Building a sound financial foundation for yourself and your family starts with protecting them from catastrophic life altering events. Saving and investing are great ways to build wealth. But without adequate protection, it can all be gone in one tragic experience. So to provide that security, life insurance is the financial tool that makes sense for most people. Purchasing life insurance can be confusing and intimidating. Especially with the amount of conflicting and/or incomplete information that’s published in the media. It makes it hard to know who to trust.
Life insurance planning is more than something that you just buy and forget. To get the most value for your money, there must be some thought going into your life
Life insurance falls into two basic categories of coverage: permanent and term. Term insurance is just as it sounds; it’s designed to cover you for a predetermined period of time. Permanent life insurance is designed to last your entire lifetime. Another way to think about it is term insurance is there to protect your family if you pass away prematurely. where permanent insurance is designed to be there whenever you pass away no matter your age.
Term insurance is temporary life insurance. Although most policies will state that coverage is renewable past the guarantee period, once that expires, your premiums will increase dramatically. Then they continue to get increasingly more expensive each following year. That’s why term insurance has a claim rate of less than 2%. Once its term is over, nobody can afford to keep it. If you outlive your term insurance, but still need the coverage, you will have to reapply for a new policy. That means that you will have to medically qualify for the new coverage. So, if you develop any health issues since you took out your last policy, you might have to pay a higher rate based on that or worse, not qualify at all. Also, at that point, you will be much older. So, the new premium which will be mostly based on your age, will be higher as well.
Anyone who other people depend on for their well-being and/or financial security needs life insurance. This is to protect them from the loss of your financial support.
If you own a house financed with a mortgage, life insurance can mean the difference your family being able to stay in the family home or being forced to sell it should you pass away.
Most households now need two incomes just to make ends meet. What would happen if you or your spouse were to unexpectedly die? Would the income of whoever is left to carry on be enough to support their current lifestyle?
This is probably one of the more overlooked aspects when figuring out your life insurance needs. A stay-at-home parent may not have any reportable income. But what they do is just as important. It allows the primary breadwinner to be just that, the breadwinner. Replacing what they do, is either going to take away from your earnings ability or you’ll have to pay someone else to cover your childcare duties. Life insurance for stay-at-home parents is just as important as having it for the primary breadwinner.
Raising a family carries with it tremendous responsibilities. Imagine the burden it places on a surviving spouse to have to keep up with the monthly household bills on their salary alone, as well as having to raise your children as a single parent. Think about how your family’s lives would change if your income and support suddenly went away. It’s never pleasant to think about these things. But it’s a smart idea to have a plan in place for this possibility using life insurance.
If you have a lot of debt, consider taking out at least enough life insurance to cover it. Even if you are single and have no children. This is especially true if someone has co-signed for any of your loans. Private student loans are not forgiven on death the way Federal student loans are. So creditors can file a claim against any assets in their estate, or the co-signor for the full amount. In the case of Federal Parent PLUS loans, the good news is that the loan is cancelled. However, here’s the bad news. Since the parent who co-signed the loan also benefits from this forgiven loan, the IRS considers this a taxable event. So, the parent will receive a 1099-C from Sallie Mae and will have to pay taxes on the total amount. Considering the high cost of a college education, it’s very common to see student loans in excess of $100,000. The income taxes on a loan forgiveness of this size will be in the tens of thousands of dollars.
This an often overlooked aspect of owning a business when you have a business partner, or partners. Who inherits that ownership interest in the business should your partner pass
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The amount of life insurance you need varies from person to person. One size does not fit all. When you apply for life insurance the question really shouldn’t be about how much coverage you think you need. But how much money your family would need if you were to die, and that comes down to two basic questions:
1) How much money will my family need at death to meet any immediate obligations?
This amount will include all of your final expenses: uncovered medical bills, funeral expenses, probate and estate settling costs, outstanding debts, the balance on your mortgage, and future education costs for your children, etc.
2) How much of your lost income is needed to be replaced to keep the household running.
This can be calculated by figuring out how much money is needed each year. Multiply that number by how many years you want those funds to last.
The total of those two questions tells you the base amount of life insurance you should be applying for.
Once you know how much you need the next question is; what is the best type of life insurance?
