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.
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 |
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| 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 |
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| Death benefit to a beneficiary | ||||
| Lifetime coverage | ||||
| Level premiums | ||||
| Protects future insurability. | ||||
| Cash value tied to current interest |
*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.
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.
