Life insurance is crucial to ensuring that you, your family and your loved ones are covered. Life insurance can provide the security, financial protection — and most importantly — peace of mind in knowing that your family is covered upon your death. But you may be asking yourself, “How much life insurance do I need?”
Whether it is a terminal illness or unexpected death, life insurance can distribute benefits that will cover the costs of a funeral or other expenses, making sure that your loved ones are not left empty handed. Though this is a difficult subject to explore, it is vital, and can relieve much of the stress and hardship that accompanies death. By speaking with an independent insurance agent in your area, you can explore your options when it comes to life insurance policies.
With a variety of different plans and policies to choose from, it can be overwhelming when trying decide which plan best suits you and your family’s needs. Driven by statistics, life insurance plans can be determined by simple math. Additionally, many factors come into play when examining plans and policies. Ask yourself questions, like:
- How high or low is your partner/family member’s standard of living at this moment?
- Will your partner/family member earn money after your death?
- How long will your beneficiary need to be provided for?
- Will you possibly have any outstanding debts that need to be paid?
- Do you want enough life insurance to pay only for your funeral and burial, or would you like additional funds to be provided to your beneficiary?
Life Insurance Plan Options
There are different types of life insurance plans that can be purchased. There are both temporary and permanent options. These can be further broken down into types such as term, universal, whole life and endowment life insurance. These vary based on the length of the term (providing coverage for a specific term), the length that the policy will remain active (for example, if the policy will be active until it matures), whether or not policy loans will be available, and how flexible the policy will be when it comes to premium payment and the potential for the growth of cash values. The following is a brief overview of each main type of life insurance:
Term Life Insurance
This is meant to be a death benefit to your beneficiaries in order to cover your end-of-life expenses and debts. You can choose either an annual renewable term or a level term policy. An annual renewable term is a one-year policy that can be renewed each year in exchange for an increased premium rate. The expectation is that the insured will die within the first year of the annual agreement, thus negating the need for a longer policy. However, if this does not happen, it can be renewed. Level term life insurance is offered for a set number of years, depending upon the policy options. Often, customers can choose between 10, 15, 20, or 30 years. During that period, the annual premium will not increase.
Whole Life Insurance
If you want more than a death benefit, consider a permanent life insurance option like universal or whole life. Like universal, whole life has both a death benefit and a savings account. This policy is meant to cover you for your whole life, and thus the savings accrue over an extended period of time. The cash earns interest and can be withdrawn, just like a bank account. It can be five times as expensive as term life insurance, but the premiums won’t increase over time or if your health declines.
Universal Life Insurance
Universal is similar to whole life, but it offers more flexibility. You can change the death benefit amount and reduce your premiums over time (once you reach a certain amount in your savings account). With universal life insurance, you are able to help pay for your premiums using the interest accrued in the savings account. You can also withdraw money from the savings account without having to replace it.
Variable Life Insurance
Similar to whole life insurance, this is a permanent option that includes a death benefit and cash savings account. The savings can be withdrawn for personal use or divided into sub-accounts that can be invested in stocks, bonds, and money markets. This poses a greater financial risk, but when closely monitored, the policyholder may be rewarded with higher growth rates. Though your accounts are variable and flexible, the insurance company will require you to have enough money in the account to pay the premium.
Variable-Universal Life Insurance
This option is similar to a universal life policy, but you are permitted to adjust the premium amount. So, if you are in good financial standing, you may want to increase the premium for those years in which you may have more difficulty paying. During a period of financial difficulty, you can lower the premium. You only have to pay a minimum amount. The way that you are permitted to handle the money that accrues in the savings account differs as well. It can be invested into stocks, bonds, and other accounts as a way to increase your investment.
Endowment Life Insurance
This is a permanent life insurance, but it is the most expensive option. That’s because the premiums are paid over a shorter amount of time, and you get to choose an age at which your death benefit and savings account will become equal. Once this occurs, you can continue the policy, or cash out to provide for your beneficiary. It doesn’t matter if you are still living or not when this happens and it has a guaranteed return. If you are interested in a college savings plan for your child, it will likely be an endowment life insurance policy.
Burial/Funeral Life Insurance
Also called final expense insurance, this whole life insurance policy is designed simply to cover the costs for your funeral and burial. It will also help to pay for any smaller final expenses you may have. Did you know that the average funeral costs upwards of $10,000? This type of policy will cover up to $20,000 of your final expenses. The premiums will vary depending upon your age and health, but the sooner you purchase a policy, the less expensive it will be.
Speak to an Agent
A professional independent life insurance agent can serve as a trusted advisor when accounting for these questions and adjusting your life insurance policies accordingly. There are many considerations to take when choosing a life insurance policy. And though it can sometimes be a difficult process to undertake, knowing that you are covered and that your family will be financially protected in the future is perhaps the best investment that you can make.
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