Life Insurance falls into two basic categories – term and permanent life insurance. Term life insurance is structured so that it’s temporary in nature. Although it’s usually renewable until around age 95, the premiums go up each policy anniversary. The premium increases are small in your early years. But they become significant when you reach age 55, and substantial above age 65. At some point the premium increases become so drastic the policyholder cancels the policy. For that reason, more than 98% of all term life policies lapse before paying a claim.
Term Life Insurance
Most term life insurance policies now are sold as “Guaranteed Level Term”. Common guarantee periods usually come in 10, 15, 20, and 30 year increments. What that means is that for the specified guarantee period, the premiums won’t change. However, on the anniversary date that the guarantee period expires, the premiums escalate drastically. At that point the policy reverts back to a 1-year renewable term where the premiums go back to increasing each year.
There are two kinds of life insurance contracts that fall under the permanent life insurance category: Universal life and whole life. Whole life is designed to last your entire life without any change in premiums as you get older. It also builds cash value that can accessed through policy loans. Plus in case the policy is no longer needed, it can be surrendered (cashed in). Owners of whole life policies are guaranteed a minimum level of cash value buildup. What’s more, the policy earnings is not tied to the stock market.
Universal life is also designed to be lifelong coverage. However it may not come with the guarantees that its whole life counterpart does. Consequently, premiums for universal life policies are usually significantly less than those for whole life.
There is also a type of policy that has features of both term insurance and whole life. These life insurance policies are known as guaranteed universal life insurance, GUL for short. These policies are generally not designed to build cash value, but are kept in force by their no-lapse guarantee. But, like whole life policies, they can be guaranteed last your lifetime. If you are looking for life insurance that will last your lifetime, won’t ever increase in cost, won’t ever reduce in coverage, is more affordable than whole life, but cash value is not a concern, a GUL policy may be a viable solution.
Get the peace of mind knowing your family’s future is taken care of.
Apply online for real suggestions and premium rates. Most policies issued in less than an hour.
Life insurance riders are additional benefits that can be added to enhance a policy’s features. Examples of common riders that might be offered include, but not limited to accelerated death benefits, chronic illness riders, critical care riders, waiver of premiums, and term life insurance riders, and child term riders.
Accelerated Death Benefit Rider (ADBR) – This allows you to access a portion of the death benefit if you are diagnosed with a terminal illness with an expected survival of less than a year.
Critical Care Rider – This accelerates a portion of your death benefit if you suffer certain catastrophic medical events. These usually include a diagnosis’s a heart attack, stroke, life threatening cancer, or other conditions depending on the policy.
Chronic Illness Rider – This is sometimes referred to as a Long-Term Care benefit. It allows you to access a certain percent, usually 2% of the face amount of your policy, per month if you suffer a significant impairment of at least two (2) activities of daily living.
Waiver of Premium – If you become permanently disabled and unable to work, this rider waives future premium payments and keeps your life insurance in force.
Child Term Riders – This rider adds coverage for your dependent children up to a certain age.
Eighty six percent (86%) of the people, who have no life insurance, say that they haven’t bought it because it’s too expensive, yet they overestimate its actual cost by more than double.
The buying process itself can also seem so daunting and intimidating that many people may skip it altogether. Although there are more and more websites that are offering life insurance online, almost all of them limit your choices to just term life insurance and only term life insurance. This may be suitable for many insurance buyers, but it’s a one size fits all solution that may be inadequate for others.
Most people still buy life insurance through agents or financial advisors, although that is changing. Figuring out how much coverage you need and what kind of insurance is best for you is one of the most important financial decisions you can make. It’s decision that could affect you and your family for generations. Sometimes the decision is simple, but sometimes it can also be complex. Knowing the right questions to ask is just as important. If you feel your situation needs professional help, please contact us here.
If not today, then when? The biggest barrier for most people getting the protection their family needs is procrastination. But that can be costly in more ways than one. Not only will it cost more to get a policy because you will be applying at an older age, unanticipated medical issues can crop up causing you to pay extra, or possibly knocking you out of eligibility altogether. Plus, in the case where a whole life policy is involved, there’s lost compounding of interest and dividends to consider.
Most importantly, you’ll have the peace of mind knowing that you and your family will be protected, no matter what.
Get the peace of mind knowing your family’s future is taken care of.
Apply online for real suggestions and premium rates. Most policies issued in less than an hour.
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