LIFE INSURANCE

Two major types of life insurance are on the market.  They are permanent and term life insurance.  Term insurance provides protection for a specified period of time.  These periods are usually five, ten, or twenty years and the policy only pays a benefit if the insured dies during the term of the policy.  Permanent insurance, on the other hand, is designed to provide protection for the insured’s entire life.  Term insurance premium’s are initially lower than those for permanent policies when purchased at the same age, but increase as the policy matures.  Permanent insurance policies generally remain at the same level over the life of the policy.  Permanent policies also may accumulate a cash value which can be made available to the policy owner as a loan or upon cancellation of the policy.

 

The type of policy is not nearly as important as the proper amount.  A rule of thumb I use in planning is 25-33% of your insurance portfolio should be permanent and the rest should be a 20-year term level policy.  I recommend this because most of your insurance needs will go away when the mortgage is paid off and the kids go off to college.  Still, everyone needs insurance in their old age and permanent insurance is the only way to accomplish this.  To determine the amount of insurance you need use the form below.

 

 

The “Current Life Insurance Needs” above is the minimum amount of life insurance you should consider purchasing.  In addition, you need to decide if your spouse could live on his or her own income with all the bills paid; if not, then some additional insurance should be purchased to replace your income.  Your insurance professional can help you determine that amount because they have access to social security payout tables and current interest rates.  Nevertheless, under very few circumstances should insurance needs be less than 5 times current income or more than 10 times current income.  Remember, the ultimate decision on the amount of insurance you need should make sense to you and fit into your budget.  Again, the type of insurance you have is not nearly as important as having enough.