An often asked question is: “When should I buy life insurance?” There are many things to consider when buying life insurance in today’s marketplace and there are many types of life insurance to buy life as well. Understanding what your options for life insurance are based on your circumstances will dictate which option is best for you.
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When Should I Buy Life Insurance?
There is no ideal time to buy life insurance. It’s insurance for the unknown time of death of a spouse, parent, a child or yourself. When would you think the best time is for this? There is no answer for that. A better question is: What type of life insurance should I buy?, Right?
What is Life Insurance?
Life insurance is protection for people in your life that you love, that have value in your life and those that their loss would detrimentally effect you or others monetarily. Whether your the main breadwinner in your family or not, but more so if you are, life insurance can be extremely crucial. If something were to happen to you or this other person, your family would then have financial protection. These are the reasons to buy life insurance.
Different Types of Life Insurance
There are three different types of life insurance that exist and they’re known as “Whole life”, “Term”, and “Universal” insurance. It’s critical that you understand the basic different types of life insurance before you choose to purchase a life insurance policy.
What is Term Life Insurance?
The intent of term life insurance is to insure someone for a certain number of years. With term life insurance, the premiums for term life insurance don’t accumulate in the form of savings or an investment. They simply represent the cost to keep the coverage for the length of time it is purchased for.
Why would you get term life insurance? Well it simply represents the best insurance value for the cost. The premium payment is the fixed monthly cost paid for the coverage during the term the policy is for. The main cost variable is determined by the age of the insured. The older a person is, the more expensive the insurance premium will be.
Consider the costs and benefits of term life insurance. Tips to keep in mind before making this purchase include:
•Make sure you purchase just the quantity of coverage you need.
•Be sure to buy a policy that you can renew to at least 100 years old.
•Get a policy that can’t be terminated even if the insured’s health turns bad.
•Comparison shop 20 year policies with other types of insurance, such as whole life.
Life Insurance-What is Whole Life Coverage?
A whole life insurance policy has a locked in premium for the life of the policy and is purchased for a lifetime. Whole life policies builds up a cash balance over time from part of your premiums.
Whole life insurance grows a cash balance and has a specific interest rate to apply to it. It can be considered an investment. Many insurance companies pay dividends to policy holders. This dividend can then easily be used to reduce the cost of the premiums of future payments.
The cost of whole life insurance starts at a higher annual rate that term life insurance,
but the premiums will never increase. This type of insurance may not be the best choice for young families, as the premiums can be very costly, and you may not be able to afford enough coverage for the amount of money you are required to spend on the premiums.
What is Universal Life Insurance Coverage ?
Universal life insurance, also called complete or total life insurance, is a combination
of term life insurance and a tax-deferred savings account that pays a variable market
interest rate. The variable interest rate usually ends up being more attractive than
offered by other types of policies.
Universal life insurance is separated into three components, a death benefit, administrative costs, and savings. Premium costs can be paid at any time and for any amount above certain minimum requirements. Premiums may be fixed or variable. Down the road, premium payments may not be required at all as long as you have contributed enough towards the “savings” component of your policy.
This type of policy is sold based on how much you will accumulate by the age of 65 in the
savings component of the policy. This type of policy markets life insurance as more of an
‘investment’ rather than simply coverage for your family.
This policy can be attractive to people that feel that they will definitely need life
insurance when they are over the age of 65. Beware that there are also costs associated
with this type of policy. For example, you will not be able to qualify for the return on
the policy until you have been paying premium for 15 to 20 years. If you decide to cancel this type of policy, it will also cost you.
If you are considering whole life insurance, you might also want to consider the alternative of purchasing the lower cost term life insurance, then investing the premium savings in a separate tax deferred account.
When choosing how much life insurance to purchase, it is important to consider factors
•The standard of living you wish to maintain
•Your household income
•The age of your family members
•Your spouses’ ability to earn income, and
•Your current financial situation and debts.
The level of life insurance coverage you require will likely change throughout the
lifetime of your family. Generally, you will require a higher dollar level of coverage
when your children are young, and when your children leave the home.
With proper planning, when you and your spouse reach the age of 60, the amount of life
insurance once necessary to secure your family’s future should begin to be replaced with
the money you have available from your retirement and other debt free assets you have
invested in over your lifetime.