Many financial experts consider life insurance to be the cornerstone of sound financial planning. It is generally a cost-effective way to provide for your loved ones after you are gone. It can be an important tool in the following ways:
For most people, their key economic asset is their ability to earn a living. If you have dependents, then you need to consider what would happen to them if they no longer have your income to rely on. Proceeds from a life insurance policy can help supplement retirement income. This can be especially useful if the benefits of your surviving spouse or domestic partner will be reduced after your death.
Pay outstanding debts and long-term obligations
Consider life insurance so that your loved ones have the money to offset burial costs, credit card debts and medical expenses not covered by health insurance. In addition, life insurance can be used to pay off the mortgage, supplement retirement savings and help pay college tuition.
The proceeds of a life insurance policy can be structured to pay estate taxes so that your heirs will not have to liquidate other assets.
Term Life Insurance
Term life insurance provides a death benefit only if death occurs during the "term" or coverage period of the policy. If you outlive your term or quit paying premiums, your policy lapses and is of no value.
Term life insurance plays a vital role in proper financial planning. People who buy term may do so for several reasons such as:
Temporary need - They have a temporary need, which lends itself to a temporary solution, i.e., raising children, education, paying off a mortgage, a business buy/sell agreement.
Affordability - Term premiums are very affordable. If you're in excellent health, you can get a lot of coverage for very little cost.
95% of all term policies go unpaid. In other words, if you took a random sample of 100 people who purchased term insurance, 95 of them would outlive their terms. The insurance companies know this. That is how they can afford to offer a 45 year-old male $250,000 worth of coverage for a 20-year term for only $375 per year. They've crunched the numbers and are willing to bet that you and a whole lot of other people are going to outlive your policies. Because term is inexpensive, there is much less commitment. When you want o...
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... investment performance, especially with variable life. Unlike stocks or mutual funds, tracking sub-account and overall investment performance is quite complicated because one must consider all of the charges, which are changing constantly.
The following are some guidelines we use to help determine what type of insurance you should buy:
You Should Buy Term If You:
only need coverage for a specific period of time, - like a house mortgage or until your children are independent.
need a lot of coverage and can't afford permanent
have low cash flow - if you're living paycheck to paycheck and don't think you can keep up with the permanent payments, triggering surrender charges.
have other investments and are committed and self-disciplined to make regular deposits.
don't want the commitment required from permanent insurance
You Should Buy Permanent Insurance If You:
have a high net worth and are seeking a tax-advantaged investment
don't want to risk outliving your term and having nothing to show for it
understand that permanent insurance is a long-term commitment
need insurance for estate planning purposes
want forced savings
want guaranteed life insurance for life
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