Life Insurance 101

Purchasing life insurance, particularly if you are the breadwinner in the family, should be a basic part of your financial planning.  This loss of income could devastate your family’s current situation and future plans.  

Replacing the services of a non income earning spouse who’s a caregiver for children and possibly elderly parents, plus one who provides meal preparation, household maintenance, cleaning, shopping and transportation, would require a substantial financial outlay.

 The key is to look at the big picture.  What would happen if something happened to you…or your spouse?  Or in the worst case scenario, what if neither parent was around to care for the family?  Would your loved ones be financially prepared to continue their way of life – including maintaining a home, paying for health care, school, college, etc.?

 As with any financial plan, your needs change as you age.  Families with young children are in a different financial life stage than those nearing retirement.  While each situation is unique, your stage helps determine the amount and type of life insurance that’s right for you. 

 While many people have life insurance as part of their employee benefits, this often comes woefully shy of what would be ideal for their situation, and should be supplemented with a secondary policy.

 Not many of us are experts at purchasing and understanding life insurance.  Let’s face it – it could well be one of the least often purchased items in your lifetime.  So you may need a bit of help from an insurance professional. 


Term Insurance:

This is the most basic, and generally least expensive, type of life insurance for people under 50.  A term policy is written for a specific period of time, which can vary from one to 30 years.  The face value remains the same throughout the term of this policy, although premiums may increase over time.  This is a popular choice for families with young children.

 Whole Life:

This type of policy combines permanent protection with a cash value component.  It also offers the most guarantees.  The annual premium, minimum guaranteed cash value and death benefits are all part of that premium, which accrues as cash value.  As the policy gains value, you may be able to borrow up to 90 percent of your policy’s cash value tax-free.

 Universal Life:

This insurance is more flexible, with the added benefit of potentially higher earnings on the cash value component.  Premiums can be increased, decreased or even deferred, and cash values can be withdrawn.  You may also have the option to change the face values on a universal life policy.  The drawbacks to this type of insurance include potentially higher fees and interest rate sensitivity.

 Variable Life:

This type of policy is for those who consider themselves knowledgeable and risk-accepting investors.  There are required annual premiums and minimum death benefits.  However, there is no guaranteed cash value, and you have to select the investments for your policy.  Buyers typically are offered a variety of mutual fund accounts ranging from money market funds to aggressive growth funds.  You are permitted to borrow from this policy during your lifetime.