Term Life Insurance—economic Sense?

Title:
Term Life Insurance—economic Sense?

Word Count:
1298

Summary:
Purpose of Life Insurance

If you die, life insurance is designed to provide financially for those you have left behind and have listed as your beneficiaries. In buying life insurance you, the insured, enter into a legal contract with the insurance company, also known as the insurer. Basically, the contract states that if you make your monthly insurance payments in a timely manner, your family or other beneficiaries will receive a specific amount of money when you pass on.
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Keywords:
Term,Life,Insurance,Economic,Sense,Term,Life,vs,Permanent,Life,How,to,Decide


Article Body:
Purpose of Life Insurance

If you die, life insurance is designed to provide financially for those you have left behind and have listed as your beneficiaries. In buying life insurance you, the insured, enter into a legal contract with the insurance company, also known as the insurer. Basically, the contract states that if you make your monthly insurance payments in a timely manner, your family or other beneficiaries will receive a specific amount of money when you pass on.

Although some may find the idea of life insurance distasteful, it is considered to be essential in protecting the fiscal health of your spouse and children should they find themselves fiscally taxed due to your death.

Types of Life Insurance

There are two primary types of insurance: permanent life and term life insurance. Each provides specific types of protection for your loved ones.

Term life insurance, the simplest form of life insurance, is designed to protect your family for a specified length of time or “term.” Term policies, which range from 1 to thirty years, provide a one-time death benefit but no cash savings. This means term policies only provide benefits as long as the insured has paid the premium, which is the cost of the insurance. Premiums are divided into equal monthly payments that are assessed for the entire period of coverage. If you bought a policy that covered you for a three-year term, then you would make 36 equal premium payments on that policy.

Permanent insurance is designed to offer both a death benefit and an investment return after a length of time. Because this type of insurance offers a long-term savings plan, premiums are higher than those for term life insurance. Common types of permanent insurance are whole life, universal life, and variable universal life.

Term vs. Permanent

Term life insurance is especially appropriate for those who desire coverage for a specific length of time and who have limited funds. Because it is less expensive than permanent insurance, term can offer more coverage for less money. This is useful to people who have children, mortgages, and various types of loans. The right amount of term can cover these expenses and more. However, if you still desire coverage after a term policy’s period ends, factors such as poor health and age will result in higher premiums when you buy a new policy.

Permanent insurance, although more expensive, allows policyholders various benefits, including a premium that will not change as you age or if your health deteriorates. Also, permanent insurance will usually accrue monetary value, offering the policyholder a return on their investment that they can access as worth builds.

Whole or ordinary life is the most common form of permanent insurance. With whole life your premiums and the face amount of the policy are fixed over the life of the policy. Your premiums must be paid regularly. A more flexible policy, where you can pay premiums at any time in just about any amount, is universal life. With this kind of coverage, you’re allowed to modify the death benefit amount according to your needs.

A variable life policy carries both a death benefit and monetary value. The value of this policy is dependent upon the performance of investments. You select the investments for your portfolio and the better they perform the higher the death benefit and cash value of the policy. Some policies offer a minimum death benefit regardless of how your portfolio functions.

Variable-universal life carries elements found in both variable and universal life. You get the risks and possible rewards of a variable policy and the flexibility of universal coverage.

Choosing a Life Insurance Company and Policy

There are some important things to consider when buying a policy. Be sure to shop around before buying life insurance. Consumers can buy insurance directly from an insurance company via the Internet or over the phone. Buying this way is usually cheaper than going through an insurance agent because the agent receives a commission, called a “load,” when they sell a policy.

The life insurance industry is very competitive with hundreds of companies offering policies. This is a benefit for the consumer, because competition tends to aid the buyer; however, this can also be seen as a detriment because the range of choices can make finding the right policy from the best company daunting. Your search will be easier if you consider four basic criteria in making your selection—rates, budget, service, and stability.

Rates: Because it is such a competitive business, life insurance rates vary greatly from company to company. Find three to five policies with attractive rates for the amount of coverage you desire.
Budget: Once you’ve found these policies, be sure the premiums are within your budget. It doesn’t make any sense to go forward with any of these contracts if you aren’t going to be able to afford them.

Service: In determining the quality of each company’s service, you can do two things. If you are going through an agent, you’ll be determining the quality of that person’s service when you talk to them about the benefits of buying specific policies. The same is true if you buy directly from an insurance company without going through an agent. Do they answer your questions clearly? Do they seem to know what they are talking about? Do they leave out important information?

By considering at least three companies and/or agents, you’ll be able to compare their ability to answer questions and to give you their undivided attention. Along with interviewing potential agents and companies, you can check with your state insurance department to see how many complaints, if any, they have received concerning the company and/or agent.

Stability: An insurance company’s economic stability is directly connected to their ability to meet their future financial obligations. In other words, you want to make sure an insurance company will be able to pay your death benefit. The following companies rate insurance providers’ fiscal soundness.

A.M. Best
Oldwick, New Jersey 08858
908-439-2200
www.ambest.com

Moody’s Investors Services
99 Church Street
New York, New York 10007
212-553-0300
www.moodys.com

Standard & Poor’s Insurance Ratings Service
55 Water Street
New York, New York 10041
212-438-2000
www.standardandpoor.com

Weiss Research
4176 Burns Road
Palm Beach Gardens, Florida 33410
800-289-9222
www.weissratings.com

After going through these four steps you should be able to compare each company, agent, and policy and make an informed choice.

One more important place to check for affordable life insurance is your employer. Many businesses offer very competitive group rates, usually for term life policies.

How Much Life Insurance is Enough?

Some people will say that you can never have enough life insurance. However a common rule of thumb is to buy at least five times your yearly income. Many policies include a double indemnity clause, which means your beneficiaries receive double the value of your death benefit if you should die suddenly in an accident or due to some violent event.

