Life insurance: protect what you have

While insurance is not an investment, it is an important part of sound and wise personal financial management. Insurance is protection. It protects everything you have worked so hard to earn. It protects your spouse in the event of premature death. It sends the kids to college. It brings a family together at a time when money shouldn't be an issue.

You need insurance, but buying the right coverage to protect your family and property is like learning a new language. Term life, whole life, universal life, actual cash value, dividends, loans against policy - it's a maze of insurance products and finding the right coverage for your needs can take a little research.

Here's a starter course for getting the most out of life insurance while still getting the protection you and your family need.

Types of life insurance

There are two basic types of life insurance with many variations on a theme.

Term life insurance is the easiest to understand. It's also the most economical protection you can buy.

Term life insurance is paid when the insured (you) die within a specified time - a specified length of time that your life insurance coverage is in effect. The term life comes with several deadlines: terms of five, ten, or even thirty years are available.

The younger you are, the lower the cost of the monthly premium - the amount you pay for protection each month. Premiums are calculated based on two factors: your age (and general health) and the amount of coverage you need. It's simple. A $ 100,000 term life insurance policy will not cost as much as a $ 500,000 policy because you are buying less protection.

With Term Life, you keep it simple. The insurance company pays X amount of dollars to beneficiaries upon transfer of the insured person, as long as the policy is in force i.e. death occurs during the term of the policy, hence the term life insurance name.

Term life insurance policies don't accumulate value, you can't borrow against them, and if you choose a short term and your health changes, you could end up paying more for your term life insurance than if you do. you buy long-term life insurance. a policy that covers you for the long term.

To determine the length of life you need, add up funeral expenses, unpaid personal debt, mortgage debt, the prospect of paying school fees, and other major expenses that would deplete family resources. Imagine what that would cost your family for just one year.

Then multiply by a factor between 5 and 10. Use the lower factor if you don't have a lot of debt and the higher factor if you have two mortgages and have three children to go to school. This is the lifespan you need to protect your family and all of their expectations.

The other class of insurance is whole life insurance, also known as permanent insurance, universal insurance, variable universal insurance and other product names, but all of them belong to the general class of coverage called whole life insurance.

The first difference between the term and whole life is that the whole life covers you from the day you purchase the policy until your death. Of course, this assumes that you are paying your whole life insurance premium every month. There is no term (the length of coverage in effect) for the entire life. Buy it when you are young and your premiums will be low and you will start to accumulate cash value.

This is the other main difference between term insurance and whole life insurance. Whole life pays dividends. Not a lot, but dividends that can be used to reduce monthly premiums, or they can be allowed to earn interest.

Once the whole life insurance policy has accumulated sufficient cash value, you can borrow against that cash value to buy a house or cover some tuition bills. The downside of taking out loans against the value of a whole life insurance policy is that it reduces the payment to the family in the event of the death of the insured person.

However, a whole life insurance policy grows in value while protecting your family. The cost of coverage is also higher. Expect to pay more for $ 500,000 of whole life compared to $ 500,000 of term life insurance, just because the insurer is paying interest on your monthly premiums.

If you do the math yourself, you know how much coverage you want to buy, when and when, all you need to do is find a reputable insurance company that offers competitive rates and the benefits you are looking for.

Another resource is your local bank - often the best place to start researching your life insurance needs. Banks sell a wide variety of life insurance products, and since insurance is not a bank's core business, you are more likely to get straightforward answers to your questions.

Another reason to consult with your bank's insurance representative is that your bank knows your finances: how much you have in your accounts, how much comes in and out from month to month, your tax status, and other personal financial information needed to get the credit. the right kind of life insurance at the right price.

Talk to your employer. Life insurance can be a plus along with health care and two weeks vacation, but you can also increase the dollar amount of coverage with money deducted from your paycheck painlessly.

Unions, associations, your local chamber of commerce and other organizations are also sources of low-cost long-term or whole-life coverage. Buying life insurance coverage through an industry association, for example, allows you to get group rates that translate into more coverage at a lower monthly premium. On the other hand, when you buy term or whole life through your union, you usually don't have a choice of insurers and this is an important point to consider.

Choose an insurance company rated very well by Standard and Poor or another rating agency. Your broker or banker will direct you to the quality of the coverage so that you get more for your money.

Life insurance sounds complicated, but when you break it down into simple terms, it's something you can do with a trusted advisor to get you on the right track.

Get life insurance. Get a term life if you want lower premiums; get lifetime if you want your insurance to create cash value that you can take out loans against.

It's your choice. Doing the right thing saves money and provides the peace of mind that only quality life insurance offers.

No one likes to think about buying life insurance. It's depressing. It is also essential to protect your family and your property. What type of life insurance is right for you? Here's what you need to know before talking to an agent or insurance company.