Life Articles

Article / Updated 03-26-2016

Life insurance is meant to replace your income if you die prematurely. If you’re married, in a committed relationship, or have children who depend on your income, you need life insurance. If you have a stay-at-home spouse or partner caring for your home and children, you would be faced with some very substantial costs to replace those services if he or she dies. Here are the primary types of life insurance to choose from; each product has its appropriate uses: Term Life Insurance Like home and auto insurance, term life insurance is pure insurance in that it pays off only if you make a claim. The cost of the insurance can go up every year or remain level for a specific number of years. You can lose your insurance coverage if the term expires and the policy isn’t guaranteed renewable or if you elect not to renew. However, term insurance is the cheapest form of life insurance, and the only appropriate type of life insurance for most people. Twenty-year level term coverage is generally an excellent option for families with young children because the insurance will be there to support the surviving family at least until the kids are grown. Here are some options to consider: Level premium insurance, which is extremely cost-effective, guarantees a set premium amount for a set number of years. Choose level premium term insurance with a guaranteed level premium for the number of years that you anticipate needing the coverage. A guaranteed renewable rider is a very attractive feature available with many term insurance policies. It ensures that you'll be able to retain a term policy at the end of its initial term — if you still need the insurance — simply by paying the premiums in effect at that time. You don’t have to reapply or provide evidence of insurability. If you need coverage for only five to ten years, you may want to consider Annual Renewable Term (ART) life insurance because it tends to be less expensive for the first five or six years of the policy, but every year thereafter, the premiums continue to increase. It makes no sense, though, to buy this coverage unless you won't need it very long. In every other situation where term insurance would be appropriate, go with the level premium term insurance. Permanent Life Insurance With permanent life insurance, the cost is substantially higher in the first several years of your coverage. However, the cost can’t go up. The initial premium rate is as bad as it’ll ever get, and the insurance company can’t deny you benefits as long as you pay your premiums on time. So, if you need life insurance coverage forever — for example, if you need cash available for your heirs to pay estate or inheritance taxes upon your death — you’re a good candidate for permanent life insurance. Permanent insurance comes in two primary flavors: Universal: You may possibly need a lot of life insurance now and well into your retirement years. If this is the case, get universal life insurance for at least a portion of your life insurance needs. Whole: If you need coverage for your entire life, no matter how long you live, whole life insurance might be the right option. Insurance agents make a lot more money selling universal life, variable universal life, and whole life insurance than they do selling term insurance. Keep this inherent conflict of interest in mind whenever you consider the recommendations of an insurance agent.

Article / Updated 03-26-2016

You may know the type of life insurance you need, but how do you know how much coverage is best? To calculate how much life insurance you may need to support your surviving family, check out the Calculating Your Life Insurance Needs worksheet, included here, to calculate your personal life insurance needs. Complete the worksheet for both you and your spouse or partner to determine both of your life insurance needs. Click here to download and print the Calculating Your Life Insurance Needs Worksheet. If you’re relatively healthy, term insurance is quite affordable, so if in doubt about the appropriate amount of life insurance you need or for how long, buy as much coverage as you can afford. You can generally drop a portion of your coverage as time passes. If you have a partner and one of you doesn't work outside the home, be sure to add to the monthly expenses of the surviving family the cost to replace the stay-at-home partner’s financial contributions to the household. For example, if a stay-at-home parent dies when your children are still young, you might need to hire a live-in nanny so that your children are well cared for and you can continue to work outside the home as you have been. To hire the services of a full-time nanny, you might need to spend $25,000 to $40,000 a year for as long as you need this level of service. Add this cost to the monthly expenses of the surviving family on line 1 of the worksheet. By calculating your life insurance needs, you can rest assured that your family will be adequately cared for if you die suddenly. Calculating your needs also prepares you for discussions with life insurance agents or companies so you buy just the right amount of coverage you need — no more, no less. Use the Which Type of Insurance Is Right for You Worksheet to determine which option will be best for you, now that you know how much you need. Click here to download and print the Which Type of Insurance Is Right for You Worksheet. Say, for example, that your family needs a total of $800,000 in life insurance now if you were to die, and you want to keep $200,000 worth of coverage for your spouse when he or she reaches age 65 in 30 years. You’d like your spouse to have that coverage for the rest of his or her life. You should then obtain a total of $600,000 in term insurance — preferably 30-year level term coverage or a 20-year level term policy that is guaranteed renewable. Then purchase a separate universal life policy to provide $200,000 for your spouse that lasts until he or she is age 95 or stops paying premiums and depletes the cash value.