Tuesday, April 30, 2013

Life Insurance: Planning for Today and Tomorrow

By Renae Goodwin, Leavitt Group

life insurance, financial planning, insurance, coverage, term, permanent, whole life

In determining whether or not you need life insurance, ask yourself:  “If I died today, is there anyone who would be impacted financially?  How would my plans for the future be carried out? How would my responsibilities be fulfilled?”

The fundamental purpose of life insurance is to provide money to those who rely on you financially when you die. This could be your immediate family, an aging parent, or your business partner.  

If a need exists, the most critical step is determining an appropriate death benefit amount. When assessing the amount of life insurance you need, consider factors such as final expenses, mortgage payoff or rent, credit card debt, automobile loans, college tuition, and continued income for dependents. Keep in mind that as your family grows and changes, you may need to reevaluate the amount of your death benefit amount.

The decisions involved with purchasing a life insurance policy can be intimidating.  Your insurance advisor can help make the process easier by offering advice, performing a needs analysis, and explaining coverage options and costs.

Term or Permanent (Whole Life)

There are two basic types of life insurance: term and permanent (or whole life) insurance.  Term insurance offers protection only for a specified period of time.  The death benefit is paid only if a loss occurs during the term. Term policies do not build up any "cash value" aside from the death benefit itself.

With term insurance, premiums are initially lower than for permanent insurance, allowing the policy owner to buy higher face amounts at a younger age, when the need for protection is greatest. It is a good option for covering specific needs that will eventually disappear, such as a mortgage or other loans, to help prevent the loans from becoming a financial burden to the survivors.

New families often purchase term insurance and convert to permanent insurance later.  Premiums may be higher with the renewed or converted policy.

Permanent insurance (also known as whole life insurance) provides lifelong protection until maturity, usually until the insured is age 95 or older. It provides a cash value in addition to a death benefit.  Permanent insurance is a good choice if you want long-term coverage with a predictable premium and a way to accumulate cash funds for emergency needs or opportunities.  You may be able to borrow money against the policy to meet financial commitments, such as college expenses or purchasing a home. If loans remain unpaid at the time of the insured’s death, the insurance company deducts the loan balance, plus interest accrued, from the death benefit proceeds. Remember, however, that life insurance is designed to provide protection. Additional benefits, such as borrowing money from your policy, are secondary considerations.