Who Needs Life Insurance?

The purpose of life insurance is to protect your loved ones from financial trouble in the event of your death. Life insurance is designed to pay funeral costs, possible medical bills resulting from illness, and leftover debts. It is also intended to help cover the loss of your income if you have been working to help support others.

With that said, not everyone needs life insurance… but many people don’t realize that they could indeed benefit from it. The following is a breakdown of who should consider purchasing a life insurance policy, and who probably doesn’t need one.

Single Young Adults

Whether you’re in college or working a job, if you’re young and single you may not consider life insurance a priority. The main reason that someone in this position might need coverage is to pay for possible medical expenses and funeral costs. If you have some money set aside or an alternative source of funding for expenses like these, chances are you don’t need coverage at this time.

One exception to this rule is if you are a single young adult with a dependent. If you have a child or elderly parent that is under your care, then life insurance will help support that person in the event of your death.

Children

With very few exceptions, children do not need life insurance policies. For the most part, if children pass away parents are able to handle the funeral costs and any medical bills. Because nobody depends on a child for income and because they do not have existing debt, life insurance is not necessary.

Newlyweds

A new marriage is an excellent time to purchase life insurance. Even if the couple does not have children, they will be depending on one another for income. Life insurance will ensure that the surviving spouse is taken care of in the event of a death. It will also help cover the cost of a mortgage from a new home purchase, or any other shared debt they may have.

Newlyweds without children will also have cheaper rates available to them. Now is a good time to start policies that could benefit your future children later down the road.

Existing families

A married couple with children should be the number one candidate for life insurance! Whether or not you need coverage on both parents is up to you; however, it is strongly recommended. Consider this: even if one spouse does not work and stays at home with the kids, their death would force the other spouse to seek dailychild care, thus increasing expenses. Purchasing life insurance and naming your spouse and children as beneficiaries ensures protection for everyone involved.

Married couples with no children

In this case, purchasing life insurance is really up to the individuals. If both spouses work, they may not depend on one another for income unless their lifestyle is significantly more expensive than it would be with just one income. If the spouses are concerned about covering funeral costs and nothing else, a low-cost term life insurance policy may be a wise choice.

Single adults

An adult with no dependents and no spouse does not necessarily need life insurance. A person in this situation should, ideally, have money in the bank in case of illness or funeral costs in the event of their death; if there is no money available and no other way to fund a funeral, they may want to consider a term policy. Keep in mind that upon your death immediate family members may be in charge of the funeral costs, and life insurance can help avoid giving them that burden.

Single parents

This is another case where life insurance is imperative. A single parent should make sure that their child(ren) will be well taken care of in the event of their death. Minor children without income will be unable to pay for funeral costs or support themselves, and a life insurance policy can ensure their safety. A single parent should have a guardian named for their child upon the event of their death; a life insurance policy payout can help make this transition period for the child go more smoothly and pay for things like college educations down the road.

The elderly

An elderly person who has no dependents does not necessarily need life insurance, except in the case of paying for a funeral or medical expenses. An elderly married couple may want to consider purchasing insurance in order to make sure the other is not left with multiple bills after a death. Do keep in mind that life insurance policies for the elderly are very expensive. If you have not yet begun a policy and are over 65, you may want to consider a savings account or other option before looking into life insurance.

If you’re considering a life insurance policy, keep in mind that there are various types of coverage and policy options available. If you need insurance and aren’t sure where to start, a provider can help you locate the amount of coverage and policy that’s right for you.

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Tips on Shopping Online for Life Insurance

There’s a staggering array of life insurance policies available, and finding the one that’s right for you can seem a little daunting. With the help of the internet, however, your life insurance search can be fairly quick and painless. The trick is knowing where to look.

The following tips are designed to help you shop online for life insurance.

Online quotes are your friend.

Because internet shopping for insurance policies is becoming more and more popular, most companies have caught onto the fact that offering online quotes is in their best interest. Many people dread shopping for insurance policies because it can require hours spent waiting for callbacks on rates. Not anymore.

If you do an online search for life insurance policies, chances are most of the websites that pop up will offer you free instant quotes. Take full advantage of them. This can help you narrow down your choice of companies fairly quickly, depending on the rates you’re offered.

