Life insurance can create financial security for you and your family. If you should die prematurely, it can be used for a variety of purposes:
- pay your final expenses, taxes, and any debts that you may have
- provide an income for your family
- ensure your family has the resources to maintain a comfortable standard of living
- leave a legacy to your favourite charity
Life insurance can also be an important tool in your business. It can:
- protect financial obligations, such as a business loan or mortgage
- protect the value of your estate from potential creditors
Regardless of your reasons for needing life insurance, it can play a very important role in your total financial plan.
Who needs life insurance?
- People with Responsibility for Others – how would the loss of your income affect the people who depend on you?
- People Without Family Ties – do you want to saddle someone else with your debt?
- People With Estates to Protect – life insurance enables you to pay your estate liability for pennies on the dollar.
- Business Owners – as a partner in a practice or owner of a professional corporation, you may have personal liability for the debts of your business.
When should you buy insurance?
The funny thing about insurance is that the best time to buy it is when you appear to need it the least…when you’re healthy. However, even if you have some health issues, insurers will consider those and will most often offer insurance – perhaps at a higher premium. You should review your life insurance protection on a regular basis and anytime there is a life changing event such as: the birth of a child; a change in marital status; a change in income; a large purchase such as a home or vacation property; or the repayment of a loan or mortgage.
Is there more than one kind of life insurance?
Although there are many different types of life insurance products available, they all fall into one of two basic categories…Term and Permanent.
Term life insurance is well suited to meeting short-term protection needs for the lowest initial cost. For example, a couple with young children and a mortgage might select term life insurance as an affordable way to obtain the full coverage that they need to protect their mortgage and the cost of raising their children.
Most term policies have rates that increase after a set period of time. A 5-year term policy will have rates that increase every five years; a 10-year term policy will have rates that increase every 10 years, a 20-year term policy will have rate increases every 20 years. This keeps the cost low at younger ages, but the cost can be substantial at older ages. Generally speaking, renewal rates (without underwriting) are substantially higher than purchasing a new policy (with underwriting) every 5, 10 or 20 years.
Term policies also will expire, usually between ages 75 and 80. Many term life insurance plans provide the ability to convert the term insurance to permanent insurance without providing proof of good health. This can be a valuable benefit if your health is such that you would no longer qualify to purchase an insurance policy. This ability to convert, however, usually expires around age 65 or 70.
Permanent insurance is insurance that will stay in effect for as long as you live assuming, of course, that you pay the premium as per the policy requirements. Permanent insurance is usually used for needs such as, paying taxes due on death; leaving an inheritance to your heirs; charitable gifting; and any other financial issues that might arise upon your death.
Permanent insurance does not expire. Whether you live to 50, 80 or 120, the permanent insurance benefit will pay out to your beneficiaries as long as the policy is in good standing at the time of your death.
Most permanent insurance policies have a level premium throughout the life of the policy. Unlike term insurance, the premiums will not increase as you get older. Premiums are averaged over your life expectancy, so you can expect to pay more for a permanent policy, than for a term policy, at your initial purchase date. However, while term premiums will increase as you age, permanent premiums will not and you’ll spend less on a permanent policy over the long-run.
Permanent insurance is available in many different forms, Term to 100, Whole Life, and Universal Life. Each type of permanent insurance has different features and benefits and you should consult with an insurance agent that is well-versed in each type of insurance to help you determine which option is best for your individual needs.
Some people have both short-term and long-term insurance needs and a combination of both term and permanent insurance might be appropriate.
Learn more about Lawyers Financial Permanent Life Insurance.
Your life insurance represents an important part of your overall financial plan. Purchasing insurance that meets your needs now and in the future can be complex. That’s why professional advice from a trusted Financial Advisor is essential.