How to Buy Life Insurance
Finding the middle ground between being "poorly insured" and without any protection required to assess the real needs and choose products that are affordable. This article shows the different types of insurance products and the role they can play in a personal financial plan.
Summary
1. To buy a life insurance policy: what kind and how much money?
2. Types of insurance
3. How much insurance do I need?
4. Other types of life insurance
5. Conclusion
1. To buy life insurance
The popular wisdom tells us that life insurance is sold, not bought. In other words, some people refuse to talk about the importance of owning life insurance, and others simply unaware of the need for life insurance. Although many large companies provide life insurance as part of its package of benefits, possibly This coverage is not enough.
Who needs life insurance?
If there are people who depend on you for financial support, or if you work at home giving his family services like child care, cooking and cleaning or home, you need life insurance. Couples elderly may also require insurance life to protect the spouse who survives against the possibility of having to deplete savings to the retirement of the couple because of unexpected medical expenses.
And those with substantial assets may need life insurance to help reduce the effects of state taxes or to transfer their assets to future generations.
2. Types of insurance
Insurance term - also known as temporary insurance: life insurance is considered the most basic, and usually the least expensive, for people younger than 50 years. A term insurance policy is signed by a specified time period, usually from 1 to 10 years, and may be renewed at the end of each term.
Also, premiums increased at the end of each term and that is why this insurance may become inaccessible to most people older. A level term policy of blocking annual premiums for periods of up to 30 years.
Life insurance term low: a variation on the same subject, is often used as mortgage insurance since it can be subscribed to match the principal repayment of your mortgage.
Although the premium remains constant during the term, the nominal value declines at a gradual pace. Once the mortgage is settled, it is no longer necessary insurance and the policy expires. Unlike many other policyholders, insurance has not completed cash value. In this sense, it is safe "pure" without any investment option.
Only the benefits are paid if you die during the term of the policy. After the term expires, your coverage expires unless you decide to renew the policy. When you buy term insurance, you could find a policy that can be renewed until the age of 70 and then become permanent insurance without a medical examination.
Life insurance permanent: combining permanent protection with a savings component. As long as you continue paying premiums, coverage may fix a rate premium level. Part of that premium as accumulates cash value.
As the policy is gaining value, you can borrow up to 90% of the cash value of your policy tax-free.
Universal Life insurance: is similar to permanent life insurance with the added benefit of earning potentially higher earnings in the savings component. The policies of universal life insurance are also extremely flexible with regard to premiums and nominal value.
Premiums can be increased, decreased or deferred, and the cash value can be withdrawn. You also have the option to change denominations. The policies of universal life insurance commonly offered guaranteed a return on the cash value, generally at least 4%.
You will receive an annual statement detailing the cash value, the total protection, income and charges.
The disadvantages of this type of insurance include charges and higher sensitivity to changes in interest rates. The policies include universal anticipated charges as well as current administrative positions for a total of up to 5% to 7% of their premiums. You could also see an increase in their premiums when lower interest rates.
Life insurance variable: control and generally offers fixed premiums on the cash value of your policy. Its cash value is invested in its selection of stocks, bonds, options or funds of the stock market. The benefits of cash value and death may increase or fall in line with the performance of investment chosen by you.
Although the death benefits generally have a quantity limit established, there is no guarantee in cash value. The charges for these policies could be higher than those of universal life insurance and investment choices can be volatile.
In the advantageous side, capital gains and other income from investments accumulate tax-deferred as long as the funds remain invested in the insurance contract.
Variable universal life insurance: the type of policy is more dynamic. Like the variable life insurance, you control your investment in mutual funds. However, there is no guarantee universal policy variables except for death benefits of the original face value. These policies are probably the most appropriate for people with high levels of income who can afford the risks that accompany them.
Key Terms and definitions
• Nominal value - The original amount of benefits under the policy. The original amount of death benefits.
• Convertibility - The option of converting the policy of one type (temporary) to another (permanent), usually without medical examination.