Caveat emptor

Shopping for life insurance online is quick and easy; you should take note, however, of a few things that should raise a red flag. Protecting your personal information and making sure you’re not getting scammed is an important part of online shopping, particularly for something as important as insurance.

Follow the tips below to make sure your experience is a positive one.

If it sounds too good to be true, it probably is.

If one company offers you an extremely low rate that is far below anything else you’ve seen, chances are good they’re not including all of your personal information in their estimate. Did they ask you for your age or medical condition? Some companies offer a “surface-scratching” rate that doesn’t take into account your personal circumstances, thus tricking you into thinking their rate is the lowest. Once you sign up, of course, they will ask the detailed questions and your rate may skyrocket.

Be wary of giving out too much info.

Although you should expect to have to release a certain amount of personal information in order to get an accurate quote, don’t release anything you’re uncomfortable with. If a company is asking for something that doesn’t seem related to life insurance, feel free to call and ask why they need that information. It’s your right as a consumer to know.

Avoid fly-by-nights.

Unfortunate as it sounds, not every ad that pops up in a search engine is reputable! Although you’re shopping online, it’s imperative that you are still able to connect your policy to a genuine company with an established background. We recommend shopping with company names you have heard before. Almost every large insurance provider now has a website that offers free quotes and online applications.

A major red flag: If a company does NOT provide other types of contact information, such as a mailing address and/ or a customer service number, steer clear! You absolutely must be able to communicate with your insurance provider in some way other than over the internet. Don’t fall for a scam!

Do your homework.

As you begin shopping for life insurance policies, you may be unsure of what type of policy to buy or how much coverage you need. This is one of the major benefits of shopping on the internet versus over the telephone or in person.

On the internet, you’re free to research various options by yourself. If you call an insurance provider and tell them you don’t know how much coverage to purchase, many providers will push you towards higher amounts and unnecessary benefits. We’re not saying that all of them are like this, but many providers are taught to up sell- it’s their job.

The internet, on the other hand, provides you with all of this information in an unbiased form. Research various types of life insurance by typing them into a search engine. Read articles about life insurance and let the information lead you towards what works best for you.

If you’re working with an online quote, try changing the coverage amount and recalculating your payments to see how much coverage you can reasonably afford. Online quotes are no-obligation, and you’re free to experiment until you find the exact right configuration for you.

Finally, if you locate a provider that offers what you need, don’t be afraid to pick up the phone in order to place your actual application. Many people are uncomfortable with financial transactions over the internet, and that’s okay. The main purpose of shopping for life insurance quotes online is to comparison shop. When it comes to the purchase, however, you can certainly choose to communicate with a human being. Most reputable insurance companies will be able to locate your online quote in their database, and talk you through it on the phone when you’re ready to buy.

The internet is a great shopping tool, and never more so when the product is as important as life insurance. Comparison shopping for life insurance online will make you a truly informed consumer and ensure true peace of mind with your policy.

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The Five Most Important Considerations

The Five Most Important Considerations When Buying Life Insurance

Buying life insurance is a big decision, and all the available options can make it seem absolutely overwhelming. Don’t lose your cool! You don’t have to become an insurance guru. You just have to know what you’re buying and why.

The following are the most important things to keep in mind when purchasing a life insurance policy.

Do you need life insurance?

If you have dependents, such as children, a spouse, or elderly parents, then you probably need life insurance. But if nobody depends on you for income and you have some money set aside for debts and funeral costs, then there’s absolutely no reason to purchase life insurance at this time. Don’t buy policies you don’t need… but make sure you have one if you need it!

What type of life insurance is best?

Are you looking for a permanent life insurance policy or a term policy? If you don’t know the difference, here’s a basic explanation:

• Permanent life insurance is active until your death and includes a cash value. You may withdraw from this cash value account, but you’ll be charged fees and taxes to do so. Unless other arrangements are made, these policies cannot be touched until they are distributed to your beneficiaries upon your death.

Term life insurance is cheaper and less of a commitment.

