How Much Life Insurance is Enough?
Life insurance is a crucial step in planning for your future. Not only can life insurance fulfill promises made to your family if you are no longer around, there are several life insurance policies that provide benefits while you are living.
Determining Your Need
The need for life insurance is dependent on your own personal and financial needs. We can assist you in determining what type and amount of life insurance is appropriate for you. Generally, you should consider life insurance if:
- You have a spouse
- You have dependent children
- You have an aging parent or a physically challenged relative who depends on you for support
- Your retirement savings are not enough to insure your spouse’s future against a rising cost of living
- You have a sizable estate
- You own a business
There are benefits of life insurance other than providing for your loved ones in case something happens to you:
- The cash value earned and borrowed from a permanent life insurance policy can be used to help with large expenses, such as a college education or down payment on a home.
- The growth of a cash-value policy is tax-deferred — you do not pay taxes on the cash value accumulation until you withdraw funds from the policy.
- Life insurance can be used to cover funeral expenses and pay estate taxes — consult your tax advisor agent for more information.
Life Changes – So Should Your Policy
Your need for life insurance is dependent on your personal and financial needs. As your life changes, your life insurance coverage may need to change as well to adapt to your current needs.
Some life changes that may require a policy “tune-up” include:
- You recently married or divorced
- You have a new child or grandchild
- Your health or your spouse’s health has deteriorated
- You are providing care or financial assistance to a parent
- Your child or grandchild requires assistance or long-term care
- You recently purchased a new home
- You are planning for a child or grandchild’s education
- You are concerned about retirement income
- You have refinanced your home mortgage in the past six months
- You or your spouse recently received an inheritance
The Value of Life Insurance
Life insurance is a crucial step in planning for your future and the future of your loved ones. It can fulfill promises made to your family if you are no longer around by providing a death benefit to your beneficiaries in return for premiums paid to the insurance company. Life insurance can also provide benefits while you are living.
Advantages of the Death Benefit
- Provides income tax-free money to your named beneficiary(s) that can be used to pay funeral expenses, debt, tuition, estate taxes or virtually any financial need you leave behind.
- Can provide business security by enabling partners to buy out the interests of a deceased partner and prevent a forced liquidation.
Advantages of Living Benefits
- The cash value growth of a permanent life insurance policy is tax-deferred(1), which means you do not pay taxes on the growth of the cash value unless the money is withdrawn.
- Loans (2) or withdrawals can be taken against the cash value of a permanent life insurance policy to help with expenses, such as college tuition or the down payment on a home.
(1) Accumulated growth may be taxable upon withdrawal. If the policy is a Modified Endowment Contract (MEC), tax penalties may apply prior to age 59 ½. Consult a tax advisor on your specific situation.
(2) Policy loans and withdrawals reduce cash value and the death benefit and may be subject to other charges outlined in the contract.
Types of Life Insurance
There are several different types of life insurance products available. The most common include:
Term Life Insurance
Term provides life insurance protection for a specified period of time. If you do not currently have life insurance, term can be a good place to start. It’s generally less expensive than permanent life insurance, and is available in varying term periods with fixed premiums from a one- (annual renewable term) to 20-year period (level term). Furthermore, term insurance is sometimes convertible to permanent coverage, providing you with flexibility as your needs change.
Whole Life Insurance
Whole life is a form of permanent life insurance that remains in force during the insured person’s lifetime, provided premiums are paid as specified in the policy. Whole life insurance can build cash value.
Universal Life Insurance
Universal life is a form of permanent life insurance characterized by its flexible premiums, flexible face amounts and unbundled pricing structure. Universal life can build cash value, which earns an interest rate that may adjust periodically, but is usually guaranteed not to fall below a certain percentage.