Types of Life Insurance

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If you’re like most people, you probably don’t take the time to routinely evaluate your life insurance needs. Why might that be a mistake? Well, your life insurance needs change as circumstances in your life change. That’s why it’s a good idea to re-examine your life insurance needs at least every few years and certainly when big changes, or life events, occur.

Just about any life event you can imagine will have an impact on your life insurance needs. An obvious example is having a child. As you bring a new person into the world, you also bring a major financial responsibility into your life. If something happens to you, where’s the money going to come from to help provide the kind of upbringing you want your child to have?

Term insurance, the most affordable type of insurance when initially purchased, is designed to meet temporary needs. It provides protection for a specific period of time (the “term”) and generally pays a benefit only if you die during the term. This type of insurance often makes sense when you have a need for coverage that will disappear at a specific point in time. For instance, you may decide that you only need coverage until your children graduate from college or a particular debt is paid off, such as your mortgage.

Permanent insurance by contrast provides lifelong protection. As long as you pay the premiums, and no loans, withdrawals or surrenders are taken, the full face amount will be paid. Because it is designed to last a lifetime, permanent life insurance accumulates cash value and is priced for you to keep over a long period of time.

It’s impossible to say which type of life insurance is better because the kind of coverage that’s right for you depends on your unique circumstances and financial goals. Often, a combination of term and permanent insurance is the right solution.

 

But remember, the best way to figure out the amount and type of life insurance that makes sense for your particular situation is to meet with a qualified insurance professional.

Life insurance may be one of the most important purchases you’ll ever make. In the event of a tragedy, life insurance proceeds can help pay the bills, continue a family business, finance future needs like your children’s education, protect your spouse’s retirement plans, and much more. This section can help you gain a better understanding of life insurance and its role within a sound financial plan, and answer many of your questions.

On this website, you will find information to help you get a sense of how much and what kind of life insurance to buy, plus information about how different life events, such as having children or buying a home, can affect your insurance needs.

If someone will suffer financially when you die, chances are you need life insurance. Life insurance provides cash to your family after your death. This cash (known as the death benefit) replaces your income and can help your family meet many important financial needs like funeral costs, daily living expenses and college funding. What’s more, there is no federal income tax on life insurance benefits.

Most Americans need life insurance. To figure out if you need life insurance, you need to think through the worst-case scenario. If you died tomorrow, how would your loved ones fare financially?

Would they have the money to pay for your final expenses (e.g., funeral costs, medical bills, taxes, debts, lawyers’ fees, etc.)? Would they be able to meet ongoing living expenses like the rent or mortgage, food, clothing, transportation costs, healthcare, etc? What about long-range financial goals? Without your contribution to the household, would your surviving spouse be able to save enough money to put the kids through college or retire comfortably?

The truth is, it’s always a struggle when you lose someone you love. But your emotional struggles don’t need to be compounded by financial difficulties. Life insurance helps make sure that the people you care about will be provided for financially, even if you’re not there to care for them yourself.

 

How Much Life Insurance do I Need?

The answer isn’t really how much life insurance you need, it’s how much money your family will need after you’re gone.

Ask Yourself:

How much money will my family need after my death to meet immediate expenses, like funeral expenses and debts?

How much money will my family need to maintain their standard of living over the long run?

Life insurance proceeds can help pay immediate expenses including uncovered medical costs, funeral expenses, final estate settlement costs, taxes and other lump-sum obligations such as outstanding debts and mortgage balances. They can also help your family cover future financial obligations like everyday living expenses, money for college or your spouse’s retirement, and so much more.

But how do you know if you need $100,000, $500,000, $1 million or more? The most common way to determine your life insurance needs is by conducting what’s called a Capital Needs Analysis.

Here’s how it works. Start by evaluating your family’s needs. Gather all of your personal financial information and estimate what your each of your family members would need to meet current and future financial obligations. Then tally up all of the resources that your surviving family members could draw upon to support themselves. The difference between their needs and the resources in place to meet those needs is your need for additional life insurance.

This may look simple enough, but calculating one’s life insurance needs can actually get pretty complicated. To make it easy for you to get a general sense of your needs, check out the life insurance needs calculator below. It’ll walk you through the process and provide you with an estimate of your insurance needs in a matter of minutes.

But remember, our calculator (or anyone else’s for that matter) is no substitute for the guidance and assistance you’ll get by meeting with a qualified insurance agent or other financial professional. So if you’re serious about protecting your family’s future, contact me and schedule an appointment today.