• Term insurance is only active until you decide to stop paying into it. If you can’t afford a full permanent policy, term insurance can be a great solution. Consider covering only the “term” of your life when your children are small; once they grow up, you don’t necessarily need to have a life insurance policy to benefit them.

If you don’t know what type of policy you need, your best bet is to talk to a financial advisor. A one-time meeting with an insurance investor can set you on the right track and ensure you’re not wasting your money on a policy you don’t need… or setting your family up for a crisis by not having the right policy.

How much life insurance do you need?

In general, you can calculate the necessary amount by estimating what your annual income is and calculating how your family would get along in the event of your death. You will need to replace your income for them for at least the first few years, and also take into account any outstanding debts or funeral costs you’ll be leaving behind.

Again, an advisor is a good investment at this point. Don’t leave this decision up to the insurance provider- they will most likely talk you into a higher amount of insurance than you really need. A huge percentage of Americans are paying too much into their life insurance policies.

Have you covered all the bases?

When calculating whether or not to purchase life insurance and how much you need, your family should sit down and go over the finances carefully. Cover all possible bases. Make sure to include possible emergencies when calculating how much insurance to purchase.

Also consider whether one or both spouses should be insured. Keep in mind that if you have one spouse who stays home with the kids, the death of that spouse will result in the need for child care. So even without income, a stay at home spouse contributes to the family’s financial situation and thus should be insured.

Are you comfortable with your policy?

Although the general attitude is that shopping around for the lowest possible rate is the best way to find the right insurance provider, there’s more at stake here. Low prices are great, but don’t choose a provider just because they offer the best rate. You must also make sure that you’re comfortable with the company and that you understand, to a T, every angle and clause of your policy. This is extremely important for your own peace of mind as well as your family’s security.

If you don’t understand your policy, ask. If you still don’t understand your policy, get a professional involved… or find a new provider. It’s your life insurance policy, and it’s up to you to make sure it meets your needs.

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Should I Buy Life Insurance for My Children?

Life insurance is one of the most important things you can do for peace of mind and to ensure your family is financially safe in the event of a death. But sometimes people spend money on life insurance when they don’t really need to.

One of the main questions people have when considering life insurance is whether or not they should buy policies for their children. The final decision is really up to you. The two arguments outlined below should help you figure out what works best for you and your family.

Should I buy life insurance for my children?

Answer: Yes

If you’re considering purchasing life insurance policies for your children, chances are good you are motivated by some of the following reasons. If, on the other hand, you don’t think insuring your children is necessary, this information may cause you to think twice.

If the child gets ill and is in the hospital or under medical care for a significant amount of time, the bills can stack up. If that long illness results in death, the last thing the parents want to do is spend the next several years paying those medical bills. If the child is covered by a life insurance policy, however, it can step in and pay those bills off immediately.

Some families don’t have a significant amount of savings in the bank, and funerals can be expensive. A life insurance policy can cover the cost of a funeral for a child, particularly if the parents don’t have other sources of funding in the case of such an event.

The other main reason some people buy life insurance for their children is because of the grief factor. The loss of a child has a great impact on a family’s life, and whether both parents or just one works, they may need to take some time off from work to deal with the grief and adjustments. Thus, life insurance can help cover day-to-day expenses and make up for the lost income during the grief period.

Should I buy life insurance for my children?

Answer: No

It’s tempting sometimes to insure yourself against every possible catastrophe and many people who have suffered trauma or bad experiences tend to over-insure. Sometimes, buying life insurance for your children can be an example of just such a situation. It is not technically needed, and is an extra expense that truly isn’t necessary, at least not in the way that policies are necessary for parents.

Consider it this way: aside from funeral costs, grieving time, and some of the reasons outlined above, the number one reason life insurance is important is as income replacement. If a policyholder is supporting a family, that person’s death can drastically alter the family’s financial situation and life insurance is designed to step in and help support the surviving family.

Children, on the other hand, don’t work or bring in income, and have no dependents. The loss of a child, while devastating, will not significantly alter a family’s financial situation in the same way the loss of a breadwinning parent will.

