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Life
Insurance
Do
You Need Life Insurance?
Not everyone needs life insurance, but everyone needs to determine if they
do and how much they should have.
What Does Life Insurance Do?
The primary purpose of life insurance is to arrange for the financial protection
of others if the insured party dies. Financial protection can include paying
off sizable debts such as mortgages, arranging for enough income for the
needs of your family, and handling the future needs of family, such as college
education for children.
Do You Need It?
You probably should look into life insurance if you have a mortgage, have
young children who will need financial support without your income, or if
your spouse would not have enough income to pay living expenses without
your income.
How Much Do You Need?
The need for insurance varies dramatically over a person’s life cycle.
If you are single and young, you may not need life insurance because few
people, if any, rely on your income. If you are married, you may need a
small amount because your spouse may not be able to support himself or herself
if you die. If you are married and there is a mortgage involved, the need
for life insurance increases if your income is needed to pay the mortgage
AND if your partner wants to keep the home. If you have children, the insurance
need is much higher due to the cost of raising children and the impact the
loss of your income would have on providing for your family. As your children
grow and begin supporting themselves, the need for life insurance should
be lower, but you should still have some coverage for your spouse’s
living expenses. Other factors to consider are college expenses, debt repayment,
and final expense needs.
How Can I Determine How Much I Need?
There are a number of ways to determine how much life insurance you need.
Two of the most common are the Multiple Earnings approach and the Needs
approach.
The Multiple Earnings approach usually has a rule of thumb that says you
should have 5 or 6 times your annual earnings. Under this approach, if you
make $25,000 yearly, you should have $125,000 or $150,000 in life insurance.
Most experts agree that the Needs approach is a better way to determine
how much you need because it includes all factors covered in the “life
cycle” previously mentioned. Remember, you may get pension, social
security and other benefits. In any event, you should speak to a state licensed
agent and review your personal situation to see what fits you best.
What Type of Life Insurance Can I Get? Which Type Is Best For Me?
There are basically two main kinds of life insurance: TERM insurance and
CASH VALUE (whole life) insurance. Term insurance pays benefits only if
the insured dies within the time period (term) of the policy. Term insurance
also provides the most insurance for the lowest cost. The policy must be
renewed after the term if continued coverage is desired. It is also often
called “pure insurance”.
Cash value insurance pays a benefit at death and has a savings/investment
feature. Cash value insurance is called “permanent insurance”
because it does not need to be renewed. Because it offers a savings feature,
cash value life insurance costs more than term insurance. While both types
of insurance have plans that offer different features, all policies will
fall under either TERM or CASH VALUE. The type that is best for you depends
on your situation and you should, again, speak with a licensed and trusted
agent.
How Do I Find An Agent To Buy Insurance?
Shop around. Try to speak with 4 or 5 agents to get their opinions and prices
for the right type of policy. Life insurance is like anything else you buy,
the price you will pay will vary from company to company. Some people suggest
shopping over the computer, but first time buyers or people who aren’t
clear on what type they need should speak with licensed agents. People who
are familiar with life insurance can get price quotes over the telephone
or the Internet. You should also get information on the financial strength
of the Insurance company by getting a rating from a company such as A.M.
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