Life Insurance

Life Insurance

THE IMPORTANCE OF LIFE INSURANCE

Having the appropriate amount of life insurance is a critical part of everyone’s financial, family, and retirement planning. Life insurance benefits are generally received federal income tax-free and can be used to replace lost income for family members, pay for children’s education, pay off debts, taxes, and other estate expenses. Having an adequate amount of life insurance ensures that you do not create a burden for your family in the event of an untimely death. For example life insurance can help assure that a surviving spouse and children are not forced to sell their home, spend college tuition savings, or use retirement funds to pay for living expenses. Life insurance is also used as the pillar of many estate plans, whereby the life insurance proceeds are used to pay estate taxes, probate expenses, and even to create a substantial legacy for your children, grandchildren, or favorite charitable cause.

How Much Insurance Do I Need?

Your future potential income can be considered your family’s most valuable asset because it allows you to meet the future living expenses and needs of your family. If you were to pass away your family’s living expenses are not going to go away and those who are financially dependent upon you will still be required to meet those financial obligations. Your need for life insurance and the amount required will depend on your personal and financial circumstances. If any of the following statements applies to you, you should speak to a licensed professional regarding life insurance:

  • You have a spouse.
  • You have dependents.
  • You have a mortgage or other outstanding debts.
  • Your retirement pension and savings are not enough to insure your spouse’s future against a rising in the cost of living.
  • You have a large net worth/estate.
  • You own a business or are a partner in a business.
  • You have an aging parent or disabled relative who depends on you for support.

TYPES OF LIFE INSURANCE POLICIES

There are several types of life insurance policies available to you today: Term Life, Return of Premium Term (ROP), Universal Life, and Whole Life. Each policy type has different benefits and features which can be tailored to your specific insurance needs. Term Life insurance is the most popular form of life insurance today because of its low price and guaranteed term periods. Term Life allows you to obtain the needed amount of coverage in the most cost efficient manner. Ideal situations for purchasing Term Life include: income replacement, mortgage or debt protection, or creation of an education fund for your children.

Term Insurance
A type of life insurance that covers the insured’s life for a specified period of time (term). Term policies pay a death benefit only if the insured dies during the term period and if the premium payments have been paid current. Typical term coverage periods are: 5, 10, 15, 20, 25, & 30 years. Term insurance does not build up cash value. However, because of its low cost Term Life Insurance allows you to purchase life insurance at an inexpensive price while saving and investing the difference in premium.

Return of Premium Term (ROP)
Term Life ROP is similar to traditional Term Life Insurance. However, it is different in one key way, with a Return of Premium (ROP) policy you can get 100% of your premiums returned to you, tax-free, should you outlive the stated term of your policy. ROP policies pay a death benefit only if the insured dies during the term period and if the premium payments have been paid current. Typical ROP term coverage periods are: 10, 15, 20, 25, & 30 years.

Universal Life
A flexible-premium and adjustable death benefit life insurance policy. Policy performance is determined by current interest rates, and current costs of insurance. Universal life has the added features and benefits of accumulating cash value and the ability to take loans. Universal life is popular as a long term form of insurance because of the flexible premium payment options and forced savings account. Universal Life is most often purchased for estate planning, executive compensation, and retirement planning purposes.

Whole Life Insurance
A type of life insurance which is designed to remain in force for the life of the insured. Whole life requires that level premiums are paid every year, but it has the benefit of accumulating cash values and provides the possibility for dividend payments. Whole Life is most often purchased for estate planning, executive compensation, asset accumulation, and retirement planning.