Do you need Life Insurance? Is it really that important?
Do others depend upon you for financial support? If your family had to continue without you, would they have ample income to do so?
Life Insurance is an essential part of financial planning and can help replace income that would be lost upon your death. It can also help ensure that dependents are not burdened with significant debt, affording them financial security in a difficult time.
How much Life Insurance Do you need?
Your financial advisor can assist you in determining how much insurance you may need. Some factors for consideration include:
- Immediate expenses such as hospital bills, funeral costs and estate taxes,
- Funds for the readjustment period, enabling loved ones to move or find a job, and
- Short- and long-term financial needs such as monthly bills, college tuition or retirement.
How do I know which type of policy is best for my family?
Your Financial Advisor can help you decide which type of policy fits into your financial plan. Below is a brief description of the different types of available life insurance.
Term Life Insurance
Term Life is for the person looking for protection during a specific time period at a specific price. Some key points on term Life Insurance include:
- Protection is limited to a specified and finite period of time, usually between one and 20 years.
- Death benefits are paid only if death occurs during the period covered by the policy.
- Coverage ceases when premiums are not paid.
- Policy costs less than other types of insurance, but provides equal protection.
- It provides the largest immediate coverage per dollar since it lasts only for a specific period of time.
You may have two additional options available when purchasing term life insurance: renewable and convertible policies.
Renewable Term Life Insurance
Under this type of policy, the holder does not need to provide evidence of insurability to renew the policy. Premiums may increase, however, at time of renewal.
Convertible Term Life Insurance
Convertible term life policies can be exchanged for whole life, universal or variable policies. Policyholders do not need to provide evidence of insurability, but premiums will increase since you are moving from a term to a permanent policy.
Whole Life Insurance
As its name suggests, a whole life policy remains in effect your entire life. It differs from term insurance in that a portion of the premiums goes into a cash value account.
- Protection is provided for as long as you live.
- Death benefit is guaranteed.
- Cash value grows income tax deferred.
- Cash value may be borrowed from the policy.
- Premiums are designed to be level and do not increase as you get older.
- Insurance proceeds paid to the beneficiary are received income tax free.
Universal Life Insurance
This policy offers a wide range of choices regarding premium payments, allowing you to choose how much will be paid and when.
- Premiums are flexible and are subject to specified minimums and maximums.
- Death benefits, which are generally free from federal income tax, can be increased or decreased as necessary.
- Cash value of the policy accumulates, tax-deferred, at current interest rates.
- You receive cash value when redeemed, which reflects the interest earned on the account. This is only upon termination of the insurance policy.
- Portions of the cash value, up to cost basis, may be withdrawn for special needs, such as college tuition, without paying interest or surrendering the policy.