Life Insurance Basics

Unfortunately, death, like taxes, is a certainty for us all. Sure that sounds depressing, but it could be a whole lot worse-- like leaving the family behind with an unpaid mortgage, a mountain of bills and those mind-numbing tuition costs.

Making sure your loved ones are financially provided for after you’ve unexpectedly shucked the mortal coil is the motivation behind life insurance policies. Life insurance provides a “death benefit” which can be used to take care of that mortgage, the bills... even the kid’s tuition. In effect, this policy substitutes for income lost due to the insured’s untimely death.

Two basic coverages are available:

Term. This protection typically extends from one to thirty years, paying a death benefitonly if
you die during the term of coverage. Term premiums are usually more affordable than the alternative (permanent insurance) allowing more bang for the buck and putting the coverage where it’s most needed-- when the kids are young. The cost of term does go up, however, every time the policy is renewed, which could become cost inefficient once you reach those golden years.

Permanent. The premium for this insurance is typically locked at the age when the policy is first written, which means your cost remains constant for the duration (as long as you stay current). Although permanent coverage costs more than term, the cost doesn’t increase with age-- a nice hedge against inflation. These
policies also accumulate cash value as they mature, and the insured can borrow against that cash value in the form of low-interest loans.

Insurance experts say the amount of insurance you’ll need should be based on how much money you make. The rule of thumb suggests protection five to eight times annual income, but make sure to discuss all coverage options with your agent. When figuring coverage you should consider your family’s needs once you’re gone, including all ongoing costs your spouse and children can expect down the road. Remember to factor in those immediate after-death expenses like medical and funeral bills. Also ask about mortgage insurance, which is coverage that pays off the note if you pass away before you’ve completed all payments.

Life insurance is sold through agents or directly from the company-- including over the Internet. But no matter where you make your purchase, don’t forget to solicit and compare price quotes from at least three different companies.

Good luck, stay healthy... and eat your vegetables

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