Although you can argue that funerals are expensive and a life insurance policy on a child is important for that reason, you can also argue that parents will most likely be able to fund a funeral somehow. Even if they don’t have the money saved up, they should be able to take out a loan or budget the cash necessary for the child’s funeral and possible medical costs. Often, it’s in your best financial interests to pay these expenses IF they do arise, rather than paying into insurance for years because of the POSSIBILITY that they will occur.

The bottom line

Whether or not you purchase life insurance policies for your children is up to you. However, it’s a fact that the vast majority of people consider it an unnecessary expense, and buying insurance you really don’t need can be a foolish financial decision.

Before you buy a policy for your child, consider other ways you can invest that money and have it on hand for an emergency. Consider opening a savings account in the child’s name so that if something bad should happen there will be money on hand that can get you through that time. And if nothing happens, you won’t have thrown your money into a life insurance policy; you’ll have it on hand to help fund your child’s education and future.

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Life Insurance

While many individuals invest money into the stock market, an IRA account or a savings account as a way to plan for the future, others consider life insurance to be an excellent way of planning for future events. Life insurance may not be for everyone, but has become especially important for those individuals who have dependents. For those who don’t have dependents who depend on them for financial support, life insurance is something that you may not need to consider.

Primary reasons for considering life insurance are to replace your income for those dependents that currently thrive off of that income, as a way to pay for final expenses, as a source on inheritance for beneficiaries you name, or as a source of long-term savings for dependents. There are of course several other reasons why individuals seek out life insurance, but these are the most commonly found reasons for purchasing life insurance.

A confusing part of life insurance for many individuals is how much life insurance is needed. Unfortunately, the answer to this question will truly depend on the individual and the reason they are purchasing life insurance. For replacing an individual’s income and supporting dependent family members, it is best to consider how much income you make on a yearly basis, but to also consider additional expenses, such as family members selling the home and moving or the spouse needing to hire companies to do work that you once did; e.g. mowing the lawn, doing the taxes, fixing plumbing problems.

Keep in mind that your dependents will have some source of income from Social Security survivor benefits and possibly from other financial plans you previously established. These may include IRAs, money market accounts, savings accounts, or even stock market funds. If these funds will be available to dependents then less life insurance is inevitably needed. The amount received as Social Security survivors benefits can be determined by contacting the US Social Security Administration.

There are two main types of life insurance that most individuals consider. The type of life insurance you decide on will determine your monthly premiums. There really isn’t a better type of life insurance, as individuals purchase nearly an equal amount of both types of insurance. It really just depends on what is best for you and your individual situation.

Term life insurance means that an insurance policy only pays if the policyholder dies within the life of the insurance policy. Most term life insurance policies last 30 years and the premium payments will increase as time goes on. As well, there are two different types of term payments: level term and decreasing term.

Level term means that no matter when the death benefit pays out, it will be the same amount over the life of the insurance policy. Decreasing term usually means that a benefit drops over the life of the policy, but it may also mean that the price of the premium drops as well. Most current term life insurance policies are level term, as decreasing term is no longer commonly used in the life insurance business.

Completely different from term life insurance is whole life insurance, which does not have a certain time limit and will pay out anytime. Whole life insurance is the more steady policy, where the amount of the premium and the death benefit will remain the same throughout the life of the policy. Keep in mind, though, that this means if you purchased a policy in 1950 when $10,000 was a lot of money, that is all a whole life insurance policy will be worth when paid out in 2006.

The real upside to whole life insurance is the fixed rate premiums, which on an average cost around $90-$100 a month for a healthy male. Usually once these premiums are paid off, around 65 years of age, there will be no more premiums to pay, but instead the insurance policy can begin to have cash value, meaning the policy holder will begin to make money on the policy after the age of 65.

A level term life insurance policyholder will not begin to pay large amounts of money until late into their life, as a beginning level term policy will only cost around $20.00 a month, but 30 years into the policy, a policyholder will owe closer to $200-$300 a month.

The different between the two types of policies is the amount paid throughout the life of the policy as well as how long the life of the policy lasts. Of course premiums will vary depending on how much life insurance is needed and this should be the true deciding factor when choosing life insurance that is right for you.

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Life Insurance for the Self Employed

Most employers offer a standard life insurance policy for all full-time employees, along with other benefits like health insurance and a 401K. Getting life insurance through your employer is an easy way to get coverage; but what’s a self employed person to do?

