How much life insurance
do I need?
Before buying life insurance, you should assemble personal financial information
and review your family's needs. There are a number of factors to consider when
determining how much protection you should have. These include:
--Any immediate needs at the time of death, such as final illness expenses,
burial costs and estate taxes;
--Funds for a readjustment period, to finance a move, or to provide time for
family members to find a job; and
--Ongoing financial needs, such as monthly bills and expenses, day-care costs,
college tuition or retirement.
Although there is no substitute for a careful evaluation of the amount of
coverage needed to meet your needs, one rule of thumb is to buy life insurance
that is equal to five to seven times your annual take-home pay.
What is Term
Term insurance provides protection for a specific period of time. It pays a
benefit only if you die during the term. Some term insurance policies can be
renewed when you reach the end of the specific period. Others give you the
ability to reenter. The premium rates increase at each renewal date or each
reentry. Many policies require that evidence of insurability be furnished at
reentry for you to qualify for the lowest available rates.
Initially, premiums are generally lower than those for permanent insurance,
allowing you to buy higher levels of coverage at a younger age, when the need
for protection often is the greatest.
What is Permanent
Permanent insurance provides lifelong protection and is known by a variety of
names. As long as you pay the necessary premiums, the death benefit always will
be there. these policies are designed and priced for you to keep over a long
period of time. If you do not intend to keep the policy for the long term, it
could be the wrong type of insurance for you.
Most permanent policies, including whole life, universal life, adjustable life,
and variable life have a feature known as "cash value" or "cash surrender
value." This feature, which is not found in most term insurance policies,
provides you with some options:
--You can cancel or "surrender" the policy -- in total or part -- and receive
the cash value as a lump sum of money. If you surrender your policies in the
early years, there may be little or no cash value.
--If you stop paying premiums, you can use the cash value to continue your
current insurance protection for a specific period of time or to provide a
lesser amount of protection to cover you for a longer period.
--You may borrow the cash value from the policy. If you do not repay the loan
with interest, your beneficiaries will receive a reduced death benefit.
Keep in mind that, with all types of permanent policies, the cash value of a
policy is different from the policy face amount. Cash value is the amount
available when you surrender a policy before its maturity or your death. The
face amount is the money that will be paid at death or at policy maturity.
What are the
types of Permanent Insurance?
There are many different types of permanent insurance. Two major ones are
This is the most common type of permanent insurance. The premiums for a whole
life policy must be paid as scheduled in the amount indicated in the policy.
These premium amounts remain constant over the life of the policy. The death
benefit and cash value are guaranteed as stated in the policy if premiums are
paid when due and there are no loans or withdrawals outstanding at the insured's
death. Quite often dividends may be credited to this type of policy.
This variation of permanent insurance allows you, after your initial premium
payment, to pay premiums at any time, in virtually any amount, subject to
certain minimums and maximums. You can also increase or reduce the amount of the
death benefit more easily than under a traditional whole life policy. Typically,
current interest rates are credited to the cash value in this type of policy.
Copyright © 2012 |
Collins & Miller Insurance LLC | all rights reserved
Disclaimer: This material is for informational
purposes only and is not a contract. It is intended to provide a general
description of products and services. Please remember that only an insurance
policy or contract can give actual terms, coverage's, amounts, conditions and
exclusions. For complete descriptions of the terms, conditions and exclusions of
insurance coverage's or other products or services, please contact your
independent agent or refer to the policy or service contract.
Licensed in the following states: Tennessee