1. Immediate cash Needs: How much will be needed at your death to pay all bills, final expenses, funeral cost, loans, notes, medical cost, income, estate, and inheritance taxes?
Do you want your family to continue to live in your home after your death and have the mortgage paid off?
2. Emergency Fund: How much do you want t provide your family as an emergency fund?
3. Education Needs: How much do you want to provide for your children’s educational needs?
4. Family / Spouse Income needs: How much income is needed for your family to live the way you’d like them to?
5. Estate Tax liability: Currently no estate tax if assets passed to spouse, however, based on exemption, liability exists if assets passed to non spouse. ie children.
Term Insurance – covers you for a term of one or more years. Its 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 the time you may need to pass a physical examination to continue coverage, and 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.
Cash Value Life Insurance – is a type of insurance where the 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 the 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 don’t 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 can also 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 this cash value, you must pay higher premiums in the earlier years of the policy. Cash value life insurance may be one of several types; universal life and variable life are all types of cash value insurance.
Whole Life Insurance – covers you for as long as you live if your 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 a shorter period.
Universal Life Insurance – is a kind of flexible policy that lets you vary your premium payments. You can also adjust the face amount of coverage. Increases may require proof that you qualify for the new death benefit. The premiums you pay (less expense charges) go onto a policy account that earns interest. Charges are deducted from the account. If your yearly premium payment plus the interest your account earns is less than the charges, your account value will become lower. If it keeps dropping, eventually your coverage will end. To prevent that, you may need to start making premium payments, or increase your premium payments, or lower your death benefits. Even if there is enough in your account to pay the premiums, continuing to pay premiums yourself means that you build up more cash value.
Variable Life Insurance – is a kind of insurance where the death benefits and cash values depend on the investment performance of one or more separate accounts, which may be invested in mutual funds or other investments allowed under the policy. Be sure to get the prospectus from the company when buying this kind of policy and STUDY IT CAREFULLY. You will have higher death benefits and cash value if the underlying investments do well. Your benefits and cash value will be lower of may disappear if the investments you chose didn’t do as well as you expected. You may pay extra premium for a guaranteed death benefit.