Life Insurance. Legally you may not have to have it. But if you have a family that depends on you, you probably should. But what is the right kind of life insurance for you?
That is a question that cannot be answered in a blog page. You need to sit down with an insurance agent and complete a Needs Analysis to look at your life and your family to determine the right amount and the right type of coverage for your individual situation.
But here are a couple of basic topics that may help you understand Life Insurance. The first is Term vs Permanent.
A Term Policy is usually a specific amount (called a Face Amount) and is sold at a specified premium for a specified time. For example, Andrew may purchase a $500,000 20-year term policy. If Andrew should die during the 20-year period while the premium has been paid, his beneficiary would receive $500,000. If Andrew should die 25 years later, nothing would be covered unless he had paid to continue the policy at a new, higher premium. If Andrew should decide 8 years down the road that he does not want to pay for the policy anymore, the policy is cancelled and he would receive nothing. The main benefit of a Term Policy is that it is usually less expensive than a Permanent Policy. Term policies are generally the right choice for a higher dollar amount of coverage that is needed for a specific amount of time.
A Permanent Policy is also sold for a specific Face Amount, but the policy can last for the rest of your life as long as the premium is paid. Types of Permanent policies include Whole Life, Universal Life, Index Universal Life and Variable Universal Life. Your insurance agent can discuss the differences in these policies with you (the agent must be a Registered Representative to sell the Variable Universal Life product) and can help you choose the right type and amount for you. The two main benefits of the Permanent Policy are that they can last your for your whole life and do not expire, and also that they generate cash value. If Angela purchases a Variable Universal Life Policy with a $200,000 face amount at age 39, that policy would still be valid for her at age 101. She could pick a payment anywhere from a specified minimum to a maximum amount allowed by the IRS. The policy could accumulate cash value based on the performance of the accounts and funds she would invest a portion of her premium in. And that cash value could be withdrawn for her to use and usually withdrawn tax free. Ask your insurance agent to provide you with an illustration to show a hypothetical performance for your permanent policy.