Who needs life insurance?
You need life insurance if your loved ones depend on your income because the proceeds from a life insurance policy can replace the income lost to your family upon your death. Life insurance is protection against lost income caused by your early exit yet not the best way to invest: the savings and investment component in life insurance should not be your major goal but an instrument to make your income replacement more cost-effective. Facing numerous insurance companies and types of life insurance, purchasing life insurance can be confusing and complicated work and to get the best possible coverage at the right price requires sufficient research.
Types of Insurance
1.Term life insurance is the most basic and least expensive life insurance. You pay a premium for a period of time (1-30 years) and if you die during that time the benefit is paid to your beneficiaries, yet you get no money back should you survive that period. Renewable term can be renewed at the end of the term usually at a higher rate considering your now older age; convertible term can be converted to permanent life insurance; level term has a fixed amount of coverage and declining term has a decreasing one during the specified period.
2.Return of premium life insurance (ROP Term) provides death benefit and returns the whole premium to you income tax free if you survive the term.
3.Permanent insurance provides death benefit throughout your lifetime and includes a cash value (the savings and investment component of a policy that can be borrowed against or cashed in).
a)Whole life (traditional permanent insurance) has a level premium rate and a cash value which can grow with tax-deferred interest growth: your beneficiary does not pay income taxes on received benefit should you die and if you cash in the policy you pay income taxes only on the amount above what you put in.
b)Universal life insurance is similar to whole life with flexible premiums, flexible face value and unbundled pricing factors.
c)Variable life insurance is characterized by fluctuation of cash value and death benefit (usually with a floor) according to the performance of your investment choice in stock, bond and currency market.
d)Variable universal life combines the features of both universal life and variable life; it is the most aggressive type of insurance with flexible premiums, flexible death benefit and flexible cash value based on the performance of your selected investments.
How much life insurance do you need?
1.Your life insurance should be enough to make sure your loved ones can continue to live their current lifestyle should you pass away. The first number you’ll need is the time, in years, until your dependants achieve financial independence or you reach retirement age.
2.Figure out how much money you are spending on your beneficiaries annually, your savings and assets, your outgoing debts and final expenses (such as estate taxes, uninsured medical costs, and funeral costs), your social securities and existing life insurance, emergency fund for your dependants and one-time expenses such as college tuition.
3.Choose online calculators which best describe your situations to generate results and use them as guidelines. Although too much life insurance is usually a waste of money, you can purchase a larger amount of coverage if you strongly believe the insurance company significantly underestimates your risk of death during the term after you tell them all the truth.
Which type of life insurance suits you best?
1.Get free insurance quotes online from insurance companies for comparison, make sure that the insurance coverage you are comparing is similar and the insurance companies have received the highest ratings from the four ratings agencies: AM Best, Standard & Poor’s, Duff Phelps, and Moody’s.
2.Calculate the lowest possible cost of buying term life which can sufficiently support your beneficiaries should you die. Among return of premium life and various types of permanent life which are affordable to you, choose the most cost-effective one with your desired death benefit as a floor, compare the revenue generated by the extra premium with its opportunity cost (the largest possible amount of money you can get if you invest it elsewhere), if the revenue is more than the opportunity cost you buy this type of ROP or permanent life, otherwise buy term life preferably convertible and renewable.
3.To purchase a life insurance policy you need to fill out an application which contains questions about your health and lifestyle, and often are required to take a medical exam arranged and paid by the insurance company. The insurance company will decide whether to offer you a policy, and if so, at what price. Read the insurance policy very carefully and make sure you understand everything before you sign it.
How to save on life insurance?
1.Once you decide that life insurance is necessary for you, buy as early as you can because older people and those not in the best of health pay steeply higher rates. If you choose term life and your beneficiaries’ dependence on you decreases as time goes by during the specified period you can choose declining term to save money.
2.If you’re healthy, take the medical exam and stay away from guaranteed issue policies because they are quick’ yet more expensive. Try to improve your health and lifestyle, because the better your health is, the lower your premiums. Remember, a caring, healthy provider is always his family members’ best insurance.