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Life Insurance provides protection
against the loss of income that results from the death of a
wage earner. It can also be used to build savings for
retirement. Periodically evaluating your life insurance needs
should be an important part of your financial planning.
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Life insurance can
be used to replace a family’s lost income caused by the death of
a breadwinner. It can
provide estate liquidity, that is enough cash to protect your
heirs from any estate taxes that would be payable.
It can also be used to build or increase your retirement
fund.
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You can estimate
your family’s annual living expenses and determine where that
money will come from. You
can include Social Security, savings, assets that can be sold, as
well as any group life insurance you may have.
The “gap” left would be your life insurance need.
Many financial advisors use anywhere from 5 to 10 times
annual income as a rule of thumb.
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There are some
companies that will write a “joint life policy” covering two
people for the same amount of insurance.
This can be for a husband and wife in a personal need, or
used in a business situation.
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This can be a
valuable addition to a life policy.
The company promises to “waive” future premiums if the
insured becomes totally and permanently disabled, and that could
mean all future payments are to be paid for by the company during
the insured’s lifetime.
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The purchase of life
insurance on children can be an important decision.
Many people are reluctant to do so, as the discussion regarding
the death of a child is rather difficult.
But the purchase of coverage at an early age can guarantee a
very low premium for the length of the policy. In addition, you can
secure coverage at a young age and avoid a potential un-insurability
problem in the future.
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It is
generally not a good idea for a minor to be listed as a beneficiary,
especially if proceeds from a life insurance policy would be needed
immediately to pay final expenses.
The proper naming of beneficiaries, use of trust accounts, and
implementing of a will, would all be important in the planning
process.
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Insurance
carriers are rated in their ability to pay claims, as well as
their strength as a financial institution.
Standard & Poors, A.M. Best, and Duff & Phelps
are companies who offer their ratings on various companies.
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The
guaranteed elements in a life policy are the premium and
benefits that are determined at issue, and guaranteed for the
length of the policy. Premiums not guaranteed after a certain
period of years can be subject to change by the carrier, and
actual results may be more or less favorable.
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Insurance proceeds are not income taxable, but
can be taxed for federal estate tax purposes. It is important that a review of your potential estate tax
situation be completed on a regular basis and when purchasing life
insurance.
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If one has a family, supports a
household, has a mortgage or plans to send their children to
college, insurance can fulfill the financial burdens created
by one’s death. The dreams one has for their loved ones
won't die along with them. Life insurance is one of the
greatest gifts one can give to their family.
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All life insurance policies work on the
same basic premise. You make payments called premiums to an
insurance company, which guarantees to pay your chosen
beneficiaries a sum of money upon your death.
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Enough money to provide for your
dependents' immediate cash needs and their on-going living
expenses. As a general rule, you will require between 5 to
10 times your annual income depending on your lifestyle,
number of dependents and other sources of income.
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The cost varies depending on the amount
and type of insurance you buy as well as your life
expectancy based on your current age, gender, health and
lifestyle.
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| Term Insurance
is straight forward and often the least expensive type of
coverage. You can buy it one year at a time or for a
specified number of years, hence the name Term. Most term
policies are renewable at the end of the term although
premiums will likely be higher. If you die during the term,
your beneficiaries are paid the amount of the policy. If you
are alive when the term ends there is no pay out.
Whole Life Insurance
combines a death benefit with a savings plan. Part of the
premium you pay goes towards building a cash value. Premiums
are fixed and the policy will remain in force for your
entire lifetime provided premiums are paid. When you die,
your beneficiaries are paid the amount of the policy. There
are a variety of Whole Life policies to fit your individual
needs.
Universal Life Insurance
is a variation of Whole of Life insurance. It offers
flexibility in the amount of coverage, rate of savings
accumulation and the payments of premiums. You can decrease
or stop premium payments temporarily as long as there is a
cash value to cover the premiums as they become due. Once
you resume paying premiums, you can increase those payments
to build back your cash value.
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Initial
premiums generally are lower than those for permanent insurance, allowing you
to buy higher levels of coverage at a younger age when the need for protection
often is greatest. It's good for covering needs that will disappear in time,
such as mortgages or car loans.
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Premiums increase as you grow older. Coverage may terminate at the end of the
term or become too expensive to continue. The policy generally doesn't offer
cash value or paid-up insurance.
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Term insurance is
temporary insurance. A
loan or a mortgage is also a temporary need and can be covered by
term insurance. Permanent
insurance is coverage until death, and eventually result in a
claim being paid.
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It depends on the type of policy you
have. You can't borrow against a term policy. Borrowing is
permitted on the cash value portion of Whole Life and
Universal Life policies. Loan rates are usually below
prevailing market rates. You may or may not be required to
repay the loan, however any unpaid portion of a loan will be
deducted from the policy's death benefit. Therefore, loan
repayment is always encouraged in order to restore your
policy's original value.
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You could delay purchasing life
insurance. You may feel you can't afford it right now. But
in reality you can't afford to be without insurance.
Consider this, if your family is having a difficult time
managing on your salary now, think about the difficult time
your family will face without your salary. Not having life
insurance is a huge gamble with potentially devastating
consequences. Life insurance can guarantee the security of
your family's financial future.
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