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Life Insurance: justify the numbers

When people shop for life insurance, they often pick a number that sounds like a lot of money and then begin paring it down when the premium is higher than expected. There is, however, a more professional and effective way to choose the face value of your life insurance. article continued »

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If you are in your 60s or 70s and have suddenly realized you don't have money for final expenses, and have limited resources, you will probably not be able to afford much more than $10,000 to $15,000. This number will be determined by the cost of funerals and associated expenses in your area, and whether you already own a plot, headstone and other items.

The best time to buy insurance is when you are young, ideally, before starting your family. However, most young couples wait until they are married before looking for life insurance. There are two primary methods you can use to calculate your life ins. face value. The first is the annual income multiple method. Ideally, you should have five times the income of the primary wage earner. This amount gives the surviving spouse an income for about five years; during that time she can look for employment, work out the problems of childcare and so forth.

If both partners work, the income from each may be equally important. You should work with your agent—who will have helpful worksheets—and calculate your mortgage payment, your utilities and car expenses and other household bills. Decide what portion of the expenses is being paid by each individual's income. That amount of money must be replaced for a long enough period to enable the survivor to make adjustments. For example, if the insurance is enough to pay off the mortgage, will the survivor be able to manage the remaining bills. While these issues are not pleasant, it is much better to discuss them before something happens than have to resolve the problems after the fact.

What are the Different Types of Life Coverage Available?
You have a number of choices regarding the type of life insurance you purchase. Each type of policy has its purpose. If you choose the type of insurance according to what you expect it to do, you will usually not be disappointed in later years.

Term: A type of policy that is like "renting." You have insurance for a number of years, usually 20. At the end of that period, you can either convert the policy to some other form of term, or to a universal or whole life if the company has those. If you do nothing, it will expire and will have no cash value. For that reason, it is the cheapest.

Universal: more expensive than Term, but cheaper than Whole life. Yet, in many ways, a universal is better than whole life. A universal has a life insurance component—your face value—and a savings plan. Your premium goes into the savings plan and collects interest. This fund is then used to pay the cost of insurance and fees. If you need cash for an emergency, you can withdraw from the savings fund without affecting the face value of the life insurance. As long as there is enough money in the accumulation fund to pay the cost of insurance, your face value remains unchanged. Depending on the benefit option chosen, it is also possible for these policies to see an increase in the face value without any increase in premium.

Whole Life: the simplest, but also most expensive. In a whole life policy, your premium remains the same until you die or reach age 100, and your face value remains level as well. It is possible, however, to purchase a 10 or 20 pay, which means the policy could be paid up in 10 or 20 years. The policy gains cash value which you may borrow against, but such loans do decrease the face value if not repaid.

Get help here from a trained professional
Although you really don't have to worry about your life insurance company going out of business (all companies are protected against such loss), you probably want a company that will pay claims quickly and will be easy to communicate with when you need them. The best way to find such a company is to work through a licensed agent. It is then the agent's responsibility to make sure you understand all terms and to help you get the policy that fits your needs. Start here for your free quote and to find the policy you need today.


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