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Life Insurance Basics
If the answer is yes, the first step you need to take is to determine just how much life insurance you need. Life insurance is designed to fill in the difference between how much your dependents will have upon your death and how much they actually need. You will need to figure out how much you own, how much you owe and how much you spend. List your assets and your liabilities and have a monthly budget on hand to start determining what you will require and for how long. Look at all of your retirement savings plans and make sure that if the person whose name the insurance policy will be in has the proper beneficiary listed so those funds will go to the person or persons they want them to. Some retirement funds only give a beneficiary a portion of that benefit. Now that you have a dollar amount of a policy you wish to purchase you have to decide on what type of policy you need. There are two main types of policies Whole Life insurance of which there are many variables and Term Life Insurance. Whole Life Policy Is a permanent insurance combining coverage for your life with an investment fund. They usually cover your life through age 100. It pays a fixed amount on your death. Part of your premium goes to investments building cash value. This cash value builds tax deferred each year and you can borrow against it without being taxed. You pay a fixed amount during the entire time the policy is in force. The insurance company controls where and how your premium dollars are invested. These policies are more expensive and they are not very good at adapting to retirement or insurance needs that change significantly. Because they are expensive you may not be able to purchase the amount of insurance you actually need. You can not change the face amount of the policy at a later date. What you buy is what you get. Whole life policies pay high commissions to the sales person. There are better ways to invest without the high commissions of whole life policies. There are also surrender charges should you wish to cancel and these charges could wipe out any cash value you have earned even after having the policy in force for many years. Term Policy This is life coverage for a specific term with no investment component. There is also annual renewable term which is renewed each year but you do not have to re-qualify. (A new Level-Premium term has somewhat higher but fixed terms from 5 - 30 years). As you get older the rates rise on this insurance. When you buy match the term of the policy to the term of your needs. Such as when your children graduate from college or your retirement income kicks in. It is best to buy when you are young but not until you have children, unless you do have someone you are responsible for. The vast majority of those who need insurance should buy term. The cheapest rates in the business are known are Select or Preferred and these rates go to the healthiest people with the healthiest family history. If you smoke or partake in risky pastimes or have a risky job it pays to shop around as some companies may rate these differently. Several agencies, including Standard & Poor's and A.M. Best, rate insurers on their claims-paying ability. Stick with companies with low prices, the term you want, and a top rating. Do not ever think that you can get away with not telling the whole truth on your application. When it comes time to pay out a premium they will be looking at everything very thoroughly and your beneficiaries could end up in court for years or with nothing.
Comment on this article:
Is it necessary to have life insurance if you're single and have no dependants? I have a home and other assets. Do they need this type of protection?
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