Why is Life Insurance so Important ANYWAY?

So why is life insurance so important? If you need it and don’t have it NOW your FAMILY will realize you should have had it all along! That's the weird thing about life insurance, most people think they are ok, but most of us (unless you are independently wealthy, maybe not) need more than we think. If you don’t have enough life insurance to pay off your house and cover your burial/funeral expenses how will your family cope when you are gone? You must plan for your death, whether you are healthy and young, or a little older, it doesn’t matter. The bills will still come after you are gone.

How much life insurance should you have? As much as you can comfortably afford, this is one expense, you should make a priority. We have all seen families collecting money at a corner store because there is not enough money to even bury the deceased, sad but oh so true. What’s next? You need to decide how much life insurance you need and how much you can reasonably afford. The ball is in your court now!

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Facts About Term & Whole Life Insurance

So what's all the fuss about anyway? Whole Life Insurance or Term Life Insurance depends on your needs. Both are effective and necessary but your cash reserves and assets determine how much and which policies you should have. I will discuss some of the myths and miss information but most importantly I will explain the uses for both types of insurance. Here goes!

Work Insurance
So you have that policy at work and feel that you don't need anything else. What happens to your coverage if you lose your job? It's gone! And if you have had any health issues or just the fact you are a little older life insurance will cost you MORE. You need to have your own privately held insurance so no matter what you are covered. Is your spouse or children covered under your work policy? What happens if you leave your job, their insurance is GONE! Are you getting the picture?

Accident Insurance
You got a great deal on some extremely cheap life insurance right, $100,000 for $17 a month. Check the fine print; you probably have a form of very limited life insurance called Accidental Life Insurance. This type of policy DOESN'T pay out if you die from natural death including disease. If it sounds too good to be true it probably is.

Life Insurance Riders
A rider is an attachment to a primary policy that can cover a spouse or child. The issue with these types of plans is if the primary policy lapses or the insured dies your coverage goes away. I recommend you use these if available on your policies but only as a back up.

Term Life
What is the purpose of Term Life Insurance? Term insurance covers loss of income and there is more of a need for this type of insurance during your income producing years. Let's say you are 35 years old, married with three children. You have a $200,000 mortgage, two car payments, and $10,000 credit card debt. Your need for term life insurance is pretty apparent because if you are the main bread winner, how is your family going to survive, without you? They will survive but not having the same lifestyle they have now. Term Life insurance could pay off the house and give them some money to live on for a year or so after your death. It can also cover your final expenses if necessary but we reserve this for whole life insurance which I will discuss later. Term life insurance is pretty inexpensive and covers 5, 10, 20, or 30 year time periods. The idea is you will be paying down your debt and your need will diminish for term life up to your retirement age. That takes us to the next step.
     
Whole Life Insurance
Whole life insurance is also called cash value insurance and is usually reserved for burial/final expenses. It is more expensive than term insurance but understand it does carry a cash value component, which means you have a little savings account you can draw from in the future. This cash value can also be used to pay premium if you miss a payment. Face amount for these are usually pretty small compared to term life policies but whole life policies are for burial expenses. The national average is $10-15,000 you may want to have more or less just depends on your needs. If you would like to pass on a large chunk of money tax free, whole life insurance is a way you can accomplish it. Single pay whole life insurance policies allow you to take a lump sum and give a paid up life insurance policy. It's a one payment plan. Let's say your are 45 years old and have $30,000 cash in an investment or bank account. That $30,000 gets your family $80,000+ of death benefit, more than doubling your money. This is an actual quote from one my insurance companies.

Indexed Universal Life 
Want to make sure your children or grandchildren have a legacy that you established? You are probably thinking it takes allot of money right? Well first I'll explain what they are for. These are life insurance products but the main use is to develop a cash account. There are two pots of money in these policies, the cash value account and the death benefit account. Why these are good for young people is the cost of insurance is low so more money goes into the cash account. The money in the cash account has interest applied dependent on the market, this money and interest is sometimes compounded and can create a sizable nest egg. Let's say you have a 5 year old daughter, your budget is $65 a month for life insurance for her. This would purchase $196,000 of coverage. At age 65 she would have cash surrender value of $450,000 and a death benefit of $650,000. If she lived to 80, the cash value is nearly $1.5 million. This takes care of your children's, children. This is also a quote from one of my companies!
This is not all you need to know but if you need some help, want your policy verified, or want to put some coverage in place, make a comment or contact me directly. I hope I cleared up some of your fog. Later!

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Choosing Life Insurance - A Crash Course

For many people, buying life insurance can be a bit overwhelming.  There are many licensed brokers, a variety of policies and lots of finely printed words on pages and pages of paper. 

