As a general rule, we believe most individuals should “Purchase Term Life Insurance and Invest the Rest.” We’ve found that many clients do not fully understand the benefits and drawbacks of different life insurance policies.
Why do I need life insurance?
When a life is lost, the quality of life dreams of the individual’s family should not die, as well. Life insurance typically is used to replace the income earned by an individual, pay off the mortgage, pay off debt, pay final burial expenses and provide for children’s education.
How much life insurance do I need?
Complete the attached Life Insurance Coverage Estimation Sheet to estimate the proper amount of coverage for your family.
Should I get Term or Permanent Life insurance?
Term Insurance - Term insurance is usually recommended if your family needs financial protection for a specific period of time, whether it's one, five, 10 or even 30 years. Term insurance helps cover needs that will disappear over time, such as a mortgage or college expenses. It also is recommended for families that need a large amount of life insurance protection and are on a limited budget, since term insurance premiums can be less expensive than other types of life insurance.
- Provides protection for a specific period of time, usually anywhere from one to 30 years.
- Pays a death benefit to your beneficiary only if you die during the specified term. At the end of the term, protection ends unless the policy is renewed.
- Your beneficiary will not have to pay federal income taxes on the death benefit.
- Premiums are generally lower for term insurance than for permanent insurance. However, premiums for term insurance will increase as you grow older.
Permanent Insurance - Permanent insurance is a combination of an insurance product (term insurance) and an investment. As long as you pay the premiums, your beneficiary will receive the death benefit. Permanent life insurance also builds up a cash value, which you can borrow against and use during your lifetime.
- Premiums for permanent insurance can be fixed or flexible to meet your personal financial needs.
- Your beneficiary will not owe federal income taxes on the death benefit.
- You have access the cash value of a permanent insurance policy, which increases over time tax-deferred.
- You can borrow against the policy's cash value to help pay college expenses, pay the policy's premiums, or provide paid-up insurance. Be aware that policy loans reduce the death benefit and may leave your beneficiary without adequate protection.
- You can convert the cash value of permanent insurance into an annuity, which can provide you with an income for life.
- You can cancel the policy and use its accumulated cash value any way you wish. You may owe taxes on some of the cash value if the sum exceeds what you have paid in premiums.