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life insurance

Choose the right policy

Buying the wrong benefits for a low premium does not add up to savings

About life insurance

Life insurance can be an important part of your family’s long-term financial planning. However, shopping for the right coverage can be intimidating.

All life insurance policies have one thing in common – they’re designed to pay money to the “named beneficiaries” when you die. The beneficiaries can be one or more individuals or even an organization.

In most cases, policies are purchased by the person whose life is insured, but life insurance policies can be taken out by spouses or anyone who is able to prove they have an insurable interest in the person.

WHO NEEDS LIFE INSURANCE?

Your need for life insurance varies with your age and responsibilities. It is a very important part of financial planning. There are several reasons to purchase life insurance. You may need to replace income that would be lost with the death of a wage earner. You may want to make sure your dependents do not incur significant debt when you die. Life insurance may allow them to keep assets versus selling them to pay outstanding bills or taxes.

Consumers should consider the following factors when purchasing life insurance:

  • Medical expenses previous to death, burial costs and estate taxes;

  • Support while remaining family members try to secure employment;

  • Continued monthly bills and expenses, day-care costs, college tuition and retirement.

TYPES OF LIFE INSURANCE

All policies are not the same. Some give coverage for your lifetime and other cover you for a specific number of years. Some build up cash values and others do not. Some policies combine different kinds of insurance, and others let you change from one kind of insurance to another. Some policies may offer other benefits while you are still living. There are two basic types of life insurance: term insurance and permanent insurance.

Term Insurance

Term insurance generally has lower premiums in the early years, but does not build up cash values that you can use in the future. You may combine cash value life insurance with term insurance for the period of your greatest need for life insurance to replace income.

Term insurance covers you for a term of one or more years. It pays a death benefit only if you die in that term. Term insurance generally offers the largest insurance protection for your premium dollar. It generally does not build up cash value.

You can renew most term insurance policies for one or more terms, even if your health has changed. Each time you renew the policy for a new term, premiums may be higher. Ask what the premiums will be if you continue to renew the policy. Also ask if you will lose the right to renew the policy at a certain age. For a higher premium, some companies will give you the right to keep the policy in force for a guaranteed period at the same price each year. At the end of that time you may need to pass a physical examination to continue coverage, and premiums may increase. You may be able to trade many term insurance policies for a cash value policy during a conversion period even if you are not in good health. Premiums for the new policy will be higher than you have been paying for the term insurance.

Permanent Insurance

Permanent insurance (such as universal life, variable universal life and whole life) provides long-term financial protection. These policies include both a death benefit and, in some cases, cash savings. Because of the savings element, premiums tend to be higher.

BE SURE YOU CAN AFFOR THE PREMIUM
Before you buy a life insurance policy, be sure you can pay the premiums. Can you afford the initial premium? If the premium increases later, will you still be able to afford it? The premiums for many life insurance policies are sensitive to changes in the com- pany’s investment earnings, claims costs, and other expenses. If those are worse than expected, you may have to pay a much high- er premium. Ask what might be the highest premium you’d have to pay to keep your coverage.

UNDERSTAND THE APPLICATION
You can apply for life insurance through life insurance agents, the mail, and online. In addition to basic information, such as your name, address, employer, job title, and date of birth, you’ll be asked for more personal information. Depending on the type of policy, the insurer may require you to see a doctor, answer health-related questions, or have a medical professional come toyour home or office to assess your health. Usually a policy that doesn’t require detailed health information will cost more and provide less coverage than one that does.

It’s important to tell the truth on the application. The insurance company will check your answers so review the application before you sign. If the insurance company discovers false statements on your application after it issues your policy, it could reduce or cancel your coverage.

CHOOSE A BENEFICIARY

A beneficiary is the person(s) or organiza- tion(s) you name to receive your life insur- ance policy’s death benefit. You’ll need to know the Social Security or tax identification number for all beneficiaries. Experts advise you not to name a minor child as a beneficia- ry. Insurance companies won’t pay a minor. Instead, consider leaving the money to your estate or trust.

EVALUATE THE FUTURE OF YOUR POLICY

Does your policy have a cash value? In some cash value policies, the values are low in the early years but build later on. In other policies the values build up gradually over the years. Most term policies have no cash value. Ask your insurance agent, financial advisor, or an insurance company representative for an il-lustration showing future values and benefits.

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