By
Mick Cottom
What
you’ll discover in this report:
§
How
to make sure your family is really protected!
§
Cut
through the confusing “insurance jargon” and know
what a life insurance policy really says!
§
The
different kinds of life insurance policies…what they’re
good for, when to use which one
§
Why
smart consumers use life insurance…and the mistakes
that other people make too often…and much more!
How
to protect your family if you die...
Life
insurance is a simple concept -- you buy a policy that
pays to your beneficiary or beneficiaries when you die
-- but the decisions of what kind life insurance to
purchase, how much of a death benefit and how much you
pay are extremely complex.
*
Note. There
are more than 2,000 companies selling life insurance in
this country. Some are very good, financially solid
companies; others are not so sound. A company’s
financial strength is vitally important to you because,
hopefully, no one is going to collect on your life
insurance for a long time.
You
want to make sure your life insurer will be around for
the long haul. How do you do this? You can consult a
seasoned insurance professional, which is probably your
best bet, or you can look at how various independent
organizations “rate” the life insurers you are
considering. Ratings are like school grades, A+, A, A-,
B+, etc. In general, it’s wise to stick with companies
that are rated A or better by most rating organizations.
Life
insurance is far more than just a decision of how much
to buy. Depending on your financial situation, life
insurance can be used for a variety of purposes, such
as:
estate
planning
accumulating
cash
transferring
wealth
achieving
estate tax liquidity.
Life insurance is
like auto insurance in that you can buy a lot of it or
not very much at all. Life insurance differs from auto
insurance in that, depending on the type of policy you
buy, you can pay a lot or a little for basically the
same death benefit. Keep in mind, though, that the
younger and healthier you are, the less you will pay for
coverage. Life insurers really, really like to have
their policyholders around for a long, long time.
*
Tip. So how much life
insurance do you need? It depends. One common benchmark
is your death benefit should be about six to eight times
your annual earnings, but there are a variety of factors
to consider: Other income sources.
The
size of your family.
Whether
your spouse works and his or her earning capacity nowand
in the future.The number of people who are financially
dependent on you and for how long.
The
death benefits your family will receive from Social
Security and any life insurance plan at your work.
And
any special needs such as mortgages, college education
funds and estate planning.
Now,
what kind of life insurance should you buy? Guess what?
It depends. But keep this very important principle in
mind:
*
Tip. Whatever kind of policy you buy, you should make sure it
provides enough of a death benefit to meet your family’s
needs if you aren’t here. So when you consider buying
life insurance, start off with a number in mind of what
your family must have in terms of a death benefit. Don’t lose sight of this number.
What
kinds of life insurance policies are there? There
are several, but keep in mind that the terms and costs
of the policies vary widely among insurers.
There
are two basic types:
term
life, which is good for only a certain period of time,
and,
cash-value,
which is “permanent” insurance that also includes a
buildup of value in cash in addition to your death
benefit. You can borrow against your cash value. You can
even take out some of that cash value, but your death
benefit will be reduced.
What
exactly is “cash value?”
It’s that part of a permanent life insurance
policy not needed for so-called “mortality expenses.”
The greater
your risk of dying, for whatever reason, in the near
term, the greater your mortality expense to your
insurer.
When
young, healthy people buy life insurance, they have a
very low mortality cost to their insurer (which is why
life insurers are so willing to provide coverage to the
young and healthy).
Term
life policies provide coverage for specific periods of
time, sometimes as little as one year. While you usually
can renew term life policies for one or more terms even
if your health has changed, there’s potentially a big
risk here if you get sick during the term.
*
Tip. If your health does change, you probably won’t be able to
buy another term without seeing your premium skyrocket.
You should ask your insurer or agent what the premium
will be if you continue to renew the policy.
*
Note. You
should also ask whether you will lose the right to renew
the policy when you reach a certain age. Because this
coverage is fairly cheap, it’s often a good option for
young people in good health who can’t afford to buy
“permanent” coverage.
Here
are a couple of term life policy options:
Yearly Renewable Term Life -- This is coverage for a longer term,
five, 10 or 20 years. The longer term also means that
the costs to cover you are spread out so that you will
avoid the potential for huge annual premium increases.
Convertible Term Life -- This is yearly renewable with the option to
convert to a permanent policy in the future. The
coverage, which often has the lowest cost and highest
death benefit options of term insurance, can be a good
choice for younger people who can’t afford
