 Here it comes…that critical point of time when the purchase of a life insurance policy becomes a necessity. Whether it’s to protect a family or a business interest, life insurance is certainly understood by most today as the most important building block of any solid, long-term financial plan. Furthermore, obtaining a life insurance policy today could not be easier – quotes of all types can be instantly obtained online from a plethora of well respected companies with solid financial ratings.
Such choices and ease certainly offer a more efficient, streamlined approach for everyone but many forget to ask themselves the most important question – What do I need my life insurance to accomplish?
- Is it to ensure my children are protected until they reach college?
- Is it to provide my baby with some form of permanent insurance with low rates that never increase?
- Is it to provide ample funds to cover my funeral expenses so my extended family won’t need to worry?
- Is it to provide insurance for a key person within a business partnership?
All too often, people choose the wrong form of life insurance because they simply don’t ask this most basic question. Consequently, many end up with the wrong type of policy that sometimes does not serve its essential purpose. Lets look at three of the most common forms of coverage and areas they are best utilized.
Whole Life Insurance - The ‘Mercedes’ of life insurance products. It is a permanent insurance policy that provides a guaranteed death benefit, builds a guaranteed cash reserve to use for loans, and locks in a level premium that never increases.
- Certain mutual life insurance companies offer yearly dividends each year that can add substantial value to the death benefit.
- USES:
- guaranteed lifetime protection to your family
- Sufficient capital needed to buy out the interest of a deceased business owner
- Ample liquidity to offset estate and inheritance taxes
- Guaranteed funding to take care for the special needs of a child
- Provide substantial tax-free gifts to a charity
UNIVERSAL LIFE INSURANCE
- The most flexible form of permanent life insurance. There are so many variations of universal life insurance available that one could write multiple articles strictly on such a topic. For this article, I will focus only on the basic universal life policy with a secondary guarantee rider.
- USES:
- To provide a guaranteed death benefit with a lower fixed annual premium.
- For family and key business members looking to obtain a guaranteed death benefit at a lower cost than whole life.
- For a charitable gift
- To provide a benefit to heirs to offset luxury and estate taxes.
LEVEL TERM INSURANCE
- By far the most popular form of life insurance today. Level term provides a guaranteed level of death benefit coverage for a period (term) of time. Offers are usually issued with periods of coverage lasting 10, 15, 20, or 30 years. Once that period has ended, the coverage expires and the individual is no longer insured.
- USES:
- For providing individuals a low-cost form of insurance
- To protect a certain period of time for key family and business members
- To supplement a small permanent insurance policy to reach a higher target benefit.
There are certainly many other types of insurance available than just these discussed above but for someone looking to understand the basic differences, these provide a general outline. The inherent recommendation one must always consider is DO YOUR HOMEWORK. Research all types of insurance and make sure you pick the right one to accomplish what you need.
Article Source: http://www.content.onlypunjab.com Thomas Lloyd is the director of whole life insurance operations for Guardian Disability Insurance Brokerage in Rockville, MD. He is part of a general agency for the Guardian Life Insurance Company of America.
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