Does your family depend on you financially? This is especially important if you are the sole breadwinner of the family. In case your family depends on you, then you need to know that your family is taken care of, if you pass away prematurely, or if you outlive your retirement benefits. With today’s weak economy, more and more people have been trying to “cut corners” to help save on their budgets. However, saving on life insurance premiums could be jeopardising your family’s future.
Life insurance is simple. Your life insurance protects your family in case you were to pass away prematurely. It provides your beneficiaries a cash benefit, which can be used towards anything that they need to use them for, such as payment of debt, mortgage, taxes, or even future living expenses.
Importantly, Life Insurance benefits are paid out tax-free. Hence, your coverage is what your beneficiaries would receive.
There are two types of Life Insurances: Term Life Insurance and Permanent Life Insurance.
- A) Term Life Insurance is a Life Insurance that covers a certain term. These terms can be from 10, 15, 20, 25 or even 30 years. During this time, your premiums are guaranteed not to increase. If you were to pass away during this time period, then your beneficiaries get the cash death settlement benefits. If you were to live longer than the given term period, you then have the option to continue your coverage, but at a higher premium rate. This is the least expensive life insurance, which also has the added benefit of conversion to a permanent one without getting a medical exam.
- B) Permanent Life Insurance, on the other hand, lasts the rest of your life and as long as you continue to make the required premium payments. Moreover, part of the money that you pay is set aside in an account where it can grow to cash maturity. These funds can be tapped into later on during your life. There are different types of Permanent Life Insurances, each with different advantages as well.
How mush insurance you need depends on the individual’s lifestyle, financial needs, other sources of income, debts, and the number of dependants. It would be a good idea to sit down with an expert to talk about why you need the insurance and how the insurance plan will fit your need and be the most beneficial to you.
An inforce permanent life insurance policy may also be considered as a financial asset. This can improve your credit rating if you need a home loan or business loan.
Insurance company actuaries determine life insurance policy rates. They use mortality tables and other statistical information to calculate risk, and determine premium rates. That is why the purchase of life insurance has to have some planning in order for it to be an effective financial planning tool. There is a lot of life insurance purchased that eventually lapses because the need was not clearly defined from the start. This loses the advantage of keeping a policy in force. For instance, permanent life insurance accumulates a cash value over the years and so it is particularly harmful at times to cash surrender your policy.
In general, there are three main considerations before buying a life insurance policy:
- What is the Purpose? – This question is the most important question that you will ever answer before you purchase life insurance. You have to know why you need life insurance; otherwise, you will allow the policy to lapse when your budget needs relief. There are various needs for life insurance, which is why it is important to do a needs analysis. This calculates the amount of life insurance needed and the recommends the type of life insurance needed.
- What kind of Life Insurance? – Once you have determined your needs then it is a good idea to budget a certain amount of money for life insurance. This will maintain the life insurance at an affordable rate.
- What Kind of Service? – There are some people that want to purchase life insurance from an insurance agent because they want the agent to service the policy and keep them informed about future needs. However, other people may not want an agent but prefer to do business over the internet or by telephone.