Life Insurance Basics: Getting Started
Lets be honest. The topic of life insurance isnt exciting or glamorous, but it is important. In fact, many experts consider life insurance to be the cornerstone of good financial planning.
But how do you know if you need life insurance? How much is enough? What kind of life insurance policy is best for you?
Answering these basic questions about life insurance will help to simplify the shopping process and ultimately allow you to select the best policy to secure your familys future for years to come.
Establishing Your Needs
To clear up any misconceptions, life insurance is designed to protect your loved ones from financial loss in the event of your death. Knowing this, its important to establish whether you need life insurance and how much you should purchase.
According to MetLife you generally need life insurance if:
- You have a spouse
- You have dependent children
- Relatives or elderly parents depend on your income
- Your retirement funds are not enough to provide for your spouses future
- You own a business
- You have a large estate
- Pay for last expenses and funeral costs
- Cover estate taxes (if applicable)
- Pay off existing debts (mortgage, car loan, credit card debt)
- Pay for everyday expenses (food, clothing, childcare)
- Put towards your spouses retirement fund
- Donate to charity
Choosing a Dollar Amount
Figuring out how much life insurance your loved ones would need to maintain their quality of living can be tough. Generally speaking, experts recommend purchasing between 5 and 10 times your annual salary. But, as MetLife points out, your exact need for life insurance will depend on your personal and financial circumstances.
You can get a ballpark estimate of your life insurance needs by first totaling the funds your family would need for the abovementioned items (funeral costs, daily living, etc.). You can find helpful worksheets online that will help you organize and come up with this list of expenses.
After youve totaled your expenses, take stock of the funds you have in cash, savings, retirement accounts, bonds, property, pension and Social Security. Subtracting your financial resources from your expenses will give you a rough idea of how much life insurance you should purchase.
When it comes to choosing how much life insurance to purchase, its a good idea to get an idea of your needs before buying a policybut your licensed life insurance professional will undoubtedly help you choose a dollar amount that accurately reflects the needs of your beneficiaries.
Selecting a Policy
Generally speaking, there are two types of life insurance: term life insurance and permanent life insurance. The type of policy you select will depend largely on your life insurance needs and what resources you have to pay life insurance premiums.
Term Life Insurance
Term life insurance, as the name suggests, will cover you for a specified amount of time, which means the insurer will only pay out a death benefit if you die during the term of your policy.
According to the Insurance Information Institute (I.I.I.), most people purchase a 20-year term policy, although smaller terms are available. Of course, you can renew your term life policy after it expires, although your premiums may increase as you age. But all in all, because of the temporary nature of term life insurance, policies are generally much cheaper and are therefore an attractive option for young people and families with a limited income.
Permanent Life Insurance
On the other hand, permanent life insurance, as you might have guessed, is permanent. A permanent life policy will pay out a death benefit whether you die tomorrow or in 60 years.
Permanent life insurance is also an appealing option for many because of the added benefit of the policy growing on a tax-deferred basis, which can grow to be fairly large over time. As a policyholder, you may be able to borrow against this cash value while alive, which has been of great help to some. Of course, most loans need to be paid back otherwise they will be subtracted from the death benefit, and your beneficiaries may have to liquidate assets to pay back the loan.
Nonetheless, permanent life insurance offers a wide variety of saving and investment options. Because of this, policies are generally more expensive than term policies, which may be hard for young adults to handle.
Your life insurance professional will help you decide which type of policy is best for your life insurance needsand your budget. But researching these policy types beforehand can help you narrow down which policies appeal to you.
Knowledge is Power
No, learning about life insurance and planning for the unexpected isnt glamorous, but it is important. So take advantage of consumer resources and talk to a life insurance professional about purchasing affordable life insurance. Youll rest easier at night knowing your loved ones are taken care of for years to come!
About InsureMe
Megan L. Mahan is a copywriter and insurance information expert with InsureMe in Englewood, Colorado. InsureMe links agents nationwide with consumers shopping for insurance. Specializing in auto, home, health, long-term care and life insurance quotes, the InsureMe network provides thousands of agents with insurance leads every year. For more information, visit InsureMe.com.
Online Life Insurance Protection How Much Do I Need?
There are a lot of people getting quotes for life insurance online. The quotes requested are usually for standard amounts of 50,000 to 500,000. The am...
The Three Types Of Life Insurance Explained
It recently occurred to me that I've been writing several articles about life insurance, individual, group, family, and so on, but I haven't taken the...
The Basics and History of Term Life Insurance
Life insurance is a subject that brings on many different opinions. While some believe it is a waste of money or even considered gambling, most people...
How to Get a Cheap Life Insurance Quote
Cheap life insurance quotes are easy to find on the Internet. All you need to do is visit an insurance comparison website.Getting startedBefore you ge...
Free Life Insurance Quote - You Must Be Aware Of These Two Things Before You Start Getting Quotes
If you are in need of a free life insurance quote then you are in luck because most companies offer free quotes for consumers. I recommend that you ge...
The Basics of Arizona Auto Insurance
Arizona auto insurance is required by the state. There are many reasons that drivers need to adopt a new car insurance policy if they currently do not...
Free Term Life Insurance Quote Get Yours Online Today
It is probably safe to assume that you have heard the phrase, Money makes
the world go round, right? It seems to be true in most cases. Think about ...
The Basics Of Life Insurance Policy
With life insurance policy, you get what you pay for. What you pay for is the life insurance policy's face amount, the amount the life insurance polic...
Seminars For Life Insurance Agents
Life insurance agents work involves finding customers in the local area who require life insurance for various purposes. They help the customers decid...
Life Insurance Explained
Life insurance is a type of insurance wherein the insured pays a premium for a period (often lifetime) and the life insurance company provides insuran...
Group Term Life Insurance Three Questions To Get You Started
What is group term life insurance?
Group term life insurance is usually the kind of life insurance your employer
offers. However, group term life...
Life Insurance Companies - Where to Start
As you moved past your twenties, and into the rest of your life, you probably started realizing that you were not invincible. Although few want to ad...
How to Compare Low Cost Life Insurance in Arizona
When comparing life insurance quotes, be sure to compare apples to apples. Comparing the cheaper rate on a term policy against the cheapest rate of a...
Life Insurance Basics
It's just another one of those financial things that you figure you don't really want the added cost to your monthly budget. Heck when will you ever n...
How to Get Life Insurance Quotes for Adult Children
Are you considering life insurance quotes for adult children in your family?Whether your child is a pre-teen, teen-ager, or going off to college, or j...