Life Insurance
Do you want to make provisions for the welfare of your family after your death but find the subject of life insurance confusing or intimidating? Read on, because it's probably easier to understand than you think, and the rewards can be substantial.
Life insurance is a financial resource for your loved ones in the event of your death. You enter into a contract with an insurance company that promises to provide your beneficiaries a certain amount of money upon your death. In return, you make periodic payments, known as premiums. The size of the premiums is generally based on factors such as your age, gender, medical history and the dollar amount of life insurance you select. Some policies may require a medical exam before premiums are established.
Certain types of life insurance may also provide benefits for you and your family while you're still living. Policies such as whole life or universal life accumulate cash value on a tax-deferred basis, and that value can be used to supplement your retirement income or help provide for a child's education. Life insurance can be an important part of anyone's financial portfolio. Financial advisors often recommend developing a financial plan that includes an appropriate amount of life insurance as part of a comprehensive strategy for financial security.
What kind of life insurance do you need?
What kind of life insurance and how much, if any, do you need? Take a few minutes to learn the basics so you can make an informed decision.
Did You Know...
You may not need Life Insurance at all if you are single and have no children. However people who want to protect their family's standard of living or who own a business should seriously consider how much life insurance to buy.
One rule of thumb is six to eight times the wage earner's income for a married couple with two young children.
The amount you need can be much less, depending on a number of factors, such as how much your spouse earns and how much you have saved.
There are several types of life insurance and there are many decisions you will have to make when assessing your life insurance needs. The first of which is whether you need permanent insurance or term insurance. A simple way to understand the differences between these two types of life insurance is by comparing them to something familiar to all of us, finding a place to live.
To take a very simple approach, think of buying permanent life insurance as owning a home, while buying term insurance as renting one. There are advantages and disadvantages to both. Like owning property, owning permanent life insurance is usually an appropriate way for people to meet long-term needs. Over time, it may be the least expensive form of life insurance since payments may be fixed and it builds equity. Plus, this equity (called the cash value) accumulates on a tax deferred basis.
In contrast, purchasing term insurance, like renting property, is usually an appropriate way for meeting short-term or temporary needs. Initially, premiums are often very affordable. However, lower premiums increase over time with age, and term policies build no cash value. Therefore, a term policy purchased to provide a lifetime of coverage could actually cost more than a permanent policy.
Types of insurance can be likened to types of lease agreements. Term policies have lower premiums but must be renewed at predetermined intervals, at which time the premium may increase.
OWN vs. RENT
Permanent Insurance
Higher initial premiums but...
- Guaranteed level premiums
- Guaranteed cash value
- Guaranteed death benefit
- Tax-deferred cash value growth
Term Insurance
Lower initial premiums but...
- Premiums increase with age
- No cash value
- Usually temporary coverage
Here are the descriptions of the basic types of life insurance.
Term life insurance
Term life insurance offers protection that insures your family for a specified period of time - usually anywhere from one to 20 years. A term policy pays a benefit if you die during the period covered by the policy. If you stop paying premiums, the insurance stops. These policies do not build a cash value.
Whole Life Insurance or permanent insurance
Whole Life Insurance or permanent insurance provides protection, as well as a cash value. Additionally, many companies pay policyholders an annual dividend. Dividends provide both flexibility and increased value to your life insurance policy. They can add more coverage to your overall insurance benefits and can build a sizable cash value. They are not, however, guaranteed. Of course, life insurance should not be purchased solely for accumulation. Its primary purpose is protection.
Universal Life Insurance
Universal Life Insurance is flexible. These policies are interest sensitive and permit the owner to adjust the death benefit and/or premium payments, within limits, to fit the individual's situation. Your premiums are credited to an accumulation fund, from which costs are deducted and to which interest is then credited. As with whole life insurance, the cash value is yours. You may withdraw it or borrow against it at any time. Read your policy carefully to understand how loans and withdrawals affect the death benefit.
Variable life insurance
Variable life insurance is for those who want to tie the cash value of their life insurance policy to the performance of the financial markets. You decide among several investment options how your net premiums are to be invested. While monies invested in the investment options have the potential for growth, such funds are subject to market risks including the loss of principal. In other words, some may make or lose money depending upon the performance of the market and the investment option you select.
For all your Individual and Group Health Insurance, Life Insurance, Health Plan for Seniors, Disability Insurance, Cancer Insurance and Dental Insurance needs, contact Jess Akin Insurance at: 281-955-9540 or toll free: 1-800-922-0472
