life insurance

02Sep 2014

adult-17315_1280Life Insurance is a simple answer to a very difficult question: How will my family manage fincially when I die?  It’s a subjet no one really wants to think about.  But if someone depends on you financially, it’s one you cannot avoid.

There are many types of life insurance, but for all of them the bottom line is he same:  They pay cash to your family after you die, allowing loved ones to remain financially secure.  Life insurance payments can be used to cover daily living expenses, mortgage payments, utstanding loans, college tuition and other essential expenses,  And, importantly, the death-benefit proceeds of a life insurance policy are almost never subject to federal income taxes.

If you’ve worked hard to establish a solid financial framework for your family – investments, home equity, a savings plan, retirement accounts – life insurance is the foundation upon which all of it rests.  It can guard against the need for your loved ones to make drastic changes to future plans when you die.  Certain types of life insurance even have a built-in cash accumulation feature that can help you reach savings goals.

Most Americans need life insurance, and many who already have it may need to update their coverage.


The most important part of buying life insurance is determining how much you need.  Since everyone’s financial circumstances and goals are different, there is no rule of thumb to tell you how much to buy.

But do you really need $250,000, $500,000, $1 million or more?  Sounds like a lot of money, but imagine if one of those amounts had to pay for a funeral, retire credit card balances and other debts, and support your loved ones for years to come.  Would it be enough?  How would you know?

To start, estimate what your family members would need after you’re gone to meet immediate, ongoing, and future financial obligations.  Then, add up the resources your surviving family members could draw on to support themselves.  These would include things like a spouse’s income, accumulated savings, life insurance you may already own, etc.  The difference between the two is your need for additional life insurance.


The most basic feature of a life insurance policy is the death benefit; the lump-sum payment your benefeciaries would receive if you were to die.  It’s the core reason to own life insurance-but not the only one.  Some types of life insurance offer other features that can play an important role in your financial strategy, such as the ability to accumulate cash value that gorws over time.


Term life insurance provides protection for a sepcific period of time – the “term” – and is designed for temporary circumstances.  It makes the most sense when your need for coverage will disappear at some point, such as when your children graduate from college or when debt is paid off.  The most common term policies provide coverage for 20 years, but they can run the gamut from one-year policies to terms of 30 years or even longer.  Typically, term insurance offers the greatest amount of coverage for the lowest initial premium and is a good choice for young families on a tight budget.


Permanent insurance offers lifelong protection, and you can accumulate cash value on a tax-deffered basis.  This cash account can be used for a variety or purposes, from helping you out of a tight financial spot, to provide funds to take advantage of an opportunity to supplementing your retirement income.  The downside? Initial premiums are considerably higher than what you would pay for a term policy with the same face amount.  Permanent insurance falls into four categories.

Whole Life is the simplest and most common option.  Premiums remain the same for life, and the death benefit and rate of return on your cash value are guaranteed.

Variable Life, you can seek potentially better returns by allocating your fixed premiums among investment sub-accounts, typically comprised pf stocks and bonds.

Universal Life offers the flexibility of varying the amount of your premium payments.  It also offers the certaintly of guaranteed minimum death benefit as long as your premiums are sufficient to sustain it.  If you do not maintain those minimum premiums, your death benefit can be reduced.

Variable Universal Life premium payments are alos adjustable, subject to the minimum needed to keep the policy in force, and you can allocate them among investment sub-accounts that offer varying degrees of riskand reward.