Is Life Insurance Right For You?
Life insurance is not something most people like to think about, but it is one of the most important investments you can make. This guide will introduce you to the basics of life insurance to help you find the right plan for your goals.
With the right life insurance policy, you can ensure that your family will be able to pay basic bills, attend college, retire in comfort, or whatever else your goals may be. If you’re looking to start a family, having a life insurance policy is especially important to consider. However, the beneficiaries of a life insurance policy do not need to be family members – you may own a small business that you want to ensure has enough capital to keep operating after your death. If you have anyone who depends on you, then you need to seriously consider how they might fare without you around.
What Is the Ideal Amount of Life Insurance?
Should you leave your family a death benefit of $50,000, $500,000, or $2,000,000?
When determining the amount of life insurance to buy, you should consider both how much financial support your beneficiaries will need if you die and how much you can afford to pay for insurance premiums while you are still alive.
With a good level of life insurance, you can provide your beneficiaries with enough money to meet the immediate expenses that occur after your death.
Common immediate expenses include funeral costs, estate settlement and legal fees, unpaid medical bills, and other outstanding debts such as taxes or mortgage balances. It can be reassuring to know in advance that loved ones won’t have to worry about money during a time that is already difficult enough.
Many people (with the means to do so) try to buy a large enough life insurance policy to partially or fully support their family’s immediate and future needs.
For instance, the spouses in a dual-income household may each buy an insurance policy that will cover their expected portion of ongoing household bills, mortgage payments, college tuition, and even retirement and medical costs.
Your current and expected future budgets should give you an idea of the amount of money you can spend on annual life insurance premiums. If you don’t pay your premiums, most policies will lapse and provide no benefit to your family when you die.
So while you may want to buy a policy that will pay a huge death benefit, it makes more sense to buy a policy with manageable premiums and a reasonable benefit to your loved ones.
Should I Have a Term Policy Or a Permanent Policy?
While there are a number of different life insurance options, the most popular plans are characterized as either Term Insurance or Permanent Insurance. Picking the right option will depend on your circumstances and the circumstances of those you want to support.
For comments on term life insurance rates read this.
Term policies are typically very affordable and not overly complicated.
A term policy will provide protection for a specified term (i.e. a period of years) and only pays a benefit if you have paid your premiums and you die during the term. Because the insured person decides on the term up front, this type of policy is usually purchased by people who are worried about the financial security of their family during a particular time period.
For instance, if you are 40 years old and you are expecting your children to financially depend on you for the next 15 years, you might purchase a 15-year Term policy. If you die before you turn 55, your family will receive the full benefits sum.
If you live past the 15-year term, then the good news is that you were alive during the time period that you were most concerned about your children’s ability to make it on their own. Because you lived past the end of the term, the insurance company won’t ever have to pay anything out to your family.
Unlike a Term policy, a Permanent Life insurance policy (also known as “whole life insurance”) will provide death benefits whenever the insured person dies, without reference to any specific term. Under a Permanent Life policy, the insured person agrees to pay lifelong annual payments and the insurance company agrees to pay your beneficiaries a specific sum when you die.
The annual premiums for Permanent policies are generally the same for the whole life of the insured person. Thus, you should not buy a Permanent policy with premiums that you might not be able to afford in subsequent years.
If you hit a rough patch financially and are unable to pay the annual premiums of a Permanent policy, you can depreciate the policy by borrowing against its built up cash value or you can let the policy lapse. Both of these potential outcomes are good reasons to make sure you choose a policy you can and will be able to afford for as long as you live.
Finding The Right Policy For You
In addition to the simple Term and Permanent policy types discussed above, there are a number of nuanced variations and hybrid policies to consider. While this guide may serve as a good introduction to the topic, you should probably consult with a professional insurance agent to evaluate your goals and identify the best insurer and policy for your unique circumstances.
The time you spend choosing the right plan is part of the investment in your beneficiaries’ future financial security and your own peace of mind.
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Enhanced Insurance is not written by attorneys. If you’re looking for legal advice, you need to contact a lawyer. Further, insurance practices and forms change constantly and are varied from state to state. For definitive answers in your area, contact a local agent.
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