In asking yourself “how much is enough,” you’ll want to make a list that includes yearly expenses, large debts (such as a mortgage), and long-term or future expenses (such as college tuition). You’ll know you’re adequately covered if your death benefit provides for large debts, with enough left over for at least one year of living expenses and for investing or sheltering for long-term or future expenses.

Finally, you need to decide what you want to get out of your life insurance.  Is it simply a specific period of coverage with a large death benefit or do you want your life insurance to be part of your long range fiscal planning?  Considering and answering all of these questions will help you find the policy that’s right for you.

Permanent Or Term Insurances?

There are many insurance companies in the world giving their life insurance quote.

It's pretty difficult to pick which one is the best. What should you do? One strategy that'll work is to keep switching insurance companies. Any company will make more money by selling to people who are more price sensitive.

A person needing an insurance may be willing to pay high. A person who keeps switching insurance shows that he is price sensitive and hence, he will get a lower price.

Your life is not the only thing you can insure. You can also insure your house and your car. There are many websites offering free car insurance quotes and home insurance quotes.

There are usually two types of life insurances.

Term Insurance

Term insurance is paying the life insurance while betting that you'll die. You bet $2,000 per year. If you die during that year, you win, say, $1 million dollars. If you don't die, there goes your $2,000.

Life insurance has a major drawback -- You get to die first before you can get your money. So many insurance companies combine life insurance with some form of investment. Is this a good idea? Most of the time, it is not.

Permanent Insurance

Permanent insurance is insurance with savings. Say, you paid $20,000 per year for 10 years. If you die within that10 years, you'll get $1 million. However, at the end of the 10 years, if you fail to die, you still get your $200,000 back, often with interests.

Your insurance agent will usually encourage this. Why? Because they get more commission out of this. Why? Because insurance companies make more money out of this arrangement. Why? Because it's not good for you, at least usually.

First of all, this is not an apple to apple comparison. Say you pay your life insurance to get $1 million dollars. Maybe you got to pay $2,000 per year. With compound insurance, to get a $1 million dollar settlement, you need to pay $20,000 per year, but only for 10 years. Usually, the insurance agent will make things even more confusing for you by offering $100 million dollar compound insurance for $2,000/year.

So how do you make it apple to apple? You compare the permanent insurance with regular term insurance plus regular investment. So, the permanent insurance of $20,000 per year is equivalent with $2,000 term insurance and $18,000 per year investment. If you buy the $2,000 term insurance and invest the $18,000 per year, how much money you'll make after 10 years? A simulation shows that you'll make $286,874.

Now, is permanent insurance a good insurance? Well, just compare that $286,874 with what you'll get back under the term. Usually you'll get less. When you get less, the insurance company makes more. So insurance companies provide greater intensives for the insurance agent to sell permanent insurances.

However, permanent insurance have one advantage. Tax benefit. Your assets can accumulate free of tax. Also, regular investments will often be subject to inheritance tax while insurance may not be.

So a good strategy is to simply buy permanent insurance with $0 coverage. They'll compare the ROI of the permanent insurance apple to apple. Hence, all mutual funds will turn to insurance company providing effectively the same service. It's good, it works, it's productive, and hence governments prohibit that, of course.

You can check out whole life insurance quotes on the web.

Affordable Life !Insurance

So, you’ve decided to purchase life insurance. Well then, you have made a good decision! If you have dependents, you know that you must provide for them long after you are gone. Buying life insurance shouldn’t be a budget buster either. Take a look at the following options which can help you save big time!

<b>Shop Online:</b> There are several companies that will give you free life insurance quotes right online. By entering your personal information, the amount of insurance coverage desired, and policy terms, you will receive within moments sufficient quote information. Naturally, you will want to talk to an agent at some point, but at least you will get a very good ballpark figure to consider. Some good sites for you to visit include: Insure.com; SelectQuote.com; ReliaQuote.com, IntelliQuote.com; and InsWeb.com. There are many others, so do some comparison shopping.

<b>Types of Life Insurance:</b> There are four types of life insurance plans from which you can choose: Term Life, Whole Life, Universal Life, and Variable Universal Life.

<u>Term Life</u> is the most affordable as it lets you lock in a fixed rate for the length of the policy [typically 10 or 20 years], but it does not have any cash accumulation. So, the only way it pays is if you die!

<u>Whole Life</u> offers policy holders lifetime coverage, guaranteed level premiums, tax-deferred accumulation of cash values. In other words you can borrow off the policy if you need the cash.

<u>Universal Life</u> offers policy holders Lifetime coverage, flexible premiums and death benefits, tax-deferred accumulation of cash values. Rates are adjustable.

<u>Variable Universal Life</u> offers lifetime coverage, flexible premiums and death benefits, tax-deferred accumulation of cash values, a selection of investment options. Rates are adjustable.

<b>Contact an Agent:</b> Once you have determined which type of insurance is best for you and your family, contact an agent for further guidance. If you received an acceptable life insurance quote online, follow through with it to allow an agent to contact you personally. This person will go over your policy and discuss with you the various types of companies offering coverage. If you are satisfied and want to proceed further, the agent will order a comprehensive medical exam that can be done in the convenience of your home or office at no charge to you! About four to six weeks later the results will be in and if all goes well, coverage will begin almost immediately thereafter. At no point are you obligated to accept coverage until you sign a contract.

<b>More Savings:</b> Do you want to save even more money? Pay the premium all at once. Monthly or quarterly payments usually carry a surcharge. By paying the entire premium in advance you can save around 5%.

Providing for family members after your death is one of the most important reasons to include life insurance as part of your financial planning. You can receive your free life insurance quote by shopping online today; don’t delay!

(c)2005; Matthew C Keegan, LLC