Do you
really need Life Insurance - Who should have Life Insurance and What
Kind of Policy
March 12th, 2006
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Life Insurance
Certificate from the 1920's |
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Life Insurance
doesn’t benefit the person that dies; it benefits the family that is
left behind. Not everyone should have life insurance. But there
are prime areas in your life that make it a valuable investment.
Life insurance
could be for anyone at any age. But the reality is that the most
helpful life insurance policy is for a family income earner that is
currently raising a family. If there are young children that are not
able to support themselves you should have a life insurance policy.
Today, it is more common for both parents to work to earn enough to
survive. If you can’t make it on one income you definitely need to
have a life insurance policy. If you both are income earners then
both should have a life insurance policy.
When you should
stop having a life insurance policy is when your children are able
to take care of themselves and when you have your home paid off.
The reality is that life insurance should benefit the family that is
left behind to help them stay afloat when the finances dramatically
go down.
There are two
types of life insurance. One it called Term Life Insurance and the
other is call Permanent Life Insurance
Term life
insurance is a policy that offers coverage for a specific number of
years. A premium is set for that time period. The policy does not
pay out a cash value at the end of the term. It is strictly
insurance coverage if the person dies during that time period. When
purchasing a term life insurance policy you should look at the face
amount which is the amount of the death benefit paid, the premium
cost to have the insurance, and the term or length of the insurance.
There are a lot
of combinations of term life insurance. It can focus on just paying
off the mortgage. It can range from one year to many. The premiums
can go up with age. The payoff can go down as you age.
It can take a lot
of comparison shopping to come up with the best combination of
benefits on a term life insurance policy. You also have keep in
mind the company that you are working with. Just like any insurance
company, you will want to make sure that they are a legitimate
company. Usually the larger the company the more likely it will be
a legitimate insurance. Also make sure that your policy has
guarantee for renewal, it will make sure that you won’t be
cancelled.
Permanent life
insurance is one that stays for the period of time unless a person
defaults by failing to pay the premium on time. The insurance
company cannot cancel the person except in the case of a fraudulent
application. So this policy is better in that the insurance company
can’t conveniently cancel your policy. The cancellation for fraud
has to be cancelled within usually the first two years of the
policy. There is cash that is accessible to the owner of the
policy. They can take the cash value in the policy by withdrawing
money, borrowing the cash value, or surrendering the policy and
receiving the surrender value.
There are three
types of permanent life insurance policies, whole life, universal
life, and endowment.
Whole life
insurance offers guaranteed death benefits and guaranteed cash
values. It also has a fixed annual premium that the owner of the
policy is well aware of. The mortality and expense charges do not
reduce the cash value of the policy. It can be a downfall because
of the lack of investment return on the cash investments. The cost
of the premium is usually much higher compared with term insurance
during the short term. If you plan on keeping the policy for the
whole life the rates are about the same as a term policy. The owner
of the policy can get cash value through policy “loans”. If the
owner fails to repay the cash value at the event of death the
beneficiary of the policy only will get the death benefit only.
A universal life
insurance policy is a newer approach to the permanent coverage. It
gives more opportunity for higher internal rate of return. There is
a cash account and the premiums paid will increase the cash
account. Interest is paid on the cash account which is specified
by the insurance company which is a guaranteed minimum rate and
could go higher. There are mortality charges and administrative
costs that are charged against the cash account. There are
surrender value of the policy for the amount remaining in the cash
account. The benefit to the universal life insurance policy is the
higher rate of interest paid. The cost of administrative charges
and mortality costs are known upfront. The premiums are more
flexible. The owner, depending on the policy, can discontinue
premiums if the cash value allows for this provision. The owner of
the policy can choose if they want Option A which pays the face
amount at death or Option B. that pays out the cash value in
addition to the face amount.
There is also a
limited-pay life insurance that falls into the permanent category.
The limited-pay which makes the premiums is paid in a certain time
period. After the time period no more premiums are due and the
policy is still in effect. There are limited pay policy that are
twenty-year period of times, and others that are up to the age of
65.
An endowment
policy is a life insurance policy that will promise to pay a lump
sum after a specified term.
You can weigh out
the pros and cons of each life insurance policy. Some are set up as
investment savings type of accounts. You have to ask yourself if
your retirement money would be better off in at traditional
retirement program. It is possible that a short term life insurance
policy is all you will need. Considering that the life insurance
policy is intended for your immediate family you would only likely
pay for coverage of a younger family in case of an accidental
death. Comparing the cost of insurance premiums also may be part of
the decision for which type of coverage that you go with.
By
Nicole Wilson
Best Syndication Staff Writer
Books about Life Insurance
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