Life Insurance

The Basics of Life Insurance

What is life insurance?

The best way to answer that is for you to think about who depends on you and for what. Your family may count on you for such things as house payments, education expenses and a certain lifestyle. The right amount of life insurance (it might be term life insurance, universal life insurance, whole life insurance or a combination) can help guarantee all these things for your family in the event of your untimely death.

What is life insurance?

Why do you need life insurance?

Life insurance can help:

  • Replace income your family would need to maintain their standard of living.
  • Pay off your mortgage loan or other personal and business debts. If you rent your home, it can create a fund for future rent payment.
  • Create an education fund for your children.
  • Pay final expenses, such as funeral costs, credit-card debt and taxes.
  • Create a family emergency fund.
  • Protect future insurability - no matter what your future health, your policy will stay in force as long as premiums are paid.
  • Build cash values on a tax-favored basis - in permanent life insurance plans. When the policy is properly funded, these cash values can be borrowed through policy loans.

What kind of life insurance do you need?

Before you begin to consider that question, arm yourself with some knowledge about your choices. Below you can compare the three basic life insurance categories:

 

Term Life Insurance

Universal Life Insurance

Whole Life Insurance

 
Used for

Short-term needs or when funds are limited.

Long-term needs.

Long-term needs.

 
Advantages

Covers your insurance needs at an economical rate.

Flexible policy can evolve with your changing financial situation.

Level premiums and level death benefit with lifetime coverage.

 
 

Term Life Insurance

Universal Life Insurance

Whole Life Insurance

 
Death benefit to a beneficiary
Yes

Yes.
Provides income tax-free death benefit.*

Yes

Yes.
Provides income tax-free death benefit.*

Yes

Yes.
Provides income tax-free death benefit.*

 
Lifetime coverage
No

No.
Insures your life for a set period of time.

Yes

Yes.
When required premiums are paid, the policy stays in force.

Yes

Yes.
When required premiums are paid, the policy stays in force.

 
Level premiums
Yes

Yes.
For the chosen period of coverage.

Yes

Yes.
If you choose to make level premiums.

Yes

Yes.
Premiums are level for the life of the policy.

 
Protects future insurability.
Yes

Yes.
You can convert to a permanent plan.

Yes

Yes.
Lifetime coverage.

Yes

Yes.
Lifetime coverage.

 
Cash value tied to current interest
No

No.
Term insurance does not accumulate cash values.

Yes

Yes.
There is also a guaranteed minimum interest rate.

No

No.
Cash values accumulate at a guaranteed rate.

 

*Under current tax laws.

How much life insurance do you need?

In other words, how much coverage will it take to meet the needs of your family in the event of your untimely death? You need to assess several factors regarding your family situation (possible mortgage loan, education plans and income replacement to name a few) before you can arrive at an amount. Use our needs-analysis tool to help you make sure you cover all your bases.

How much do you need?

When should you buy life insurance?

The easy answer to that question is to buy it now. Life insurance premiums are based on age so your cost will never be lower than it is today. And, you want to be sure the coverage is in place when it's needed.

When should you buy?
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