage for your dollar amount and can also meet a wide variety of personal and business needs.
2. Term insurance is available for a certain period of time (10,15,20,25,30 years) and wil benefit your beneficiary if anything happens to you during this time.
3. Unike other types of insurance term life insurance policies do not accumulate cash value. However, several companies will allow you to convert your policy to a permanent policy if the need arises.
If you die, life insurance is designed to provide financially for those you have left behind and have listed as your beneficiaries. In buying life insurance you, the insured, enter into a legal contract with the insurance company, also known as the insurer. Basically, the contract states that if you make your monthly insurance payments in a timely manner, your family or other beneficiaries will receive a specific amount of money when you pass on.
Although some may find the idea of life insurance distasteful, it is considered to be essential in protecting the fiscal health of your spouse and children should they find themselves fiscally taxed due to your death.
Types of Life Insurance
There are two primary types of insurance: permanent life and term life insurance. Each provides specific types of protection for your loved ones.
Term life insurance, the simplest form of life insurance, is designed to protect your family for a specified length of time or "term." Term policies, which range from 1 to thirty years, provide a one-time death benefit but no cash savings. This means term policies only provide benefits as long as the insured has paid the premium, which is the cost of the insurance. Premiums are divided into equal monthly payments that are assessed for the entire period of coverage. If you bought a policy that covered you for a three-year term, then you would make 36 equal premium payments on that policy.
Permanent insurance is designed to offer both a death benefit and an investment return after a length of time. Because this type of insurance offers a long-term savings plan, premiums are higher than those for term life insurance. Common types of permanent insurance are whole life, universal life, and variable universal life.
Term vs. Permanent
Term life insurance is especially appropriate for those who desire coverage for a specific length of time and who have limited funds. Because it is less expensive than permanent insurance, term can offer more coverage for less money. This is useful to people who have children, mortgages, and various types of loans. The right amount of term can cover these expenses and more. However, if you still desire coverage after a term policy's period ends, factors such as poor health and age will result in higher premiums when you buy a new policy.
Permanent insurance, although more expensive, allows policyholders various benefits, including a premium that will not change as you age or if your health deteriorates. Also, permanent insurance will usually accrue monetary value, offering the policyholder a return on their investment that they can access as worth builds.
Whole or ordinary life is the most common form of permanent insurance. With whole life your premiums and the face amount of the policy are fixed over the life of the policy. Your premiums must be paid regularly. A more flexible policy, where you can pay premiums at any time in just about any amount, is universal life. With this kind of coverage, you're allowed to modify the death benefit amount according to your needs.
A variable life policy carries both a death benefit and monetary value. The value of this policy is dependent upon the performance of investments. You select the investments for your portfolio and the better they perform the higher the death benefit and cash value of the policy. Some policies offer a minimum death benefit regardless of how your portfolio functions.
Variable-universal life carries elements found in both variable and universal life. You get the risks and possible rewards of a variable policy and the flexibility of universal coverage.
Choosing a Life Insurance Company and Policy
There are some important things to consider when buying a policy. Be sure to shop around before buying life insurance. Consumers can buy insurance directly from an insurance company via the Internet or over the phone. Buying this way is usually cheaper than going through an insurance agent because the agent receives a commission, called a "load," when they sell a policy.
The life insurance industry is very competitive with hundreds of companies offering policies. This is a benefit for the consumer, because competition tends to aid the buyer; however, this can also be seen as a detriment because the range of choices can make finding the right policy from the best company daunting. Your search will be easier if you consider four basic criteria in making your selection?rates, budget, service, and stability.
Rates: Because it is such a competitive business, life insurance rates vary greatly from company to company. Find three to five policies with attractive rates for the amount of coverage you desire. Budget: Once you've found these policies, be sure the premiums are within your budget. It doesn't make any sense to go forward with any of these contracts if you aren't going to be able to afford them.
Service: In determining the quality of each company's service, you can do two things. If you are going through an agent, you'll be determining the quality of that person's service when you talk to them about the benefits of buying specific policies. The same is true if you buy directly from an insurance company without going through an agent. Do they answer your questions clearly? Do they seem to know what they are talking about? Do they leave out important information?
By considering at least three companies and/or agents, you'll be able to compare their ability to answer questions and to give you their undivided attention. Along with interviewing potential agents and companies, you can check with your state insurance department to see how many complaints, if any, they have received concerning the company and/or agent.
Stability: An insurance company's economic stability is directly connected to their ability to meet their future financial obligations. In other words, you want to make sure an insurance company will be able to pay your death benefit. The following companies rate insurance providers' fiscal soundness.
A.M. Best Oldwick, New Jersey 08858 908-439-2200 www.ambest.com
Moody's Investors Services 99 Church Street New York, New York 10007 212-553-0300 www.moodys.com
Standard & Poor's Insurance Ratings Service 55 Water Street New York, New York 10041 212-438-2000 www.standardandpoor.com
After going through these four steps you should be able to compare each company, agent, and policy and make an informed choice.
One more important place to check for affordable life insurance is your employer. Many businesses offer very competitive group rates, usually for term life policies.
How Much Life Insurance is Enough?
Some people will say that you can never have enough life insurance. However a common rule of thumb is to buy at least five times your yearly income. Many policies include a double indemnity clause, which means your beneficiaries receive double the value of your death benefit if you should die suddenly in an accident or due to some violent event.
In asking yourself "how much is enough," you'll want to make a list that includes yearly expenses, large debts (such as a mortgage), and long-term or future expenses (such as college tuition). You'll know you're adequately covered if your death benefit provides for large debts, with enough left over for at least one year of living expenses and for investing or sheltering for long-term or future expenses.
Finally, you need to decide what you want to get out of your life insurance. Is it simply a specific period of coverage with a large death benefit or do you want your life insurance to be part of your long range fiscal planning? Considering and answering all of these questions will help you find the policy that's right for you.
Both Roger Kelley & Pat Stevens are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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