Life insurance isn’t something most people enjoy thinking about, and it can feel like an unnecessary expense. But if you have loved ones who rely on you financially, life insurance is about protecting them. It ensures that if something happens to you, your beneficiaries receive a financial benefit to help cover expenses and maintain stability. Because life insurance can seem complicated, here’s a simple breakdown of the basics.
Types of Life Insurance
Term
This is the simplest and generally the cheapest form. You buy coverage for a specific period of time. It can usually be renewed, but premiums will increase based on age and health factors. There is no cash value.
All other types of life insurance are permanent, but there are several varieties. They all include a savings element that builds cash value, in addition to the death benefit. Once that cash value accumulates, it is accessible to the policyholder tax-free. The following are some of the common types of permanent life insurance.
Whole Life
You purchase this policy to cover your entire life, as long as you keep paying premiums. Premiums remain constant throughout the policy, and the company invests a portion of your premium that becomes the cash value. These are more expensive than term policies in the early years, but they even out because the premium does not increase.
Universal Life
This policy is similar to whole life, but has the potential for higher earnings on the savings component. It is more flexible in terms of changing premiums and face value throughout the policy. There is usually a guaranteed return on the cash value. Disadvantages include higher fees and the possibility of increasing premiums.
Variable Life
A variable life policy generally has fixed premiums, and you have control over the investment decisions for the cash value portion. However, this is riskier because there is no guarantee for the cash value.
How Much to Buy?
offers life insurance as part of our benefit package, but it’s hard to know how much to buy. Many people decide based on an income replacement calculation, between 5 and 10 times the amount of your current income.
Think about your personal circumstances: Is yours the sole income in your household? Are there other expenses, such as college tuition, that may arise in the future? Don’t forget to include potential medical and funeral costs. Above everything, you want to be sure your family does not get stuck with bills, debts or expenses that they cannot afford. Depending on your needs, you may want to consider buying supplementary coverage beyond what offers.
Why Purchase Now?
Buying life insurance may seem unmanageable right now, but it could be a smart decision. Unlike many other benefits, life insurance is more affordable right now than in the recent past. Plus, during this tough economic period, ensuring that your family will be financially secure in the future is more important than ever.
If you have more questions about our life insurance benefit, please make an appointment with HR.
Provided to you by Hodge, Hart & Schleifer
This Know Your Benefits article is to be used for informational purposes only and is not intended to replace the advice of an insurance professional. © 2010-2011 Zywave, Inc. All rights reserved.