Most financial professional consider TERM LIFE INSURANCE (Click HERE for an explanation) to be the best value for any type of insurance policy designed to pay a benefit if you die. Many of those same experts believe that, at the very least, an individual or family should have enough insurance to pay off their home mortgage and other debts and several years worth of lost income.
That raises three questions:
For most people, life insurance is simply a way to ensure that a surviving spouse and children can continue to have a decent lifestyle. Many experts suggest that a primary breadwinner should have insurance equal to 6 to 10 times their annual income. In most cases, this will provide enough money for the survivors to be at least comfortable. If you have young children or other special needs, additional amounts should be considered.
A key thing to consider when making this decision is the amount of income your family will need in the event of your death. After all, your goal in purchasing life insurance most likely is to ensure that your paycheck continues for those who are dependent upon your income or to pass some of your wealth to your heirs. Many experts think families need about 75 percent of their current income should something happen to the primary breadwinner. It also is important not to ignore the need for life insurance protection in a dual income family. The death of either spouse could create a financial strain on your family. Households with one stay-at-home parent also should consider coverage, as the survivor could have trouble paying the mortgage, child care expenses, and contribute to their children's college plans after the death of the nonworking spouse.
Deciding whether to buy a term policy or a cash value whole life policy should be carefully considered. Term policies are extremely popular because they are usually much cheaper and do not suffer an "Early Termination Penalty" on any accumulated cash value. Reviewing the options with a Term Life Insurance Specialist will allow you to make an informed decision. Mortgage Services offers free computerized rate comparisons so you can be assured that you will be offered the lowest rate available. Click HERE for a NO OBLIGATION Quote.
The Insurance Company
Be sure to ask your representative about the company offering any policy you are considering. Quality customer service and financial stability are essential. When you end up needing the insurance, the last thing you want to discover is that the company is hard to deal with or that their financial condition prevents them from providing the benefits you paid for.
If the policy you're looking at is designed to pay off your mortgage if you die, term life insurance may be the best value. It is affordable enough that almost everyone can fit it into their budget, and the payout can ultimately be used to either pay off a mortgage or for any other needs your loved ones will have when you cannot provide for them any longer.
Most individuals have some form of insurance, whether it is for their vehicle, home or health.
It is important, however, not to overlook the benefits of life insurance, which is a policy that pays money to beneficiaries when the person who is insured by the plan dies. Typically, the insured person makes payments into the plan — called premiums — in exchange for a "death benefit," the money that is paid at the time of death. Many people purchase term life insurance for the purpose of providing for your dependents in the event of your death, thus protecting your existing stream of income for them after you die. If you are in the protection category you may want to consider term life insurance, which offers only a death benefit for a specified period of time such as 10 or 20 years. In addition, you can typically purchase substantial coverage at affordable premiums due to the limited time of protection.
Some people are reluctant to consider term life insurance because they see the premiums they pay as "lost" or "wasted" if they survive beyond the life of the policy. But now, a relatively new product has some pros telling their clients to invest in a new kind of term insurance. This product, called return of premium, allows consumers to buy fixed term life insurance for 10, 20 or 30 years, pay higher-than-normal premiums, and then get all of their premiums back if they outlive the policy, as most will. It's priced attractively enough that some financial planners find it's a better deal for some of their clients than municipal bonds. After careful review, many feel that term life insurance with complete return of premium is an excellent value.
Here's why: The insurance industry, which sees return of premium riders as a great marketing tool for selling term policies, is pricing the riders so that they actually earn a reasonably high rate of return -- if a client hangs on to the policy for its entire term. Independent analysis of some plans has determined that young healthy clients can earn about 7 percent, tax-free, on the extra premium that they pay for a 30-year policy.
Here's an example: A 25-year-old healthy male could get a $1 million 30-year level-term insurance policy for $770 per year, but he could also get it with a return of premium rider for $1,095 per year. The difference of $325 is the investment. At the end of 30 years, he gets back the total premium of $32,850. That amounts to an almost 7 percent return on the extra $325 that was paid annually. That return is not taxable because it's treated as a refund of premiums.
That's better than you would do on most comparable investments. Even the 20-year plans would return more than 5 percent to clients.
In almost every case, the return of premium term plans were a better investment than comparable whole life policies or municipal bonds.
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What is Term Life Insurance?
Provides coverage for a specified period of time, which usually ranges from 5-30 years depending on your need for coverage. A death benefit (coverage amount) is determined when the policy is applied for, and the beneficiary receives the death benefit if the insured individual dies while the policy is in-force.
Premiums on a guaranteed level term policy remain level for the duration of the policy. A non-guaranteed policy's premiums will typically remain level for a pre-disclosed period of time and then increase after that.
There are usually various options available on most discount term life insurance policies, including:
- Complete return of all premiums paid
- Accelerated benefits riders
- Convertibility options to permanent insurance coverage
Term life policies are designed to meet a specific need for a stated period of time. Term life insurance can be especially useful for anyone who has a financial liability that must be insured (like the purchase of a home).
Term life insurance is the lowest priced life insurance coverage on the market. Term life insurance offers the best life insurance value available by providing the largest amount of coverage with the least premium dollars. In comparison to permanent life insurance products (universal or whole life) term life allows you to save money on life insurance and invest the savings in a higher yielding investment.
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