Protecting Your Loved Ones with Life Insurance
How much life insurance do you
need?
Your life insurance needs will depend on a
number of factors, including the size of your family, the nature of your
financial obligations, your career stage, and your goals. For example, when
you're young, you may not have a great need for life insurance. However, as you
take on more responsibilities and your family grows, your need for life
insurance increases.
Here are some questions that can help you
start thinking about the amount of life insurance you need:
• What immediate financial expenses
(e.g., debt repayment, funeral expenses) would your family face upon your
death?
• How much of your salary is devoted to
current expenses and future needs?
• How long would your dependents need
support if you were to die tomorrow?
• How much money would you want to leave
for special situations upon your death, such as funding your children's
education, gifts to charities, or an inheritance for your children?
• What other assets or insurance policies
do you have?
Types of life insurance policies
The two basic types of life insurance are
term life and permanent (cash value) life. Term policies provide life insurance
protection for a specific period of time. If you die during the coverage period,
your beneficiary receives the policy's death benefit. If you live to the end of
the term, the policy simply terminates, unless it automatically renews for a
new period. Term policies are typically available for periods of 1 to 30 years
and may, in some cases, be renewed until you reach age 95. With guaranteed
level term insurance, a popular type, both the premium and the amount of
coverage remain level for a specific period of time.
Permanent insurance policies offer protection
for your entire life, regardless of your health, provided you pay the premium
to keep the policy in force. As you pay your premiums, a portion of each
payment is placed in the cash value account. During the early years of the
policy, the cash value contribution is a large portion of each premium payment.
As you get older, and the true cost of your insurance increases, the portion of
your premium payment devoted to the cash value decreases. The cash value
continues to grow--tax deferred--as long as the policy is in force. You can
borrow against the cash value, but unpaid policy loans will reduce the death
benefit that your beneficiary will receive. If you surrender the policy before
you die (i.e., cancel your coverage), you'll be entitled to receive the cash
value, minus any loans and surrender charges.
Many different types of cash
value life insurance are available, including:
• Whole life: You
generally make level (equal) premium payments for life. The death benefit and
cash value are predetermined and guaranteed (subject to the claims-paying
ability of the issuing insurance company). Your only action after purchase of
the policy is to pay the fixed premium.
• Universal life: You
may pay premiums at any time, in any amount (subject to certain limits), as
long as the policy expenses and the cost of insurance coverage are met. The
amount of insurance coverage can be changed, and the cash value will grow at a
declared interest rate, which may vary over time.
• Index universal life: This is a form of universal life insurance with excess interest
credited to cash values. But, unlike universal life insurance, the amount of
interest credited is tied to the performance of an equity index, such as the
S&P 500.
• Variable life: As
with whole life, you pay a level premium for life. However, the death benefit
and cash value fluctuate depending on the performance of investments in what
are known as subaccounts. A subaccount is a pool of investor funds
professionally managed to pursue a stated investment objective. You select the
subaccounts in which the cash value should be invested.
• Variable universal life: A combination of universal and variable life. You may pay premiums at
any time, in any amount (subject to limits), as long as policy expenses and the
cost of insurance coverage are met. The amount of insurance coverage can be
changed, and the cash value goes up or down based on the performance of
investments in the subaccounts.
With so many types of life insurance
available, you're sure to find a policy that meets your needs and your budget.
Choosing and changing your
beneficiaries
When you purchase life insurance, you must
name a primary beneficiary to receive the proceeds of your insurance policy.
Your beneficiary may be a person, corporation, or other legal entity. You may
name multiple beneficiaries and specify what percentage of the net death
benefit each is to receive. If you name your minor child as a beneficiary, you
should also designate an adult as the child's guardian in your will.
What type of insurance is right
for you?
Before deciding whether to buy term or
permanent life insurance, consider policy cost and potential savings that may
be available. Also keep in mind that your insurance needs will likely change as
your family, job, health, and financial picture changes, so you'll want to
build some flexibility into the decision-making process. In any case, here are
some common reasons for buying life insurance and which type of insurance may best
fit the need.
Mortgage or
long-term debt: For most people, their home is
one of their most valuable assets and also the source of their largest debt. An
untimely death may remove a primary source of income used to pay the mortgage.
Term insurance can replace the lost income by providing life insurance for the
length of the mortgage. If you die before the mortgage is paid off, the term
life insurance pays your beneficiary an amount sufficient to pay the
outstanding mortgage balance owed.
Family
protection: Your income not only pays for
day-to-day expenses, but also provides a source for future costs such as
college education expenses and retirement income. Term life insurance of twenty
years or longer can take care of immediate cash needs as well as provide income
for your survivor's future needs. Another alternative is cash value life
insurance, such as universal life or variable life insurance. The cash value
accumulation of these policies can be used to fund future income needs for
college or retirement, even if you don't die.
Small
business needs: Small business owners need life
insurance to protect their business interest. As a business owner, you need to
consider what happens to your business should you die unexpectedly. Life
insurance can provide cash needed to buy a deceased partner's or shareholder's
interest from his or her estate. Life insurance can also be used to compensate
for the unexpected death of a key employee.
Review your coverage
Once you purchase a life insurance policy,
make sure to periodically review your coverage--over time your needs will
change. At CornerStone Financial, we’ll be glad to help you with your review.
CornerStone Financial
Whether your
nest-egg is worth millions or thousands,
You and your
family deserve it more than the government....
We are here to help you with all of your
financial and insurance needs. Our skilled professionals are licensed
with over 100 top name companies and can help you gain a better understanding
of the concepts behind insurance including investing, retirement and estate
planning. There are literally thousands of products to choose from,
but we can help pinpoint what is best for you and your situation. Please
do not hesitate to contact us if you have questions.
Contact:
Eric Tuttobene
President/CEO
CornerStone
Financial
(615) 427-8780
IMPORTANT DISCLOSURES
The
information presented here is not specific to any individual's personal
circumstances.
To the extent
that this material concerns tax matters, it is not intended or written to be
used, and cannot be used, by a taxpayer for the purpose of avoiding penalties
that may be imposed by law. Each taxpayer should seek independent advice from a
tax professional based on his or her individual circumstances.
These
materials are provided for general information and educational purposes based
upon publicly available information from sources believed to be reliable—we
cannot assure the accuracy or completeness of these materials. The information
in these materials may change at any time and without notice.
