To achieve your financial destiny takes financial planning. A solid financial plan needs to think about smart and bad times throughout somebody's life. Buying one of life insurance types is accounting for the potential dangerous times all along a person's life and is that the main reason to buy a life assurance.
Yes, I said those 3 evil words "buy life assurance." A life policy is the foundation of any solid financial plan.
Basics on Life Insurance
For many persons, life assurance is looked upon as a thing they'll purchase "someday" .
Most people know they need to have some life coverage, but never take the time to do basic research.
First of all life coverage is supposed to be for financial gain replacement if a partner or parent dies untimely.
If you and your partner generate some variety of income then it has to be protected. Today most families want financial gain from each spouse despite the income they earn to live their lifestyle they want.
Life coverage comes into play if one partner dies untimely and also the income continues to be needed for the family.
Most financial consultants suggest a person should have regarding five to ten times their annual remuneration.
This is not a hard and quick rule, but this figure will give you a starting point for the amount of coverage.
- Life insurance isn't meant to be your pension plan or your kids' school fund.
- If your financial consultant sold you a policy to satisfy these desires you must take into account receiving a second opinion.
Life Insurance Types
For a couple, once they are reviewing life policies they'll notice 3 common styles of life policies: group insurance, cash value Insurance, and term insurance.
Life Insurance Types : 1. Group Term Insurance
Group insurance is the easiest to explain.
Group term insurance is the common life insurance an employer can provide to his staff.
The life insurance solely covers the workers while they're employed. Typically the coverage is just for one or two times the employee's annual earnings, that doesn't meet the suggested five to ten times annual earnings.
This type of insurance may be smart bonus insurance and will not be your primary insurance.
Group insurance is going to be your least expensive since the coverage amount is small and there is little or any approval process.
Life Insurance Types : 2. Cash Value Insurance
The second life insurance type goes by several names:
- Whole Life Insurance.
- Permanent Insurance.
- Cash Value Insurance.
With cash value insurance you have two different coverage amounts. One is the face amount or the actual coverage your beneficiaries would receive. You also have a second amount which is the cash value.
The cash value grows over time and your beneficiaries would receive the face amount and cash value depending on the payout method selected.
Whole life has become popular again in the past decade due to the poor returns of the stock market. However, as stated earlier life insurance is not meant to be your retirement account, but income protection. There are much better places to save your money for retirement such as a Roth IRA.
Of the three types of life policies, cash value insurance is the most expensive.
Life Insurance Types : 3. Term Life Insurance
The final type of life insurance is Term Insurance.
As the name states, your coverage is set for a specific period of time or term. A term period could be for as little as one year up to 30 years or more.
At the end of your term, you can reassess your life insurance needs to see the amount you at that stage of your life.
A common length of the term many families buy is a 20 or 30-year term. A 20-year term should take you past your peak responsibility years, but to be safe a 30-year term should be adequate.
One tip you need to be aware of with term insurance would be your options at the end of the term. You want to look at the policy itself for a guaranteed renewable policy without any medical questions.
The reason is we never know what our health may be like 20 or 30 years down the road so having a guaranteed renewable policy is vital to your financial plan.
- Many of your cheaper term policies require you to re-qualify for your life insurance at the end of the term. This means you have to answer medical questions to continue the coverage.
- Term insurance will cost more than group insurance but is usually 2 to 3 times less as expensive as cash value insurance. However, do not look only at cost as the only factor.
- You should use the recommended 5 to 10 times your annual salary to come up with a figure to adequately protect your family.
- Look for the amount of coverage you and your spouse need and then at the cost.
What Experts Say?
- You never like to listen only to financial advisors or insurance agents.
- You like to see what third parties have to say about topics. When the topic comes to life policies most third-party companies or people recommend Term Insurance.
- Read financial magazines like Smart Money and Money Magazine or books by Dave Ramsey or Suze Orman or newspapers like The Wall Street Journal or USA Today for a second or third opinion.These sources have stated at one time or another that term insurance is a better way to protect your family.
Life insurance the foundation of a financial plan and a family is dependent on the income to make the financial plan become a reality. Take away the income then the plan falls apart.
Life insurance helps protect the financial plan if either spouse passes prematurely.
Let's go build our financial destiny.