Life insurance is one of the necessities of life. However, few people like paying for life insurance policies. A key factor to consider in buying life insurance is to cover the income your family will be unable to replace. This amount of life insurance is often in the range of five to ten times your annual income. And as your income goes up, additional life insurance will be necessary for your family to maintain its standard of living and quality of life. Check to see if your current life insurance policy is adequate to meet your family's needs today. If you are unsure, check with a financial advisor or ask the life insurance professionals at CLICO Mortgage & Finance Corporation.

When you buy life insurance, you want coverage that fits your needs.

First, decide how much you need - and for how long - and what you can afford to pay. Keep in mind the major reason you buy life insurance is to cover the financial effects of unexpected or untimely death. Life insurance can also be one of many ways you plan for the future.

Next, learn what kinds of policies will meet your needs and pick the one that best suits you, then, choose the combination of policy premium and benefits that emphasizes protection in case of early death, or benefits in case of long life, or a combination of both.

It makes good sense to ask a life insurance agent or company to help you. An agent can help you review your insurance needs and give you information about the available policies. If one kind of policy doesn't seem to fit your needs, ask about others.

This guide provides only basic information. You can get more facts from the insurance professionals at CLICO Mortgage & Finance Corporation.

Here are some questions to ask yourself:

How much of the family income do I provide? If I were to die early, how would my survivors, especially my children, get by? Does anyone else depend on me financially, such as a parent, grandparent, brother or sister?

Do I have children for whom I'd like to set aside money to finish their education in the event of my death?

How will my family pay final expenses and repay debts after my death?

Do I have the family members or organizations to whom I would like to leave money?

How will inflation affect future needs?

As you figure out what you have to meet these needs, count the life insurance you have now, including any group insurance where you work or veteran's insurance. Don't forget Social Security and pension plan survivor's benefits. Add other assets you have: savings, investments, real estate and personal property. Which assets would your family sell or cash in to pay expenses after your death.

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What Is The Right Kind Of Life Insurance For Me?

All policies are not the same. Some give coverage for your lifetime and others 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. Your choice should be based on your needs and what you can afford.

There are two basic types of life insurance: term insurance or whole life. 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 whole life insurance with term insurance for the period of your greatest need for life insurance to replace income.

Term vs. Permanent Life Insurance
More about Permanent Life Insurance
More about Term Life Insurance

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Term Life Insurance vs. Permanent Life Insurance?

Few people who have analyzed life insurance have escaped the great debate over "term vs. whole" life insurance. And the wrong kind of whole life or term life insurance can do more damage to your financial plans than just about any other financial product today. The basic conflict is which product best fits my long term needs? It is important because it revolves around the first and most important decision you must make when buying life insurance: term, whole, or a combination of both?

In essence, there are two categories of life insurance. Term life policies offer death benefits only for a specific pre-determined amount of time. So if you die within that contracted period of time, the insurance company will pay the death benefit. If you live beyond the contract period....no death benefit. In essence you walk away with no liabilities or benefits.

"Whole" life policies offer death benefits and a "savings account" (also called "cash value") so that, if you live, you usually get at least some of, and often much more than, the amount you spent on your premium. You get this money back either by surrendering the policy or by borrowing against it.

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Whole Life Insurance - More Expensive

As you might expect, whole life insurance premiums are more expensive than term premiums, because some of the money is put into a tax deferred savings program. The longer the policy has been in force usually equates to a higher cash value since more money has been paid in and the cash value has earned interest, dividends or both.

This is a simple description of two very complicated financial products, but it gives you the big picture without all the confusing details. If you haven't figured it out by now, the debate is all about cash value. If you buy a policy today, that first annual premium is usually much higher for a permanent life policy than for term. However, the premiums for whole life usually stay the same over the years, while the premium for term life increases. That extra premium paid in the early years of the whole policy gets invested and grows, although your agent probably gets a chunk of that as a sales commission. The good news is that the increase is tax-deferred if the policy is cashed in during your life. (If you die, the proceeds are usually tax-free to your beneficiary.)

First years are critical. The saying you always hear is, "buy term and invest the difference." The fact is, it depends on how long you keep your policy and what are your objectives. Generally speaking, the longer you keep the permanent life policy, the more efficient it becomes.

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Whole Life Insurance - Advantages & Disadvantages

ADVANTAGES

As long as the necessary premiums are paid, protection is guaranteed for your entire life.

Premium costs can be fixed or flexible to meet personal financial needs.

A whole life policy accumulates a cash value that you can borrow against. (Loans must be paid back with interest or your beneficiaries will receive a reduced death benefit.) You can borrow against the policy's cash value to pay premiums or use the cash value to provide paid-up insurance.

The policy's cash value can be surrendered -- in total or in part -- for cash or converted into an annuity. (An annuity is an insurance product that provides an income for a person's lifetime or for a specific period of time.)

A provision or "rider" can be added to a policy that gives you the option to purchase additional insurance without taking a medical exam or having to furnish evidence of insurability.

DISADVANTAGES

Required premium levels may make it hard to buy enough protection.
It may be more costly than term life insurance if you don't keep it long enough.

Cash Value Life Insurance is a type of insurance where premiums charged are higher at the beginning than they would be for the same amount of term insurance. The part of the premium that is not used for the cost of insurance is invested by the company and builds up a cash value that may be used in a variety of ways. You may borrow against a policy's cash value by taking a policy loan. If you do not pay back the loan and the interest on it; the amount you owe will be subtracted from the benefits when you die, or from the cash value if you stop paying premiums and take out the remaining cash value. You also can use your cash value to keep insurance protection for a limited time or to buy a reduced amount without having to pay more premiums. You also can use the cash value to increase your income in retirement or to help pay for needs such as a child's tuition without canceling the policy. However, to build up the cash value, you must pay higher premiums in the earlier years of the policy.

Whole Life Insurance covers you for as long as you live if the premiums are paid. You generally pay the same amount in premiums for as long as you live. When you first take out the policy, premiums can be several times higher than you would pay initially for the same amount of term insurance. But they are smaller than the premiums you would eventually pay if you were to keep renewing a term policy until your later years.

Some whole life policies let you pay premiums for a shorter period such as 20 years, or until age 65. Premiums for these policies are higher since the premium payments are made during the shorter period.

More About Term Life Insurance

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 some 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 the 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.

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How Do I Find A Good Value In Life Insurance?

After you have decided which kind of life insurance is best for you, compare similar policies from different companies to find which one is likely to give you the best value for your money. A simple comparison of the premiums is not enough. There are other things to consider. For example:

Do premiums or benefits vary from year to year?
How much do the benefits build up in the policy?
What part of the premiums or benefits is not guaranteed?
What is the effect of interest on money paid and received at different times on the policy?

Remember that no one company offers lowest cost at all ages for all kinds and amounts of insurance.

You should also consider other factors:

1. How quickly does the cash value grow? Some policies have low cash values in the early years that build quickly later on. Other policies have a more level cash value build-up. A year-by-year display of values and benefits can be very helpful. (An agent will give you a policy summary or an illustration that will show benefits and premiums for selected years.

2. Are there special policy features that particularly suit your needs?

3. How are nonguaranteed values calculated? For example, interest rates are important in determining policy returns. In some companies increases reflect the average interest earnings on all of that company's policies regardless of when issued. In others, the return for policies issued in a recent year, or a group of years, reflects the interest earnings on that group of policies; in this case, amounts paid are likely to change more rapidly when interest rates change.