With more and more people all over the country opening their own businesses and becoming legally self-employed, knowing how to handle things like life insurance without the aid of an official employer has become a must. The tips below should help you, whether you’re currently self employed or you’re planning on becoming so in the future.

Life insurance for freelancers / individuals

If you work independently but are not the owner of a business, you will still need life insurance to take care of any dependents you may have. Your death will cause a loss of income for your family members, and you must purchase a policy that can make up for that loss as well as ensure your funeral and medical bills can be paid.

As an individual, you’ll need to research purchasing your policy from an insurance provider. Chances are that as a self-employed person, you’ll be looking for a provider to offer you health insurance. Your search for individual life insurance will follow the same guidelines, and you may even find policies available from the same company from which you purchased your other types of personal insurance.

Many insurance companies all over the United States cater to the self employed by offering policies that stand independent of any employer. There are, of course, a few downsides. Policies obtained via this method can sometimes be fairly expensive. Make sure you’re getting only the coverage you need, and be prepared to do some shopping around to find the best possible rates.

Life insurance for small business owners

Keep in mind that if you own your own business, you are solely in charge of that business and all of its debts. This is why life insurance is doubly important for those who own their own businesses.

If you pass away and your business is in debt, your personal assets may have to be liquidated in order to pay those business debts. This can leave your dependents in an even worse financial situation than they would have been in by simply losing your income.

Look for an individual life insurance policy that is permanent rather than term, and that is large enough to cover all of your business debt as well as provide funds for future operation.

If purchasing such a policy is a stretch for you financially, you should be able to roll the costs into your small business loan, or build it in as part of the financial business plan. Don’t consider it a luxury or an unnecessary expense; it is a vital part of protecting your business and your family’s interests in the event of your death.

If your business has employees, it’s best to purchase small life insurance policies on each employee. Make the business the beneficiary so that in the event of an employee’s death, you will have the money necessary to find a replacement and make up for any loss of income suffered by the business.

The bottom line

Whether you’re singly self employed or you run a business, prepare to research several companies before purchasing your life insurance policy. You may find that many large, well-known insurance companies have special programs designed to cater to the self-employed individual. Take advantage of these offers, since they tend to offer you the best rates.

A provider who works with the self employed will also be prepared to talk you through your options and find the policy that’s best for you. Once you’ve found the right provider, the decision will be much easier.

Life insurance is more important for the self employed than most people realize. Protect your business, your family, and your own peace of mind by finding the right policy.

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How to Determine How Much Life Insurance You Need

Purchasing life insurance can be a little overwhelming, particularly if you’re not sure exactly what you need in a policy. The number one question everyone faces when it comes time to buy a life insurance policy is how much coverage to get.

The following information should help you calculate the right amount for you and your spouse. Every situation is different, so these guidelines aren’t set in stone, but they’re meant to point you in the right direction.

The Purpose of Your Policy

Life insurance is meant to take care of your family and dependents in the event of your death. Your policy will have to take the place of your income if you want your family to be able to continue their current lifestyle. If you’re the main breadwinner in the family, this can sound a little overwhelming. But wait- there’s more.

Life insurance can also be used to cover any existing debts that may be left over after death. If you’re a small business owner with business debts, or if you have an extended illness, you don’t want to leave your family with a pile of bills. Life insurance is designed to help cover those costs, as well as any funeral costs that may incur if you have no other cash available for such an expense.

This might sound like an awful lot, and the truth is, it can be. But believe it or not, most people today are carrying far too much life insurance—thanks in part to pushy salespeople, and thanks in part to their own ignorance.

So even though your life insurance policy needs to cover a lot of things, there’s no reason to panic. Read on to get a better idea of what you need.

A Basic Life Insurance Calculator

Remember that no one formula can assess your life insurance needs; the situation varies widely from person to person, and taking into account things such as inflation can change your numbers dramatically. But for a very basic idea of what amounts you should be looking at, start here.