• Value in cash - The savings portion of a policy that can borrow against it or exchanged for cash.
• Premiums - Payments monthly, quarterly or annual required to maintain coverage.
• Beneficiary - The individual / individuals or entity (eg., Trust) that is designated to receive the benefit.
• Paid in Full - A policy that does not require additional premium payments due to pre-payments or income.
3. How much insurance do I need?
One popular strategy is to buy insurance basa in replacement revenue. In this strategy, is often used a formula that accounts for between five and ten times their annual salary to calculate how much coverage you need.
Another strategy is to buy insurance according to their individual needs and preferences. The first step is to determine their particular needs replacement income.
Currently, a large portion of their income goes for taxes (insurance benefits are generally tax-free) and to cover the cost of its own lifestyle. You begin by determining their net income after taxes. Then you add all their personal expenses as food, clothing, magazine subscriptions, club memberships, travel expenses, etc..
The remainder represents annual revenues that need to replace your insurance. You want to have a number of benefits for death which, when invested, would provide annual income to cover this amount. Then you must add to that the amounts required to cover costs only once as school fees of their children, paying mortgages, or debts.
The replacement of income for non-working wives is a need to secure important and often overlooked. The coverage must pay its costs for child care, household expenses or nurse. In addition to this net income of part-time work.
Finally, calculate their own "final expenditures" as property taxes, medical costs not covered, and funeral costs.
4. Other types of life insurance
Life insurance for survivors: (also known as' the last to die or the second to die ') is a type of single contract that ensures the lives of two people. Pay for death benefits after the death of the second insured. Therefore, it is usually cheaper than two individual policies.
The survival of life insurance is often used for planning heritage, which could potentially be possible to increase current dollars - through insurance premiums - a considerably potential for death benefits that can be used to pay property taxes, create assets for future generations, or give money to a charity.
These policies may be available if one of the insured is not medically "insurable."
Secure the second to die: ensures the lives of at least two people and pays benefits when the first insured person dies. This policy is useful to cover a mortgage or other large debt where there is more than one debtor. In addition, it may be the ideal tool to afford a purchase and sale agreement within a company closely controlled.
5. Conclusion
Life insurance is an important component of an intelligent financial plan. Buy insurance involves making a variety of questions about finances and lifestyle. If you're not currently working with a professional insurance, it would be desirable to consider requesting the advice of a financial planner who charges a fee for their service and can offer an objective perspective of their insurance options.
When you decide what you want, there are many insurance companies to choose from solid. Check your library or an independent insurance professional to find out about companies that have the highest ratings from evaluators four agencies: AM Best, Duff Phelps, Standard & Poor's and Moody's.
Résumé
• The insurance term-also known as temporary insurance coverage-is a basic economic price with premiums that increase over time and have no cash value.
• Consider a policy to end that can be renewed and become a permanent insurance if their needs change.
• The permanent life insurance provides coverage leveled with the first level. A portion of those premiums goes to savings tax-deferred.
• Check the rates of permanent insurance policies and compare them with those of other investment options.
• The variable life insurance gives you control over your investments.
• Premiums on policies variables are fixed but the nominal value and the value of their investments may fluctuate.
• The universal life insurance offers more investment options but may be more affected by changes in interest rates. The variable universal life insurance is extremely flexible but offers no guarantees other than the original face value.
• The insurance needs are based on the replacement of income and personal preferences.
Checklist
• Determine exactly how much money they will need their survivors life insurance to maintain a long-term financial security.
• Decide whether you prefer term life insurance (temporary) or a policy that includes also the factor of savings.
• Investigate to find the best deal and read the policy well before buying insurance. Not a fact that will receive benefits that have not been clearly detailed.
Before we begin
• Keep in mind the members of his household to be covered by life insurance. (Generally, it's a good idea to reassure anyone who receives income).
• Find out if you are eligible for group life insurance at work. If you already have, review your policy to understand exactly the benefits it offers.
• Remember that you may not need life insurance if you do not have dependents and no one else is up to you to receive financial support.
