Lisa Fimberg is a writer over at Consumers Advocate.org, which is a site that covers topics from life insurance to the best yoga mats...
The Importance of Life Insurance
If you have children, dependents or loved ones that need to be taken care of, or have debts that need to be paid off if you pass away, than you would be wise to purchase some form of life insurance coverage. A Life insurance plan is a policy that will pay a specific amount of funds that will be given to a specified beneficiary upon the death of the policyholder. The beneficiary or beneficiaries will receive the funds and can use the money for anything they might need in the future including, for example, their first home purchase. This type of policy can be particularly beneficial when the person that holds the policy is the main breadwinner.
What Kind of Life Insurance Do You Need?
There are different life insurance policies, but the two most popular are called: Term Life and Whole Life Insurance (which is also known as Permanent Life Insurance).
1. A Term Life Policy
A Term life policy will cover you for a specified time frame or term and typically will range from a 10 to a 30-year term. If you happen to pass away within that specific time frame, your beneficiaries will receive a payment (tax-free) in the specified amount of money that you had chosen when buying the policy.
If you don’t pass within the specific time frame, the policy then expires or at that point might be changed to a whole (permanent) life insurance policy.
The pros of this policy is that is the cheapest and simplest life insurance option. It also gives you the opportunity to customize your plan to work the best for your situation.
As an example, if you have children, you can decide when your kids might need the money the most in their lives. Or if you are single without kids, you might want enough coverage that can help pay for any mortgages or other debts that might be outstanding.
2. A Whole Life Policy
A permanent life insurance policy will allow payment to your designated beneficiaries whenever you pass and not within a certain term. Permanent policies are much more costly that most term life policies, but they offer the benefit of allowing you to accumulate a cash value that is tax-deferred.
Permanent life insurance can be very beneficial for those who have a large estate and whose beneficiaries could use the money to help with the potential estate taxes.
There are two other permanent insurance policies: variable and universal life insurance. Both will accrue cash, but with varying interest rates.
Who Needs Life insurance?
Of course there many different scenarios in which purchasing life insurance is truly beneficial but there are a few questions that can help:
Does anyone in your family or even spouse rely on your income for their financial well-being? This could be an aging parent, a child, or even someone might have co-signed a loan.
Life insurance is a policy that replaces the financial support that you would give to anyone when you are not here anymore to help.
The most common examples of when life insurance can be really helpful are the following:
Parents with younger kids
Your kids, particularly at a young age, might depend on you for years. You might want to save for their college tuition in the future or any other expenses they might need. Unless you already have your entire life savings set, a life insurance policy to fill in the gap if you are no longer here can help.
Couples (Married or Unmarried)
If you pay a mortgage that requires both of the partners’ salaries to be able to afford the mortgage or even if one partner earns more to support your existing lifestyle, a life insurance policy will make sure that you both are covered.
Students with loans
A federal student loan is usually forgiven if the borrower dies before paying it off. But, private student loans will transfer the debt to whomever had co-signed the loan and is typically the parents. A life insurance policy can then help protect the actual co-signers from having to pay off the debt.
Business owners might find it beneficial to list their business partners as potential beneficiaries particularly if the business would not survive without them. Or the death benefit can be used for the other business partners to purchase the remaining shares from the deceased’s family if that is of interest to that family.
As mentioned above, if you have a large enough estate to incur taxes, you might consider purchasing a cash-value life insurance policy (such as the whole life) to help pay the estate taxes.
Now that you are considering life insurance, below are five tips to help lower the costs:
1. Know the amount that you need:
To determine the amount of life insurance you need, the general rule of thumb is to add up all the money and sources from which your beneficiaries can expect to receive income. This could be pension, social security, etc. Then you can subtract that number from the amount you would like to leave your dependents. The number could be low such as $35,000 but the policy should be 10 times that amount or $350,000.
2. You might consider purchasing a few policies
By obtaining several life insurance policies, (possibly with different insurers and term lengths), you may be able to minimize your costs. There isn’t a limit to the number of policies you can have at once, but the total death benefit must correspond to your income and assets. For example, if you make $75,000 and try for multiple policies, you might get turned down.
3. Improve your health
Life insurance is truly contingent on your overall health condition. Anything that can help to increase your life expectancy (start to work out, cut back on alcohol) can result in a lower rate.
4. Get a few quotes
There are many life insurance companies out there and it is a very competitive industry. If you get at least 2 to 3 quotes, you can not only educate yourself more on what you need, but find out the best price for your particular situation.
If you pay annually instead of monthly, that can help reduce the cost as well, even up to 7%.
Now that you know more about life insurance and the type of insurance offered, you can consider if this is the right option for your situation and your dependents.
Jeff Sodoma, MPA, Esq. is a lawyer based in Virginia Beach, Virginia
Hello, there! Welcome to my blog. I will use this blog as a platform for my writing. I will write about topics in the legal world, certainly, as well as everything else under the sun, because I have many interests (and viewpoints). All views expressed in this blog, unless otherwise noted, are mine alone. One of my interests is music--my wife believes that I should go on "Beat Shazam" because I know so many songs--and I will be, from time to time, analyzing song lyrics and how they relate to the legal world.