Calculate expenses. Make a rough estimate of your family’s annual expenses. Include items such as mortgage payments, utility payments, car payments, health insurance, school or college costs, and basic living expenses. If one spouse currently stays at home with the children, consider adding child care costs to your number in case that spouse would be required to go back to work. It may be easiest to estimate these numbers by month and then simply multiply by 12 to get an annual amount.

Calculate other assets. Consider how much money will continue to come into the family in the event of your death. If you and your spouse both work, your spouse’s income counts. So does Social Security, savings, or other benefits that the family would incur upon your death. This number will tell you how much money your family will be making, without life insurance, without you.

Check the difference. Place these two numbers side by side, and you’ll start to get a rough idea of how much life insurance you might need. How much would your family’s financial situation change if you and your income were not there? How much of your income is funding your family’s current lifestyle?

Now is also a good time to throw in a few extra thousands of dollars for the cost of a funeral and possible medical bills, unless your family has savings set aside for those things. If not, they’ll need to come directly out of your insurance policy, so make sure to tack on those costs as well.

If you subtract your expenses from your assets as explained above, you may come out with a negative number if you are the primary breadwinner. In those cases, you’ll need more life insurance coverage to ensure your family can continue their lifestyle without any undue hardships.

Although calculating in coverage for disasters is always a good idea, don’t go overboard and buy a huge policy on the off chance that something bad will happen and your family will desperately need the extra cash. Keep in mind that their situation will be in flux, and they may need some extra money to get through the adjustment period after a death, but there’s no reason to feel you need a policy with an impossibly high amount.

Many people use the “two year grieving period” as a rule of thumb: make sure your family has plenty of cash to fully support them for the first two years after your death, after which time you can assume things will have settled and their financial needs won’t be so dire.

If you do find yourself in a situation where your family’s finances will be devastated by your loss, but you’re anxious about paying huge premiums on a large life insurance policy, consider term insurance. With term life insurance, you can pay into it only for the amount of time when it would be needed- until your kids grow up and become independent, for example. Term allows you to carry a much larger policy with a lower cost to you.

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How Do Cash Value Life Insurance Policies Work?

If you’re considering buying a life insurance policy, you may have heard the term “cash value” and wondered if you should be concerned with it. Whether you need cash value life insurance is up to you. Below, we outline exactly how cash value life insurance policies work, and what you should expect if you choose this option.

What is a cash value life insurance policy?

Cash value life insurance, also called “permanent life insurance,” is available in a wide variety of options. Whole life, variable life, universal life, and variable universal life are all examples of cash value / permanent life insurance policies. The basic difference between all of these types of cash value policies is how the value of the policy is invested.

All cash value life insurance policies operate on the same basic premise: Your premium payments are allotted into three different payments. One portion pays the actual insurance benefit cost; another portion pays the insurance company; and a third portion is put into cash value.

Unlike term life insurance, cash value policy has a level premium amount that is particularly large at the beginning of the policy, when the policyholder is still young and in good health. This excess amount of money paid in is invested into a cash value account, which is designed to offset the costs of insuring yourself as you get older and your premiums would naturally increase.

In the early years of your policy, the largest percentage of your payments will go to this cash value fund. Every year, more of the money will go into insuring you and less will go into the cash value fund. This is because the cost of insuring you every year is going up, so a larger percentage of your money paid in is being used for insurance costs.

If you choose to cash in your policy before death, the cash value of this account, as well as any accumulated interest, is returned to you.

Do keep in mind that in order for your beneficiaries to receive the cash value of your account as well as the stated amount, you may need to sign some extra paperwork. Examine your policy carefully and make sure you select this option if you wish for your family to receive your cash value amount.

Getting cash value out of your policy

The main reason people choose cash value life insurance policies is for help with retirement. This, along with retirement plans and social security, can help provide a safe nest for the later years.

Do keep in mind, however, that any cash you take out of your policy and do not pay back will be removed from your death benefits. In other words, it is your money to borrow, but if you don’t return it to the policy your family will be minus that amount in the event of your death. You will also have to pay taxes on the money. The most common way for people to access the cash value in their account is by borrowing it out, although you can also make a direct withdrawal.

All cash value is tax-deferred until it is withdrawn.

The main reason for a cash value life insurance policy is to make it easier to continue your policy throughout your entire lifetime, without suffering huge payments as your health declines. It also helps to know that you have a cushion of cash value that you can borrow against in an emergency.

