Because
You Belong
INSURANCE
Protect and Provide - Is Your Family Safe?
Life insurance is not something we think about
very often. But plenty of families would be adrift
without it. If yours is among them, then perhaps
its time to evaluate your coverage needs to be
sure you’re protecting and providing for your loved
ones.
When it comes to determining your needs, experts
recommend having insurance worth five to seven
times your annual income. This should not only
cover your family’s ongoing expenses, but costly
items like college, without putting you in debt.
Others recommend that the value of your policy
be based on financial obligations such as funeral
costs, mortgage and other debts, and the value
of replacing lost income when a spouse dies.
Once you’ve assessed your financial situation,
it’s time to choose the kind of life insurance
that best fits your needs — term or permanent life.
Term life provides protection for a specific period
of time, anywhere from one to 20 years, and pays
a benefit only if you die while the policy is active.
Permanent life, on the other hand, provides a death
benefit for loved ones while accumulating a cash
value that policy owners can use later in life.
There are obvious benefits and drawbacks to both.
Term life is a good choice for individuals whose
financial needs will be taken care of within a
certain period of time, such as upon completion
of a child’s college education. Term is also a
great option for the budget conscious because it’s
relatively inexpensive.
Permanent life policies — which are known by a
variety of names including universal, whole, ordinary,
adjustable and variable — are designed and priced
for you to keep over a long period of time. The
beauty of a permanent life policy is that earnings
accumulate, tax-deferred, until they’re withdrawn
and, if they’re paid out as death benefits to a
beneficiary, they’re never taxed.
They also offer some flexibility not found in most
term insurance policies. For example, you can cancel
or surrender your life policy — in total or in
part — and receive the cash value as a lump sum
of money less any charges. If you need to stop
paying premiums, you may be able to use the cash
surrender value to continue your current insurance
protection for a specific period of time or provide
a lesser amount of protection.
With all types of permanent policies, the cash
value is different from the policy face amount.
Cash surrender value is the amount available when
you surrender a policy before its maturity or your
death. The face amount is the money that will be
paid at the time of your death or at policy maturity,
provided it remains in force and the face amount
hasn’t been reduced.
Usually, you can borrow from a permanent policy,
using the cash surrender value. Unlike loans from
most financial institutions, a credit check isn’t
needed and other restrictions don'’t apply. You
ultimately must repay any loan, with interest,
or your beneficiaries will receive a reduced benefit
or the policy may lapse prior to your death.
It’s also important to understand that the cash
value of many life insurance policies may be affected
by your company’s future experience, including
mortality rates, expenses and investment earnings.
When the time comes to buy a policy, always do
business with an insurer that’s financially fit
and not necessarily the least expensive. An agent
should provide ratings, as well as several price
quotes. If you’re buying a policy worth $1 million
or more, talk to a financial planner about protecting
it from estate taxes. And remember, the younger
and healthier you are, the less expensive the insurance
will be.
— Pam Fischer
