Insure Your Family’s Future

The primary reason to buy life insurance, of course, is to protect your assets or provide for your family in the event of your death. However, there are other reasons to buy life insurance of 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 income you generate, life insurance can help to meet their future income needs in the event of your death. Estimate how much income your family would need, then buy a policy with a benefit amount to meet those needs.

Funeral expenses can be unbelievably expensive, along with plots and memorial markers. Yet these types of services can be very important to family members left behind. Life insurance proceeds can mean the difference to your family in providing the type of services they want without having to go into debt to 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. Term insurance premiums are the least expensive because the policy is simply insurance on your life for a specified amount of time. You have no cash value and no more insurance when the term of the policy ends. Whole life insurance accumulates cash value over time (which you can borrow against), and it pays dividends that you can use to pay future premiums. You are insured as long as you keep making your premium payments.

Some financial planners advise purchasing only term life insurance and investing the premium savings at an interest rate more than life insurance typically pays. There are pros 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 are calculated based on the age, health, and lifestyle you have at the time you buy the policy (usually when you are young and healthy), and remain the same as long as you hold the policy. Earnings on a whole life policy are conservative, but very secure.

One way to avoid some of the pitfalls of term life insurance is to make sure that the policy is renewable and also convertible into a whole life policy in the future.