But consider cashing out your life insurance policy only as a last resort. With taxes and interest piling up, you’ll be much better off financially in the long run if you can leave it there to do what it’s meant to do: care for you through the length of your life and assist your beneficiaries thereafter.

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A Step-By-Step Guide for Buying Life Insurance

If you’re in the market for a life insurance policy, you may be a little overwhelmed by the choices available. If you’re confused by the terminology or unsure what type of policy you need, the following information should help.

Here are some basic steps to finding the right life insurance policy for you.

Step One: Determine if you need life insurance.

Not everyone needs life insurance, but many people don’t realize they could benefit from having it. If you have family members who depend on you and your income for support, then setting up a life insurance policy is a good way to make sure they’re taken care of in the event of your death.

Another good reason for life insurance is to take care of any medical costs or funeral expenses associated with your death. If you don’t have cash for this purpose saved up anywhere else, then a life insurance policy may be a good idea.

Step Two: Determine how much coverage you need.

The easiest way to calculate how much life insurance coverage you should have is to estimate how much income your beneficiaries will lose if you pass away. A standard way to measure the amount needed is to assume that your family will need a two-year cushion in order to recover from your death, and to make sure your policy can support them for those two years.

Calculate all expenses your family will have during a two-year period, including funeral costs as well as everyday costs such as mortgage payments, college expenses, and food. If you have a working spouse or family member, subtract the amount of their income from the total expenses. The remaining amount will give you an idea of how much coverage you should have. You may find that the amount is close to how much you would make working at your job for two years; you should count on having a little extra just in case emergencies might arise.

Step Three: Choose your policy.

There are four basic types of life insurance policies. They’re outlined briefly below. Choose the one that best fits your situation.

Term life insurance.

Term life insurance is the simplest and most common form there is. With term insurance, you are covered during a specific term or period of time, for as long as you are paying the premium. If you stop paying during your lifetime, your coverage ends. In the long run, term life insurance is the cheapest option and is ideal for those who choose to invest their money elsewhere, such as in retirement funds or stock.

Universal life insurance.

With a universal life insurance policy, you are allowed to choose how your money is invested. Universal policies are a hybrid, combining the basics of term insurance with cash values and investments. You can adjust your premiums and death benefits during the course of the policy, and a portion of the amount is set aside as cash value. As the policyholder, you may redeem this cash value during your lifetime.

Keep in mind that after you reach age 60 the mortality expense of the policy will rise, sometimes drastically, which could result in losses in your investment account or a much higher payment.

You should also note that if you die before cashing out the value of the policy, your beneficiaries will not receive that money. They will only receive the face value of the policy.

Variable life insurance.

Very similar to universal life insurance, variable policies differ only in one major respect: they offer a wider selection of investment opportunities, including stock funds. It is also possible with a variable life insurance policy for beneficiaries to receive the cash value of the policy as well as the face value in the event of your death. Variable life insurance can be somewhat riskier than universal; hence the higher possible payoff.

Whole life insurance.

Whole life insurance is similar to term insurance, but does not operate within a specific set period of time. Rather, it covers your “whole life.” The insurance company generally invests a portion of your money, and some companies pay out dividends to policyholders.

A major advantage to whole life insurance is the fact that you pay a fixed premium for as long as you own the policy. You do have the option of withdrawing from the cash value of the account during your lifetime, but you may be charged fees for doing so.

Step Four: Find a company.

Once you know what type of life insurance will work best for you and how much coverage you need, you’ll have to find a provider. This is a fairly complicated process, as many companies offer rates and restrictions that vary widely from the competition. Be prepared to shop around and locate the company that gives you the best deal for your money.

Remember that while the rate you receive is important, it’s not the main reason you should choose a specific provider. Keep in mind that this company is going to be in charge of taking care of your loved ones in the event of your death. It’s essential to choose a reputable company that you trust with this responsibility.

Life insurance is designed to give you peace of mind. Make sure you educate yourself on the available options, and that you’re comfortable with your final decisions.

