THE TRUTH ABOUT LIFE INSURANCE

What You Must Know About Life Insurance

My most important job as your insurance agent is to make sure you understand the risk of not having enough life insurance. The fact is the chance of losing your home to a fire are 1 out of 100 in 20 years, and Home Insurance is required by lenders for protection because it makes good business sense.
On the other hand, out of 100 people 7 will have died before their 20 year mortgage is paid. The risk is many times greater for your family than the risk of fire. It makes good financial sense to cover your most valuable asset YOU LIFE. Make sure your family has a life insurance plan to protect and provide for them should anything happen.

Many Purposes for Life Insurance

Life insurance is far more than just a decision of how much to buy. Depending on your financial situation, life insurance can be used for a variety of purposes other than death benefits, such as:

• estate planning;
• accumulating cash;
• transferring wealth; and
• achieving estate tax liquidity.

Life insurance is like auto insurance in that you can buy a lot of it or not very much at all. Life insurance differs from auto insurance in that, depending on the type of policy you buy, you can pay a lot or a little for basically the same death benefit. Keep in mind, though, that the younger and healthier you are, the less you will pay for coverage. By starting young while you’re healthy you can guarantee your insurability. It is good to start young even if you become uninsurable the life insurance company will be on the hook to provide you insurance as long as you pay the premium.

 Tip #1
So how much life insurance do you need?

It depends. One common benchmark is your death benefit should be about six to eight times your annual earnings, but there are a variety of factors to consider: Other income sources.

• The size of your family.
• Whether your spouse works and his or her earning capacity now and in the future.
• The number of people who are financially dependent on you and for how long.
• The death benefits your family will receive from Social Security and any life insurance plan at your work.
• And any special needs such as mortgages, college education funds and estate planning.

Make Sure Death Benefit Is Adequate
Now, what kind of life insurance should you buy? Guess what? It depends. But keep this very important principle in mind:

Tip #2
Kinds of Policies

Whatever kind of policy you buy, you should make sure it provides enough of a death benefit to meet your family’s needs if you aren’t here. So when you consider buying life insurance, start off with a number in mind of what your family must have in terms of a death benefit. Don’t lose sight of this number.

What kinds of life insurance policies are there? There are several, but keep in mind that the terms and costs of the policies vary widely.

There are two basic types:

•  term life, which is good for only a certain period of time; and
• cash-value, which is “permanent” insurance that also includes a buildup of value in cash in addition to your death benefit. You can borrow against your cash value. You can even take out some of that cash value, but your death benefit will be reduced.

What exactly is “cash value?” It’s that part of a permanent life insurance policy not needed for so-called “mortality expenses.” The greater your risk of dying, for whatever reason, in the near term, the greater your mortality expense to your insurer.  When young, healthy people buy life insurance, they have a very low mortality cost to their insurer and the rates are low.

Bottom Line:

If you have or plan on having a family life insurance is a necessity.