Credit Yourself | Financial Planning | Debt Management

>Home>Financial Planning>Life Insurance

Life Insurance

Life Insurance Protects Your Family Against an Unexpected Loss of Income

Life insurance has many purposes. It is used to protect owners of a company against the loss of a key employee. It is used by the

wealthy to pay estate taxes and thus allow the heirs to inherit property – especially businesses – rather than liquidate them to cover taxes.

Life insurance is also an investment vehicle for some, allowing tax sheltered growth of assets. I’m sure there are many other uses for this type of insurance.

But for now, I will just consider the wage earners in a family protecting their spouses and children from financial ruin that the loss of income through death would cause.

Death is a certainty, but your time of death is unknown. Life insurers use actuarial tables to predict your life expectancy, which determines your premium. You health and smoking history is important and for larger policies, a physical will be required.

Depending on circumstances, wage earners should carry enough life insurance to pay off final expenses and outstanding debt, while providing for a couple of years living expenses for his family and maybe even a college fund. In determining how much life insurance to buy, some experts recommend purchasing coverage that is 7 to 10 times your current income.

Also consider the insurance’s companies ratings. Companies such as A.M. Best rate insurance companies, with the best rating being A+++. I don’t know how low the ratings go. Just stick with A+ or better companies.

The State of New York has some of the most stringent laws regarding life insurance in the country. If the company you are interested in is not licensed to sell in New York, find another company.

Life insurance comes in two flavors- whole life and term. Of the two, you will get the most bang for your buck out of a term policy.

Term Life Insurance

Term life insurance is “pure” insurance. It covers you for the amount and term you choose. Once the policy expires, there is no residual value and, if you want to continue your coverage, you need to buy another policy.

You can buy surprisingly large amounts of term life insurance for relatively small premiums, especially when you are younger.

For example a 35 year old male non-smoker in good health can buy a $500,000 policy with a 20 year fixed term for $285 a year. For a 30 year fixed term, the same coverage would cost $515 a year.

Term life insurance can be bought for a one year term, but it makes more sense to look at the longer terms – up to 30 years. Your premium is fixed when you apply and won’t increase over the term.

These policies require physicals, at least when you’re buying larger policies.

So if you are tied into a long term fixed rate policy, you don’t have to worry about your medical condition until the term expires.

The downside is that the older you get the more expensive these policies become. The same policy for a 60 year old male non-smoker in good health costs $2545 a year. But by that age, you could usually do with less coverage, since you main buying years have passed.

Get a term life quote from HSBC Life Insurance. If you qualify, you can be covered in minutes without the need for a physical exam. Find The Right Term Life Plan For You.

Whole Life Insurance

A whole life policy is different in many ways. First of all it is much more expensive. It is usually sold by agents and it’s hard to get exact quotes over the internet. However, most people, even young ones, are unlikely to be able afford a $500,000 whole life policy.

Premiums are fixed when the policy is issued and never go up.

Whole life policies build up a cash value that you can borrow against or even use to pay future premiums. Wealthy people are sold policies that have extremely high premiums for a few years, but then the cash value grows quickly and can pay the premiums from then on.

If you cancel a whole life policy, the cash value will be returned to you. These types of policies are usually sold as savings vehicles, but for most people are just too expensive. The premiums also include very high fees to the agent as commissions for selling you the policy and for “servicing” it.

There are reasons for whole life, but most young families need coverage and fixed rate term life is the cheapest way to get it.