Life Insurance: Protect What You've Got
While insurance isn't an investment, it's an important part of sound, savvy personal financial management. Insurance is protection. It protects everything you've worked so hard to earn. It protects your spouse in the event of premature death. It sends the kids to college. It holds together a family at a time when money shouldn't be a concern.
You need insurance but shopping for the right coverage to protect your family and your assets is like learning a new language. Term life, whole life, universal life, actual cash value, dividends, loans against policy - it's a maze of insurance products out there and finding the right coverage for your needs may take a little research.
Here's a starter course on getting the most for the least in life insurance and still have the protection you and your family need.
Types of Life Insurance
There are two basic types of life insurance with numerous variations on a theme.
Term life insurance is the simplest to understand. It's also the most economical protection you can buy.
Term life insurance is paid when the insured (you) pass on within a defined term - a defined length of time your life insurance coverage is in effect. Term life comes with a variety of time frames: five-, ten- even thirty-year terms are available.
The younger you are, the lower the cost of the monthly premium - the dollar amount you pay for protection each month. Premiums are calculated based on two factors - your age (and general health) and the dollar amount of protection you need. It's simple. A $100,000 term life insurance policy won't cost as much as a $500,000 policy because you're buying less protection.
With term life, you keep things simple. The insurance company pays X amount of dollars to the beneficiaries when the insured individual passes on, as long as the policy is in effect, that is, the death occurs during the term of the policy, thus the name term life insurance.
Term life policies don't accumulate value, you can't borrow against them and, if you choose a short term and your health changes, you could end up paying more for your term life insurance than you would if you buy a long-term policy - one that covers you for the long term.
To determine how much term life you need, add up funeral costs, outstanding personal debt, mortgage debt, the prospect of paying tuition and other large expenses that would drain family resources. Figure what it would cost your family for a single year.
Then multiply by a factor between 5 and 10. Use the lower factor if you don't have a lot of debt and the higher factor if you're carrying a couple of mortgages and you have three kids to put through school. That's how much term life you need to protect your family and all their expectations.
The other class of insurance is whole life insurance, also called permanent insurance, universal insurance, variable universal insurance and other product names, but all fall into the general class of coverage called whole life insurance.
The first difference between term and whole life is that whole life covers you from the day you buy the policy until you die. Of course, this assumes that you pay your whole life insurance premium each month. There is no term (length of time coverage is in effect) to whole life. Buy it when you're young and your premiums will be low and you'll start building cash value.
That's the other main difference between term and whole life insurance coverage. Whole life pays dividends. Not a lot, but dividends that can be used to lower monthly premiums, or they can be allowed to accumulate earning interest.
Once the whole life policy has accumulated enough cash value you can borrow against that cash value to buy a house or cover some tuition bills. The downside to taking loans against the value of a whole life policy is that it lowers the payout to family in the event of the insured individual's death.
However, a whole life policy does increase in value while providing protection for your family. The cost of coverage is also higher. Expect to pay more for $500K of whole life versus $500K of term life insurance, simply because the insurer is paying interest on your monthly premiums.
Calculate your coverage needs using the criteria listed above. Don't think of whole life as a money-maker. It's not intended to increase your wealth. That's a side benefit. An important side benefit, but the primary reason for purchasing whole life is to protect your family in the event of your pre-mature death.
Life Insurance Sources
There are hundreds of insurance companies and even more life insurance products so talking to a knowledgeable professional is a good first step.
An insurance broker can advise you but, keep in mind, each insurance broker carries a "line" of products from a limited number of insurance providers so each broker will tell you her products are the best value.
If you do the math yourself, you know going in, how much coverage you want to buy, at which point, it's just a matter of finding a reputable insurance company offering competitive rates and the benefits you're looking for.
Another resource is your local bank - often the best place to start researching your life insurance needs. Banks sell a broad range of life insurance products and, because insurance isn't the primary business of a bank, you're more likely to get straightforward answers to your questions.
Another reason to visit your bank's insurance rep is that your bank knows the financial you - how much you have in accounts, how much comes in and goes out on a month to month basis, your tax status and other personal finance information needed to get the right kind of life insurance at the right price.
Talk to your employer. Life insurance may be a benefit along with health care and two weeks vacation, but you may also be able to increase the dollar amount of coverage with money deducted from your paycheck painlessly.
Unions, associations, your local Chamber of Commerce and other organizations are also sources for low-cost term or whole life coverage. Purchasing life insurance coverage through an industry association, for example, gets you group rates that translate into more coverage at a lower monthly premium. On the other hand, when you purchase term or whole life through your union you usually don't have a choice of insurers and that's an important point to consider.
Go with an insurance company that's ranked highly by Standard and Poor or some other rating organization. Your broker or banker will steer you toward quality of coverage so you get more for your money.
Life insurance sounds complicated but, when you break it down into simple terms, it's something you can do with a trusted advisor to point you down the right path.
