|
To help you make the right insurance decisions for you and your family, read through these important questions and then scroll down to find the answers. They'll help you make an informed decision when it comes time to make a life insurance purchase.
Answers to the following key considerations are found by scrolling down:
- How much life insurance do I need?
- What type of policy should I buy, term or permanent?
- What are the various kinds of permanent insurance?
- What are accelerated death benefits and how do they work?
- What should I consider in naming life insurance beneficiaries?
- What happens if I fail to make the required premium payments?
- Should I just buy the "bells and whistles" that some policies offer?
How much life insurance do I need? Determining how much life insurance you need requires a careful examination of your current and future financial obligations (i.e., a combination of (a) what would it cost to help your surviving family members meet immediate and ongoing needs like funeral costs, taxes, food, clothing, utilities, mortgage payments, etc. and (b) future obligations like college and retirement funding) and the resources that your surviving family members could draw upon to meet those obligations (i.e., your spouse's income, savings and investments, other income producing assets, and any life insurance you might already own).
The difference between the two (your financial obligations minus the resources your family has to meet those obligations) is the approximate amount of additional life insurance you need. If this sounds confusing, don't worry. You're not alone. That's why it's nice to know that your local representative with Basic Financial Solutions, Inc. can help you figure out how much insurance you need.
What type of policy should I buy, term or permanent?
It's impossible to say which is better because the kind of coverage that's right for you depends on your unique circumstances and financial goals. But generally speaking, term offers the greatest coverage for the lowest initial premium and is a great solution for people with temporary needs or a limited budget. Permanent insurance may make more sense if you anticipate a need for lifelong protection and like the option of accumulating tax-deferred cash values. Also, it doesn’t have to be either one or the other. Oftentimes, a combination of term and permanent insurance is the right answer.
What are the various kinds of permanent insurance? There are four main types. Whole life insurance is the most traditional form of "permanent" insurance. With it, the face amount (the death benefit) and the premium (the amount you pay for protection each year) are fixed at the time you buy your policy and stay the same even as you age. You also get a guaranteed rate of return on your cash values. Of course, any guarantee relies on the claims paying ability of the issuing insurance company. By contrast, the cash value in universal life is linked to interest rates, and the cash value of variable life and variable universal life is linked the performance of the underlying investment options you choose to invest in and fluctuate with market conditions.
The cash value of universal and variable policies is not guaranteed, although some policies set a minimum death benefit. With universal policies (universal life and variable universal life) you can reduce or increase the amount of the death benefit and vary the amount or timing of premium payments, subject to certain limitations.
What are accelerated death benefits and how do they work? Many policies contain a provision that allows a terminally ill person to collect a significant portion of his or her policy's death benefit while that person is still alive. The money can be used to get one's family finances in order, pay for uncovered medical expenses, or simply do certain things for your family or friends while you still can. It's important to note that the amount you take out while still living will be subtracted from the death benefit payments to your beneficiaries along with an interest charge to account for early payment of benefits.
What should I consider when naming a beneficiary?
- Always name a "contingent," or secondary, beneficiary, just in case you outlive your first beneficiary.
- Select a specific beneficiary, rather than having the proceeds of your life insurance paid to your estate. One of the great advantages of life insurance is that it can be paid to your family immediately. If it is payable to your estate, however, it will have to go through probate with the rest of your assets.
- Be very specific in wording beneficiary designations. Saying "wife of the insured" could result in an ex-spouse getting the proceeds. Naming specific children may exclude those born later. If your child dies before you, do you want the proceeds to go to that child's children? Changing the beneficiary designation is easy, but you have to remember to do it. Due to the various issues involved, an agent can be an excellent source of information to help you properly set up your beneficiary designation.
What happens if I fail to make the required premium payments? If you miss a premium payment, you typically have a 30- or 31-day grace period during which you can pay the premium with no interest charged. If you own a term policy and fail to pay your premium within the grace period, your insurance company will typically terminate the policy. If you own a permanent policy and fail to pay your premium within the grace period, your insurance company, with your authorization, can draw from your policy's cash value to keep the policy in force. In some flexible-premium policies, premiums may be reduced or skipped as long as sufficient cash values remain in the policy. However, this will result in lower cash values and a shortened coverage period.
Should I just buy basic life insurance coverage or is it worth considering the "bells and whistles" that some policies offer? Whether you should consider adding a rider to a policy you're considering really depends on your specific needs, objectives and budget. Here are a few riders that you at least should take a close look at and consider. A disability waiver of premium rider stipulates that if you become totally disabled for a specified period of time, you don't have to pay premiums for the duration of the disability. Why might you want to consider such a provision? Disabling illnesses and injuries are much more common than you probably realize. If you become disabled and your income declines or disappears for a period of time, a disability waiver of premium can ensure that your life insurance policy will remain in force.
An accidental death benefit is another common rider. It will pay an additional benefit in the case of a death resulting from an accident. Many companies offer accelerated death benefits, also known as living benefits. This type of rider allows you, under certain circumstances, to receive the proceeds of your life insurance policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home.
For more information or to talk with a Basic Financial Solutions Representative, click here.
Return to home page. |