Insure Your Family’s Future
The primary reason to buy life insurance,Ā of course, is to protect yourĀ assets or provide for your family in theĀ event of your death. However, there areĀ other reasons to buy life insurance ofĀ which many people are not aware.
For example, life insurance proceeds can be used to pay estate taxes. Let’s say a family owns valuable assets that aren’t readily convertible into cash, such as real estate or shares in a family business. They may be forced to sell off assets to pay a large tax bill. However, a properly designed insurance policy can help avoid this problem.
Your beneficiaries can also use life insurance proceeds to liquidate amounts you may have owed on mortgages or other loan arrangements that couldn’t be paid off otherwise.
If your family depends on your salary or other incomeĀ you generate, life insurance can help to meet their futureĀ income needs in the event of your death. Estimate howĀ much income your family would need, then buy a policyĀ with a benefit amount to meet those needs.
Funeral expenses can be unbelievably expensive, alongĀ with plots and memorial markers. Yet these types of servicesĀ can be very importantĀ to family membersĀ left behind. Life insuranceĀ proceeds canĀ mean the difference toĀ your family in providingĀ the type of servicesĀ they want without havingĀ to go into debt toĀ do so.
So how do you go about choosing the right policy for your circumstances? With about 1600 insurance companies offering several thousand life insurance choices, it’s naive to think you can find the policy that best fits your needs without expert assistance. Don’t try to make the choice by yourself and don’t succumb to a high pressure sales pitch. Find an insurance agent or broker you trust. Feel free to get a second opinion.
Be careful to avoid policies offered by credit card companies or banks. The rates on these policies are often based on high-risk policy holders. In addition, life insurance for a trip is very expensive – you may pay nearly as much to cover yourself on a two-hour flight as you would to protect yourself around the clock for the next year.
Know the difference between term and whole life insurance.Ā Term insurance premiums are the least expensiveĀ because the policy is simply insurance on your life for aĀ specified amount of time. You have no cash value and noĀ more insurance when the term of the policy ends. WholeĀ life insurance accumulates cash value over time (whichĀ you can borrow against), and it pays dividends that youĀ can use to pay future premiums. You are insured as long asĀ you keep making your premium payments.
Some financial planners advise purchasing only term lifeĀ insurance and investing the premium savings at an interestĀ rate more than life insurance typically pays. There are prosĀ and cons to this practice.
Each time you want to renew your term life insurance policy, you have aged, are in a higher risk pool, and therefore pay more for the coverage. Also, if you are unable to discipline yourself and invest the money you save during the early years, you will face the aforesaid higher premiums and it’s likely you won’t have the funds to buy a whole life policy. In addition, investing in the stock market or other ventures comes with the very real risk that the value of your investments will go down and you can end up losing money.
On the other hand, whole life insurance premiums areĀ calculated based on the age, health, and lifestyle you haveĀ at the time you buy the policy (usually when you are youngĀ and healthy), and remain the same as long as you hold theĀ policy. Earnings on a whole life policy are conservative, butĀ very secure.
One way to avoid some of the pitfalls of term life insuranceĀ is to make sure that the policy is renewable and alsoĀ convertible into a whole life policy in the future.
