Life Insurance is something that everyone needs, but no one likes to talk about. Life Insurance is the foundation of financial security for you and your family. It protects your financial resources against the uncertainties of life so you can plan for the future.
Why do I need life insurance?
The main purpose of life insurance is to provide cash to your family after you die. The money your dependents will receive (the "death benefit") is an important financial resource: It can help pay the mortgage, run the household, and ensure that your dependents aren't burdened with debt. The proceeds from a life insurance policy could mean that they won't have to sell assets to pay outstanding bills or taxes. What's more, there is no federal income tax on life insurance benefits.
Where do I Begin?
Start by evaluating your family's needs. Gather all your personal financial information and estimate what your family will need after you're gone. Include ongoing expenses (such as day care, tuition or retirement) and immediate expenses at the time of death (like medical bills, burial costs, and estate taxes). Your family also may need funds to help them readjust... perhaps to finance a move, or pay expenses while job hunting. Remember, life insurance provides financial protection. If protection is not your primary goal, you should consider other financial products.
How much life insurance will I need to purchase?
While there's no substitute for evaluating needs, one rule of thumb is to buy life insurance equal to five to seven times your annual gross income.
What are the different types of life insurance?
There are many kinds of insurance, but they generally fall into two categories: term insurance and permanent insurance.
What is term insurance?
Term insurance provides protection for a specific period of time. It pays a benefit only if you die during the term. Some term insurance policies can be renewed when you reach the end of the term -- which can be from one to 30 years. The premium rates increase at each renewal date. Many policies require that you present evidence of insurability at renewal to qualify for the new term.
What is permanent insurance?
Permanent insurance provides lifelong protection. As long as you pay the premiums, the death benefit will be paid. These policies are designed and priced for you to keep over a long period of time. If you don't intend to keep the policy for the long term, this may be the wrong type of insurance for you.