Life Insurance

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Protecting your Loved Ones with Life Insurance

How much life insurance do you need?

Your life insurance needs will depend on a number of factors, including the size of your family, the nature of your financial obligations, your career stage, and your goals. For example, when you're young, you may not have a great need for life insurance. However, as you take more responsabilities and your family grows, your need for life insurance increases.

Here are some questions that can help you start thinking about the amount of life insurance you need:

What immediate financial expenses (e.g., debt repayment, funeral expenses) would your family face upon your death?
How much of your salary is devoted to current expenses and future needs?
How long would your dependents need support if you were to die tomorrow?
How much money would you want to leave for special situations upon your death, such as funding your children's education, gifts to charities, or an inheritance for your children?
What other assets or insurance policies do you have?

Types of Life Insurance Policies

The two basic types of life insurance are term life and permanent (cash value) life. Term policies provide life insurance protection for a specific period of time. If you die during the coverage period, your beneficiary receives the policy's death benefit. If you live to the end of the term, the policy simply terminates, unless it automatically renews for a new period. Term policies are typically available for periods of 1 to 30 years and may, in some cases, be renewed until you reach age 95. With guaranteed level term insurance, a popular type, both the premium and the amount of coverage remain level for a specific period of time.

Permanent insurance policies offer protection for your entire life, regardless of your health, provided you pay the premium to keep the policy in force. As you pay your premiums, a portion of each payment is placed in the cash value. During the early years of the policy, the cash value contribution is a large portion of each premium payment. As you get older, and the true cost of your insurance increases, the portion of your premium payment devoted to the cash value decreases. The cash value continues to grow - tax deferred - as long as the policy is in force. You can borrow against the cash value, but unpaid policy loans will reduce the death benefit that your beneficiary will receive. If you surrender the policy before you die (i.e., cancel your coverage), you'll be entitled to receive the cash value, minus any loans and surrender charges.

Your life insurance needs will depend on a number of factors, including whether you're married, the size of your family, the nature of your financial obligations, your career stage, and your goals.

Many different types of cash value life insurance are available including:

Whole Life: You generally make level (equal) premium payments for life. The death benefit and cash value are predetermined and guaranteed (subject to the claims-paying ability of the issuing insurance company).
Universal Life: You may pay premiums at any time, in any amount (subject to certain limits), as long as the policy expenses and the cost of insurance coverage are met. The amount of insurance coverage can be changed, and the cash value will grow at a declared interest rate, which may vary over time.
Variable Life: As with whole life, you pay a level premium for life. However, neither the death benefit nor cash value are predetermined or guaranteed; they fluctuate depending on the performance of investments in what are known as subaccounts. A subaccount is a pool of investor funds professionally managed to pursue a stated investment objective. You select the subaccounts in which the cash value should be invested.
Universal Variable Life: A combination of universal and variable life. You may pay premiums at any time, in any amount (subject to limits), as long as policy expenses and the cost of insurance coverage are met. The amount of insurance coverage can be changed, and the cash value goes up or down based on the performance of investments in the subaccounts.

Choosing and changing your Beneficiaries

When you purchase life insurance, you must name a primary beneficiary to receive the proceeds of your insurance policy. Your beneficiary may be a person, corporation, or other legal entity. You may name multiple beneficiaries and specify what percentage of the net death benefit each is to receive. If you name your minor child as a beneficiary, you should also designate an adult as the child's guardian in your will.

Review your coverage

Once you purchase a life insurance policy, make sure to periodically review your coverage - over time your needs will change.

So, how much is needed? How do I figure it out? What type of policy do I get?

Let your PLFS, Inc. consultant help you with your life insurance needs. We can complete a Financial Needs Analysis which will help you figure out how much protection you will need.

Here are some rules about Life Insurance:

Buy Term and Invest the Difference - term insurance is a lot cheaper than cash value life insurance, sometimes as much as 80% less expensive. This allows you to purchase the right amount of insurance to protect your family. Having said that, it is ok to have a small cash value policy (whole life) if you purchase it early at a young age and with good health. This policy will allow you to have life insurance when you get older, if necessary, at a cheaper cost because your premium is based on the age and health status when you purchased it.
Saving should be done outside of the policy, like in your 401K plan or any other account where you can get a better return and your money gets preferred tax treatment.
Remember that cash value life insurance has many names like, Whole Life, Universal Life, Variable Life, Universal Variable Life, etc. but it's basically the same product with a few different features.
Buy your policy from a top rated company, A.M. Best (A).
Make sure your agent explains to your satisfaction all of the policy features.