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10 Ways to Lower Your Life Insurance Policy Premium

Let’s face it: life insurance can be expensive. If you’re the primary breadwinner in your family, or if you have several dependents, you may need a fairly large life insurance policy to ensure your family’s comfort and your own peace of mind. But with a large policy may come some high premium payments.

The tips below can help lower your premium, resulting in lower payments and a more affordable life insurance policy.

  • How To Lower Premiums on life Insurance
  • Can You Negotiate Life Insurance Premiums
  • When To Reduce Life Insurance
  • What Would Cause an Increase in Insurance Premiums
  • Can You Change Your Life Insurance Policy
  • Stop Paying Life Insurance Premiums

1. Consider term insurance.

Many people automatically assume that they need permanent life insurance policies. Permanent policies are designed to cover the entire length of your life. The fact is that many people, even those with dependents, can get by just fine with term policies. Term policies are limited only to the time span you wish to pay on them. This results in lower premiums… and fewer of them.

Consider choosing a term policy only for the time of your life when your children are small. Once they are old enough to support themselves, they won’t need your life insurance as much and you will no longer need a policy, so permanent life insurance is not necessary.

2. Stay in good health.

Life insurance providers assess risk just as car insurance companies do. If you’re involved in many accidents, your car insurance will be higher. The same goes with life insurance. Don’t smoke- some insurance providers charge a smoker double the rate of a non-smoker. Get regular physical checkups to ensure you’re in good health. A clean record will lead to considerably lower premiums.

3. Start early.

The older you get, the more of a risk you are to life insurance providers, and hence the higher your premiums will be. An excellent time to get life insurance is when you are newly married or have just had your first child. You’re still young enough to be a decent health risk so the company will be willing to offer you a lower premium.

4. Consider talking to an insurance advisor.

An insurance advisor can negotiate with life insurance providers in a way that you may not be able to. They can also take into account every single aspect of your policy needs, and shop the market much more quickly and efficiently than you could do alone. The one-time cost of meeting with a good advisor to locate the best policy for you is well worth the payoff in the long run.

5. Shop, shop, shop.

If you’re searching for a policy without the help of an advisor, you should be prepared to shop the market aggressively. Rates differ widely between companies, and one company that finds you a risky investment may see things very differently from their competition. Life insurance is important; invest some time into finding the best deal possible.

6. Don’t worry about riders.

Riders are special additions to the policy that are designed to pay out more in the event of certain circumstances. The most well known example is the accidental death clause, which pays double the amount if the insured dies accidentally.

For the most part, riders are completely unnecessary and usually extremely expensive. Make sure your original policy includes enough value to cover your family’s needs, and don’t worry about padding the policy with riders.

7. Watch out for special fees.

Read the fine print on your policy. Often, making monthly payments instead of paying your premium in one lump sum each year can add several dollars’ worth of “processing fees” and make your payments higher. There are often small fees and charges associated with your premium that can jack up your payment without you even realizing it.

If you don’t agree with all the fees, ask your provider for an explanation. If they don’t have one, find a new provider (see item #10).

8. Check up on calculations.

When assessing the rates of a provider, do an estimate based on a multiple of $1,000. Often after a certain amount, the rates per $1,000 will drop, and getting $300,000 worth of coverage may even cost you less than getting $275,000. See how your particular company calculates coverage to get the best deal.

9. Don’t buy more than you need.

It is estimated that a huge percentage of Americans carrying life insurance are carrying far larger policies than they need to be. Pushy insurance salesmen have done their job, and many people are scared into purchasing huge amounts of insurance that they don’t need.

Calculate your income, your spouse’s income, and any outstanding debts in order to determine how much you need. It is very helpful to meet with a non-biased insurance advisor to figure out what size policy you need. Don’t let the provider make the decision for you.

10. Find a provider you can work with.

Your life insurance is important, and if you’re not comfortable with your provider then you won’t be able to stand up for yourself when it comes to your rates.

If you get into a situation where your payment must be late, or where you think you’re being charged unnecessary fees, you absolutely must be able to talk through it with your provider. If you can’t do that, you’re almost guaranteed to suffer some unnecessarily high payments that could have been avoided by working with the company. Remember- it’s your life insurance. Who provides it IS important.

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