Death is a fact of life, nothing is more certain in life than death; however, this is a topic that nobody likes to talk about. Some people even go so far as to deny the inevitability of death. Wouldn’t you like the peace of mind that comes from knowing that once you’re gone, your husband, wife, children, or even your grandchildren will be taken care of? If you are the primary provider for your family, wouldn’t you want to leave them financial stability to pay for funeral expenses, a mortgage, your children’s college tuition, and other assets that will maintain or increase the value of your life? Well you can, because there is something else in life that is just as certain as death and that thing is life insurance.
There are hundreds of companies that will sell you variations of the same products or policies, at different prices. The main idea is to find the right insurance policy that meets YOUR needs without costing you too much. So the first step is to identify how much protection you need, this can be done with a Family Needs Assessment (FNA). An FNA allows you to calculate (1) how much cash your dependents would need if you died and (2) provide income for living expenses, educational costs, and future expenses. During an FNA, you’ll discover life insurance needs by calculating funeral costs (which can cost an average of $10,000 to $15,000), debts (mortgages, car payments, credit card bills), living expenses for your family maintains your standard of living and the future needs of your children (college tuition, new houses or vehicles).
After calculating how much protection you’ll need, the next step is to find a policy that fits your needs. All life insurance policies agree to pay a specific amount of money in the event of your death, but not all policies are created equal. There are three main types of life insurance:
1. Term insurance
2. Whole Life Insurance
3. Endowment insurance
Term insurance is protection against death for a period of one or more years; The terms are usually 10, 20 or 30 years. This policy has the lowest premiums and the benefits will only be paid if you die within the term of years agreed in the policy. Many term policies are “rollable” for additional terms, even if your health has changed. Another feature of many term policies is that they are “convertible,” meaning they can be exchanged for a whole life policy or an endowment policy, even if your health has changed.
Whole life insurance provides protection against death for as long as you live. Premiums are higher than a term insurance policy; however, the premiums for whole life insurance policies are lower than what you would pay if you continued to renew a term insurance policy until your death. One benefit of starting a whole life insurance policy is that it builds “cash-out” value. You can take the “cash out” value or use it to continue insurance protection.
Endowment insurance pays a sum, or income, to the policyholder if they reach a certain age. If he died before that date, the death benefit would be paid to his beneficiary. Endowment premiums and cash values are much higher than whole life insurance.
After understanding the 3 main types of insurance, different “riders” or options can be added to your policy. An example is a disability protection rider, which allows the policyholder to withhold premium payments if he or she becomes totally disabled. You need to decide which riders to add and which not, based on your needs and budget.
After buying the right policy, it’s important to remember a few things:
First, only buy a policy if you plan to stick with it. A policy is a great purchase when you keep it for more than 20 years, but it can be very expensive if you cancel it early.
Second, read your policy carefully and ask your agent if you have any questions or concerns about any terms or conditions you don’t understand.
Third, it is very important to review your policy at least once every two years to keep it up to date on any changes in income and lifestyle.