Many people talk about life insurance and why it's important, but there are still many misunderstandings regarding life insurance policies. Many people aren't sure if they need life insurance, and if they do - how much insurance is necessary? What kind of insurance?

Who Needs Life Insurance?

First of all, most people believe life insurance is taken out to pay for the burial expenses of the policyholder. And while this may be part of the reason people obtain life insurance, this is not what the insurance coverage is intended for! Life insurance is meant to replace the income that is lost by the policyholder's death, and to be used to pay for the needs of the deceased policyholder when you are no longer earning money to do so.

If you have children, a spouse or relatives who depend on your income, then you should have life insurance.

For young, single individuals with no dependents, there is really no need for life insurance. However, you may want to consider purchasing a policy while you are young to protect future dependents against the possibility of you becoming un-insurable. If you are an older individual with retirement savings or pensions, it may not be necessary to have life insurance on top of the money that would become available to your spouse from your savings and pension. Yet, single premium whole life may be a great wealth transfer tool to provide your children with an income tax free inheritance.

Stay at home parents might think they don't need life insurance policies as they're not earning wages, but this is not the case. Consider how much it would cost to hire people to do all of the daily tasks you do- from day care, to housekeeping to financial management to grocery shopping, errand running and cooking. If you have a special needs family member, what would it cost to have special care arranged if you were not able to do it? Life insurance for a stay at home parent would allow the family to hire people in the event of your death to continue on doing the things you were routinely doing for the family.

As the wage earner of a family, your life insurance should replace your salary, plus pay off the mortgage, college tuitions for kids, or maybe career training for a spouse who might have to re-enter the workforce upon your untimely death.

Once you've determined you should have life insurance, your next step is to figure out how much life insurance you need. Having an estimated figure in mind will make it easier to select the appropriate life insurance policy. Then you must determine how long you wish to be insured.

Life insurance may also be used for a number of other business reasons. For example, key employees, business buy-sell agreements, executive bonuses, cross purchase plans, etc. These advanced plans are to complex to discuss in this forum.

For more information please contact us for a free consultation.

Brief description of the different types of Insurance Policies.

TERM LIFE:

You pay a set premium for 10, 20, or 30 years for X amount of dollars of life insurance.

PROS:
Least expensive form of insurance during the term.

CONS:
After the term it's usually very expensive to renew and you may be un-insurable after the policy has expired. However, the need to have life insurance may decline in the ladder years of life.

UNIVERSAL LIFE:
(cash value)

You pay a set premium for your life and in return you have a death benefit for life.

PROS:
If set up properly the death benefit will be paid upon your death no matter how many years into the future.

Also, the policy's cash value grows, thus providing a savings within the policy that can be accessed in later years.

Cash grows tax-deferred.

CONS:
Premium payments are typically higher than term insurance.

SINGLE PREMIUM WHOLE LIFE:

You pay a single lump sum premium payment for a paid up policy. (Typically funds that are earmarked for an inheritance to your beneficiaries and money you do not need for emergencies)

PROS:
Depending on the company you can almost double the amount of money. In other words $100,000 becomes $200,000 or $500,000 becomes $1,000,000 immediately.

Also, the death benefit it paid to the beneficiaries income tax free.

CONS:
Although, you can invade the principal, there may be tax consequences for the insured.