Insurance: justify the numbers
When people shop
for life insurance, they often pick a number that sounds like a
lot of money and then begin paring it down when the premium is higher
than expected. There is, however, a more professional and effective
way to choose the face value of your life insurance.
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"Insider's Guide to Life Insurance."
you are in your 60s or 70s and have suddenly realized you don't
have money for final expenses, and have limited resources, you will
probably not be able to afford much more than $10,000 to $15,000.
This number will be determined by the cost of funerals and associated
expenses in your area, and whether you already own a plot, headstone
and other items.
The best time to buy
insurance is when you are young, ideally, before starting your family.
However, most young couples wait until they are married before looking
for life insurance. There are two primary methods you can use to
face value. The first is the annual income multiple method. Ideally,
you should have five times the income of the primary wage earner.
This amount gives the surviving spouse an income for about five
years; during that time she can look for employment, work out the
problems of childcare and so forth.
If both partners work,
the income from each may be equally important. You should work with
your agent—who will have helpful worksheets—and calculate
your mortgage payment, your utilities and car expenses and other
household bills. Decide what portion of the expenses is being paid
by each individual's income. That amount of money must be replaced
for a long enough period to enable the survivor to make adjustments.
For example, if the insurance is enough to pay off the mortgage,
will the survivor be able to manage the remaining bills. While these
issues are not pleasant, it is much better to discuss them before
something happens than have to resolve the problems after the fact.
What are the
Different Types of Life Coverage Available?
You have a number of choices regarding the type of life insurance
you purchase. Each type of policy has its purpose. If you choose
the type of insurance according to what you expect it to do, you
will usually not be disappointed in later years.
A type of policy that is like "renting." You have insurance
for a number of years, usually 20. At the end of that period, you
can either convert the policy to some other form of term, or to
a universal or whole life if the company has those. If you do nothing,
it will expire and will have no cash value. For that reason, it
is the cheapest.
more expensive than Term, but cheaper than Whole life. Yet, in many
ways, a universal is better than whole life. A universal has a life
insurance component—your face value—and a savings plan.
Your premium goes into the savings plan and collects interest. This
fund is then used to pay the cost of insurance and fees. If you
need cash for an emergency, you can withdraw from the savings fund
without affecting the face value of the life insurance. As long
as there is enough money in the accumulation fund to pay the cost
of insurance, your face value remains unchanged. Depending on the
benefit option chosen, it is also possible for these policies to
see an increase in the face value without any increase in premium.
the simplest, but also most expensive. In a whole life policy, your
premium remains the same until you die or reach age 100, and your
face value remains level as well. It is possible, however, to purchase
a 10 or 20 pay, which means the policy could be paid up in 10 or
20 years. The policy gains cash value which you may borrow against,
but such loans do decrease the face value if not repaid.
Get help here
from a trained professional
Although you really don't have to worry about your life insurance
company going out of business (all companies are protected against
such loss), you probably want a company that will pay claims quickly
and will be easy to communicate with when you need them. The best
way to find such a company is to work through a licensed agent.
It is then the agent's responsibility to make sure you understand
all terms and to help you get the policy that fits your needs. Start
here for your
and to find the policy you need today.
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