How much life insurance will I need?
If you’re a the breadwinner for your family, you need life insurance! To determine how much you need to replace your lost income, deduct the total income that would be lost upon your death from the sum required for your family’s financial well being. Include particular circumstances, such as whether you want insurance for other purposes like for a child’s education. The solution to your needs may be a combination of several insurance policies, and the combination may change as your situation changes.
The differences between term and whole life insurance?
Whole life insurance (also known as “permanent” insurance), is the most purchased type of insurance– it will keep in force for as long as you live. The face amount and the premium (yearly payment totals) are fixed. The policy’s cash value grows at a set rate specified in the whole life insurance policy and can be used as collateral to borrow against. While whole life insurance is usually recommended as a base insurance policy, term insurance is good for people who need coverage for short periods of time. Younger families who need large amounts of protection for one year, five years, or more may benefit from a term insurance policy. The premiums are lower at first with younger ages and will increase as you age and renew your policies. Benefits are paid only if death occurs during the period covered. If you stop paying premiums, the insurance stops. Term policies usually have no cash value and no residual rights if the policy is cancelled.
What are the three types of permanent insurance?
Whole life, universal, and variable life are all permanent insurance policies and can provide lifetime protection as well as build a cash value. The cash value for universal life is linked to interest rates, and the cash value of variable life is linked to invested options. The cash value of universal and variable policies is not guaranteed, although some policies set a minimum death benefit.
Should I replace a policy?
Be careful not to hurt yourself or your family financial security with this type of decision. Please consider the following:
- With a new policy comes a newer premium– one that will more than likely be higher due to the cost of living increases, your age, and health status.
- If your health status has changed over the years, you rates will be higher with a new life insurance policy.
- If you have gained a cash value with one policy, stopping this policy and restarting a newer policy will more than likely affect the cash value and its benefits.
What should I consider in choosing my life insurance beneficiaries?
- Always name a second beneficiary, just in case you outlive your first beneficiary.
- Select a specific beneficiary, rather than having the proceeds of your life insurance paid to a general fund.
- This will ensure that your life insurance benefits will be dispensed to your family quickly. If it is payable to your estate, however, it will have to go through probate with the rest of your assets.
Be very specific in wording beneficiary designations. Saying “wife of the insured” could result in an ex-spouse getting the proceeds. Naming specific children may exclude those born later. If your child dies before you, do you want the proceeds to go to that child’s children? Changing the beneficiary designation is easy, but you have to remember to do it. Due to the various issues involved, an agent can be an excellent source of information to help you properly set up your beneficiary designation.
What happens if I fail to make my life insurance premium payments?
If you miss a premium payment, you typically have a 30 or 31 day grace period during which you can pay the premium with penalties. After that, each company can draw from a permanent policy’s cash value to keep that policy in force. In some flexible-premium policies, premiums may be reduced or skipped as long as sufficient cash values remain in the policy.
Can an insurance company use medical tests to disqualify me for insurance?
Your health status is important to an insurance company. These tests can help establish your insurance premiums and eligibility. Certain serious or incurable conditions present an enormous risk that an insurer simply will not take on.
When will the policy be in effect?
When you purchase a life insurance policy, always check precisely when the insurance becomes active. The date that insurance goes into effect could be different from the date the company issues the policy.
