Life insurance is easily one of the most important purchases you will ever make in your life. In the face of uncertainties, the proceeds from this effective investment tool can help pay bills, continue a family business, finance future needs such as children’s education, protect your spouse’s retirement plans and cater to many more such needs. Other than being a reimbursement to your family in the time of the death, life insurance has other benefits.
- Benefiting your family – In event of your death, your life insurance policy should cover two of your family’s biggest expenses – mortgage and education.
- Using the money for yourself - An attractive option when you no longer need coverage, you have access to additional funds by using your policy as collateral for loan, supplement your retirement, take a vacation or pay unexpected bills.
- Charity - Making the beneficiary of your life insurance policy someone other than family is also an option. You can take full advantage of this by naming a charitable organization as the beneficiary of your policy. Upon your death, the organization will receive the lump sum of money from you.
- Secure your business - If you own your own business, you can name the company as a beneficiary. The proceeds can pay off debts and loans, be invested and used at a later time, or financially secure your business.
How much life insurance do I need?
While settling on how much life insurance to buy, figure out what are your goals in purchasing life insurance coverage. Start by evaluating your family’s needs. Gather all of your personal information; estimate what each of your family member would need to meet current and future financial obligations. 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 to meet those needs forms your life insurance need. Since most people rely on their income completely, it is advisable to buy protection that is the equivalent of anywhere between 5 and 8 times your annual income.
Types of Life Insurance
Choosing life insurance product for most people is simply guesswork, but in fact it is quite a complex process that depends on a host of different factors. The two most important level of cover are Term Life Insurance and Whole Life Insurance.
- Term Life Insurance – Designed to meet temporary needs, Term life insurance provides protection for a specific period of time i.e. term and generally pays a benefit if you die only during the term. If you outlive the term, the policy becomes null and void. Term life insurance makes sense when you need a coverage that will disappear at a specific point in time. The biggest advantage of term life insurance is the high life cover at fairly low premiums.
- Whole Life Insurance – As the name suggests, whole life insurance provides lifelong protection. As long as you pay the premiums, and no loans, withdrawals or surrenders take place, the full amount will be paid up on the death of the person whose life is assured. Whole life insurance accumulates cash value over a period of time, but how much that lump sum cash value will be depends on the type of the policy.
The most important difference between Term Insurance and Whole Life insurance is that, term insurance provides protection against death during a specified period and whole of life insurance provides protection against death at any time.
Shop
It’s amazing how much rates vary from company to company for the exact type of coverage. Rates and coverage differ from state to state, shop around on your own or talk to an independent life insurance agent to make get a life insurance plan that’s correct for you.