Life insurance basics

Many of us buy life insurance because we want to make sure that our loved ones, especially dependents, remain financially secure after we die. Income replacement is the #1 reason why people buy life insurance. Non-working caregivers also have an important, and oft overlooked, economic value that should be covered by life insurance. Those interested in achieving specific business or estate transfer goals also purchase life insurance.

There are several choices when it comes to buying life insurance and there are huge pricing differences in the market among different companies offering identical coverage. Policies are now available from more than 1,500 life insurance companies in the United States. Most financial planners recommend that each family income provider carry no less than ten times their annual income in life insurance. Here’s an orderly way to go about shopping for life insurance: 1) assess your life insurance needs, 2) decide on the most appropriate policy type, 3) set high standards for the financial stability ratings of your insurance company and, then 4) shop until you drop to find the best price.

Life insurance is a long-term proposition, which means that you should pay particular attention, at time of purchase and throughout the life of the policy, to the financial stability ratings of your life insurance company. While the average U. S. adult shops for life insurance once every seven years, it’s not uncommon for people to keep life policies in force for decades. Assessing your life insurance needs

The first step in life insurance planning is to analyze your life insurance needs or, rather, the economic needs of the dependents left behind:

Before purchasing a life insurance policy, you should consider your financial situation and the standard of living you want to maintain for your dependents or survivors. For example, who will be responsible for your final medical bills and funeral costs? Would your family have to relocate or otherwise change their standard of living? The assumption of immediate death is necessary to determine the current life insurance needs for the family or individual. Beyond the initial readjustment period, consideration has to be given to the longer term financial needs of the remaining family members. Items of consideration should include dependency period income for children, income for the surviving spouse, mortgage and other debt payoffs, college education funds and an additional emergency fund. Because life insurance needs change over time, your life insurance program should be reevaluated periodically. We recommend a review at least once every five years or whenever you experience a major life event such as change income or assets, marriage, divorce, the birth or adoption of a child, or purchase of a major item such as a house or business.

The Illinois Department of Insurance points out the reasons you might buy life insurance will vary, depending on your age, financial situation and other factors. Listed below are some examples: Single person with no dependents: Funeral expenses; medical bills; debts, such as credit cards or student loans; elderly parents who may be dependent upon you for support. Note: Buying life insurance at a young age is cheaper. As you get older or possibly incur a serious health condition, it will be more expensive or difficult to buy a policy.

Single person with dependents: Funeral expenses; medical bills; outstanding debts; caretaker expenses for your surviving dependents; education costs for surviving children.

Couple with no children: Funeral expenses; medical bills; outstanding debts, especially mortgage or car payments. Couple with children: Funeral expenses; medical bills; outstanding debts, especially mortgage payments; child-rearing expenses; education costs. Note: Even if one partner does not work outside the home, you may want to consider life insurance to help pay for childcare or other services performed by that partner. Older couple: Funeral expenses; medical bills; impact on spendable income; outstanding debts, such as a new home, second vacation home, or recreational vehicle; impact on assets you may want to leave for children or grandchildren

In theory, you should have a declining need for life insurance as you age because fewer people remain dependent upon you for income support. Exception to this rule would be for circumstances in which you want to protect a business entity or pay estate taxes for heirs. If the purpose of buying life insurance is to pay estate taxes, then you’ll only want coverage that is guaranteed for the remainder of your life and that of your spouse as well.

Life Insurance

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