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Do you really need Life Insurance - Who should have Life Insurance and What Kind of Policy

March 12th, 2006

Do you really need Life Insurance - Who should have Life Insurance and What Kind of Policy

Life Insurance Certificate from the 1920's

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.

 
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By Nicole Wilson
Best Syndication Staff Writer

Books about Life Insurance

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Copyright 2005 Best Syndication                                            Last Updated Saturday, July 10, 2010 09:47 PM