Keep this in mind as you sort through the jargon and plentiful options: there are only three main types of life insurance – term, whole and return of premium. Each major policy type is relatively easy to understand and products that are one of those three are combinations of multiple aspects of the three.

Term Life Insurance

Term life insurance is generally the simplest kind of life insurance to buy.  It is affordable, the coverage is flexible and term life insurance is going to be easier to get than whole life or return of premium insurance.  Term life insurance is a pure death benefit. It is intended to cover final expenses (consumer debt, kids’ education, etc.) and burial for the insured in the event of his/her death. 

Unlike whole life insurance, term life does not include a savings component.  For those who are disciplined savers, purchasing an inexpensive term life policy and investing separately may be a good option.  Term life insurance policies can generally be purchased for 1-year to 30-year terms. The low premiums characteristic of term life policies allow purchasers to buy high-value policies at a substantially lower rate than would be available with the other two types of life insurance.  If the insured outlives his/her policy, the policy expires and the insured would either have to forfeit coverage or renew the policy.  Renewal, however, will often require proof of insurability and the policy would likely be rewritten with new premiums.

Whole Life Insurance

Whole life insurance policies are purchased as an investment vehicle for the duration of the insured’s lifetime.  There is no expiration date, nor a set term or period wherein the insured would be required to re-establish insurability once the policy has been written. Whole life policies offer a savings component where a portion of the premium paid goes to a tax-deferred cash value account.  For that reason, whole life insurance policies are significantly higher in price than term life policies.  If you are considering whole life mainly for the investment component, be warned. Administrative fees will cause whole life insurance policies to be a costlier method of investing than simply investing on your own.

Whole life policies are guaranteed to pay out as long as the insured continues to make the scheduled payments of the premiums.  While whole life policies do not have a traditional 20 or 30-year term limit, most whole life policies are actually written with a built-in termination date, so that if the insured reaches a certain age – usually 100 years old – the policy will automatically be cashed out at face value.

You do have the option of   canceling a whole life policy and receiving the vested cash value.  Early in the life of your whole life policy, you will pay far more in premiums than what would be available in cash value. It will take around 15 years for the premiums paid and the cash value of the policy to equalize.

Return of Premium Life Insurance

ROP insurance is a comfortable compromise between term and whole life insurance policies.  Like term life insurance, ROP is purchased for a set period of time, usually no more than thirty years.  ROP insurance is easy to purchase, and while it is more expensive than term, ROP is significantly less expensive than whole life.  ROP is a death benefit policy. If the insured outlives the policy, all the premiums paid will be wholly refunded.  The primary difference between a whole life policy and ROP policy is that there is no return on your investment with an ROP policy (0% ROI), whereas whole life returns hover right above inflation.  In truth, a disciplined saver could do a better job of saving separately.

Universal Life Insurance

Universal life policies are permanent (i.e. lifelong) policies that offer the competitive pricing of term policies with the savings benefit of the whole life policy.  Universal life policies offer coverage from the insured’s current age up to 100 years of age.  As such, the policy premium is calculated as an average of the cost to insure you until your 100^th birthday.  With a universal life policy, you can trust that once you establish insurability, you won’t have to go through the process again for the entire duration of your policy (lifelong or to age 100).  With a universal life policy, there is a built-in savings component that offers a bit more flexibility that the whole life policy.  You have the option to make a minimum fixed premium payment – just the cost to insure you – or you can overpay to build cash value into your policy. The more you overpay, the faster you build cash value that is tax-deferred and interest-bearing.   You can use your policy’s cash value to cover the cost of minimum premiums down the road. Go to www.affordablelifeproducts.com to get a NO COST quote!

How much insurance do I need?

If you were to die TODAY, right now, how much money would your family need to pay off your home and have enough cash to continue their current lifestyle for a few years? For example:

Mortgage Balance $250,000
Car Loan              $20,000
Credit Cards         $5,000
                             $275,000

$275,000 life insurance policy would pay off your main debt. Is that the only concern? How much is your paycheck? How many months or years of your income would you like to provide? What would they think was a good idea? As long as possible or affordable on you current budget right!

Let's say you bring home $50,000 a year and you want you bride/husband and children to maintain their lifestyle for three years. $150,000 would take care of that.

275,000 + 150,000 = $425,000 Minimum amount of life insurance to cover your wishes, SO FAR!

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Have you thought of college for the kids, your daughters wedding, your son's first car? All of these can be planned for before tragedy strikes with life insurance. I've given you a lot to think about but before I go just one more thing. We haven't touched on your Final Expense need. This is a smaller permanent insurance policy that takes care of your burial and funeral expenses. I hope this has helped you start to think about your CURRENT needs, don't delay getting something in place to protect your family.  

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