For most people, one of the biggest unknowns about life insurance is how to answer the question of “how much?” To determine an amount for your individual situation, consider the following:
Immediate needs can include the final expenses associated with a terminal illness, burial costs, estate taxes, and the balance of an unpaid mortgage. Ongoing needs might include monthly bills and expenses, mortgage payments, daycare costs, education, income replacement, and retirement.
After determining your current and future financial obligations, subtract this amount from your total available resources. This may sound simple enough, however, if you need assistance, please feel free to call or email Tim or Sandy for a free consultation.
Now that you have determined how much you need, next you need to select the type of policy that you would like to purchase.
Life insurance comes in two basic forms:
Knowing which one is appropriate for you means understanding what needs you are trying to satisfy. Term policies provide life insurance for a specified period of time. Term policies provide benefits in the event of death, but they generate no “cash value.” If you have a limited amount to spend, and only need the benefit for a finite period of time (for instance, until the mortgage is paid off or until your children graduate from college), you may be able to get more coverage by acquiring term insurance than with permanent insurance.
Permanent insurance combines death benefits with a cash accumulation feature. The buyer of a cash value policy pays more in the early years than for term insurance, but the money not needed to pay for the cost of the death benefit accumulates with interest. If the policy is surrendered before the insured dies, there may be a cash value paid to the owner. In addition, you can make loans from your policy’s cash value. As a general rule, it is not a good idea to buy permanent life insurance if you plan to surrender early, as there may be a penalty to do so. If all premiums are paid, cash value insurance usually lasts for the entire life of the insured person, and pays death benefits to the beneficiaries named in the policy upon the death of the insured.
This information is no substitute for the guidance and assistance you’ll receive by meeting with our financial professionals. Please give us a call if you would like a free quote or life insurance review.