Get life insurance. Get term life if you want lower premiums; get whole life if you want your insurance to build cash value against which you can take loans.
It's your choice. Making the right one saves money and delivers the peace of mind that only quality life insurance protection delivers.
No one likes to think about buying life insurance. It's depressing. It's also essential to protect your family and your assets. What kind of life insurance is right for you? Here's what you need to know before talking to an insurance agent or company.
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How to Acquire Life Insurance Quotes
There are many kinds of life insurance policies that can be purchased online catering to different sets of needs on the basis of budget and coverage, Go through these policies in detail to assess them properly. Each type of policies has it its own pros and cons, so a detailed study could provide very good clarity when it comes to selecting a suitable life insurance policy.
The Internet is a rich medium through which you can attain highly competitive quotes for insurance policies at attractive and cheap rates. First analyze the profile and needs of your own family and decide on the budget you are ready to allocate for your insurance policy.
With so many types of life insurance quotes available, it is crucial to first be able to distinguish one from the other before comparing their prices. Once you have done that the process is quite simple. Go online and fill up a simple form after which you will be contacted by local agents, who are part of nation wide network of insurance professionals. They will offer you free insurance quotes at highly competitive prices and you can take whole process forward from there on.
Types of policies available to the investor
Term Life Insurance
This form of insurance policy is aimed at providing the investor with temporary coverage and is one the cheapest forms of policies available in the market.
Whole Life Insurance
This form of insurance policy offers permanent coverage to the investor at guaranteed premium rates. This means that the rates do not change over a set period of time with cash value accumulating over the life period of the policy.
Variable Universal Life insurance
This form of insurance offers much greater cash value than whole life but requires the insurer to indulge in some investment options. This brings with it a fair amount of risk to table but can be a worthwhile option for those people who are good at making meaningful investments.
Lets now look at the three types of insurance policies in greater detail.
Term life Insurance vs Permanent life Insurance
Pros of Term Life Insurance
This is one of the cheapest forms of insurance policies available. For a 45 year old person in very good overall health and non smoker can avail a policy of 30 years coverage as part of a million dollar deal. The costs for this would be approximately $200 a month.
This kind of policy is easy to understand and not very complicated unlike other types of insurance products. You can easily go online and check for quotes on term life insurance or contact an agent referred from one your family member or colleagues to pick a suitable policy of your choice.
Being a temporary form of coverage has both negative and positive aspects. The positive being that it can provide financial help to your dependents. Also as your children grow older or your wife heads in to retirement, they would be less dependent on your income to survive. This makes it ideal to go in for term insurance for a period of up to 30 years when you have a newborn child in the family.
Cons of term life insurance
The temporary nature of insurance also brings with some negative aspects. At the end of the term the investor will not receive anything for which he has been paying premium for a long time. That means you would have to arrange for an alternative form of policy to look in to your various requirements. Also it becomes more difficult to buy a comprehensive insurance policy as you grow older because the body becomes more prone to sickness and may often require medical attention.
Whole life insurance Pros and Cons
Whole life insurance even though more expensive than term life offers the investor permanent coverage. It is one of the simplest forms of permanent coverage and has fixed premiums along with death benefits. Your cash value would continue to accumulate and the premiums are fixed making it possible to plan out your finances properly on a long-term basis.
One of the drawbacks of this kind of policy is that the premiums cost more than term life even though they do not increase over time. Also in this form of investment the investor cannot be guaranteed of receiving dividends. Withdrawals from your policy can reduce the death benefits, which will be paid out to your beneficiaries.
Universal Life Insurance
These offer greater flexibility to the insurer in terms of choice and scope than term and whole life policies. This form of permanent coverage allows the investor to make changes in policy with regard to premium rates, timing of payout, limits and death benefits. The insurer can increase or decrease premium rates or cash value and can still be guaranteed protection based on the changes made.
This form of policy is more complicated than whole life. Factors such as growth of cash value are assessed on a periodical basis which means in the event of a market downturn the performance of your policy could possible suffer. The investor may also have to pay higher levels of premiums.
Variable Universal Life Insurance
This kind of policy is in some ways similar to Universal life insurers but brings with it certain investment options. This form of permanent coverage offers greater flexibility with regard to premiums, death benefits, cash flow and other aspects. You can also choose to invest your cash flow in other funding options with the guidance of qualified investors. There is a lot of potential for growth but can also be a risky venture during market downturns.
Comparison of life insurance quotes
All these types of insurance policies bring with different sets of strengths and weaknesses to the table. Every insurer must go through each policy thoroughly before deciding on what works for best for them. Once you have decided on type, go online to get comparisons on various life insurance quotes. Also make it a point to talk to several agents and have all your queries clarified so that you do now have any lingering doubts. Speaking to several agents also will bring in greater clarity over the entire process and makes you better equipped to purchase the best policy in the market.