What is life insurance? It’s a subject no one really wants to think about. But if someone depends on you financially, it’s one you cannot avoid. In the event of a tragedy, life insurance proceeds can:
Pay for funeral costs
Help pay the bills and meet ongoing living expenses
Pay off outstanding debt, including credit cards and the mortgage
Continue a family business
Finance future needs like your children’s education
Protect a spouse’s retirement plans
How do I estimate how much coverage I need? Analyzing your needs is a nuanced process, best done with a life insurance agent. However, you may also get a very rough estimate from a Need Calculator. LifeHappens.org provides some great resources to help! Many experts will venture that you will require five to ten times or even 20 times your salary in life insurance. If a multiple of twenty is used at a 5% return, it will replace your current salary. A better way to determine your individual needs would be to determine all of the current and future liabilities you need to provide for along with enough money to provide sufficient cash flow for those you leave behind. The tally would include:
Car and other loans
Credit card balances
Future education expenses for all children or grandchildren
Any other full or contingent liabilities you may have
Capital to provide ongoing income or future retirement income
Any other expenditures or legacy’s you wish to leave
What is the purpose of Life Insurance? Provide for Family The single greatest purpose for life insurance is to help protect your family if anything happened to you or/and your spouse. Are you going to continue to live on the edge hoping all goes well and thinking your family will not need additional life insurance because you will always be there to take care of them and never die or become disabled?
Taking that position is playing with fire and some will always get burned. Is that the legacy you want to leave the ones you care about the most? If you feel so bullet proof, why do you have car insurance? You have car insurance because something can happen that is out of your control. And that is different from having life insurance, how? We purchase insurance because risk of loss is a part of our lives and we decide to pay a much smaller amount currently to cover the potentially devastating ongoing risks we face in this world.
The risk of dying is definitely a catastrophic risk. Any other risk may be a temporary risk. Death is nothing if not permanent. If we die, who will pay to put children and grandchildren through school? If we die, how long do surviving spouse’s have to recognize the position they are in and make adjustments such as liquidating the family home and moving into an apartment; taking children out of private schools or being unable to continue to fund college education today or in the future? What are the difficult choices your surviving spouse will have to make alone without the funds to obtain advice or counsel?
What kind of retirement will your surviving spouse have and how much money will they have to continue the lifestyle you both have created? What type of future will you leave your spouse? Your children? Your grandchildren? The people you love the most? Failure to insure for these risks can and may lead to the destruction of your family. Think about it!
Family Uses for Life Insurance The Following Is A Partial List Of The Purposes Life Insurance Can Provide For Your Family:
In that your earning power is the most valuable asset your family has until your retirement, help replace your income in order to help your family maintain their current standard of living.
Help protect your family’s home and provide for your family’s stability by having your home paid off as well as having car loans and other bills paid.
Help provide your children and grandchildren the opportunity to reach their potential by providing for their education expenses.
Permanent life insurance policies containing cash value can help provide a fund for family emergencies, children and grandchildren’s education expenses and supplemental retirement income.
Provide money to help hire child care professionals, maids and provide for other domestic services in the event of the death of a stay-at- home parent.
Permanent life insurance cash value grows tax deferred so that you can maximize the money available later for loved ones.
The life insurance death benefit is available to help provide a fund to complete the planning you do to keep your family safe and secure
If something happened to you, your family will still have to pay the mortgage, pay the bills to keep the lights on, pay for education and save for retirement. The death benefit will help provide your family the money they will need at a time when they are unable to function properly or make the big decisions they may be facing without you.
If you have been lucky enough to accumulate a significant estate or build a business that you want to ensure continues after your death, life insurance can help pay the estate tax liability and fund a buy-sell that allows you to pass your estate and business to loved ones.
Life insurance can also be used to provide a benefit for a charity or religious organization that the family is invested in
Types of Life Insurance Available Term Life Insurance Term life insurance provides temporary protection for a specific period of time and pays a benefit only if you die within that period of time which may be one year, ten years, twenty years or even longer.
Whole Life Insurance This is the oldest and most conservative type of permanent life insurance. Typically, premiums remain the same over the life of the policy as does the death benefit. The cash value in the policy continues to grow at a promised fixed cash value schedule. Whole life insurance may be the most expensive permanent life insurance but it provides the most certainty.
Universal Life Insurance Universal life insurance (UL) provides you the most flexibility in premium payments and death benefit planning and was first introduced in the early 1980s and has progressed since then. Universal Life insurance features a savings element that grows tax deferred. Often, there are guaranteed minimums, but the policy holder has the ability to share in upside potential depending on how they structure the policy. UL has progressed to include Indexed UL which allows you to place a percentage of the money in a fixed account and a portion in an indexed account. An indexed product credits interest based upon the performance of an Index; you earn interest based on the upside with limits as to how much you earn, and if the index goes down, your money in the index account does not decline but stays the same.