Purchasing life insurance can seem baffling and overwhelming. There are many financial considerations you need to consider when choosing the best policy for you and your family. The most important thing you can do when shopping around for life insurance is to get covered and get the correct amount of coverage. These are some of the most common questions asked when it comes to finances and purchasing life insurance.
How much insurance is right for me and my family members?
Some people think that the right amount of life insurance to carry is twice your annual salary. This is a good starting point, but the truth is the amount of life insurance you need depends on your specific situation. There are many factors to consider; in addition to paying medical and funeral bills and other end-of-life expenses, you may need to pay off your mortgage and provide for your family for several years while they mourn and get back on their feet.
As you think about insurance it is smart to have a comprehensive cash-flow analysis done to help determine the amount of insurance you need. This might show you that it could be more complicated than simply choosing a number that is approximately twice your annual salary as you consider coverage.
Is life insurance tax deductible?
Most likely, your monthly or annual life insurance premiums are not tax deductible. There are a few unique cases where the cost of personal life insurance and the premiums associates with that are deductible; most typically this is the case when the policyholder is self-employed and the coverage they are purchasing is used as asset protection for the business they own. Other than that your contributions to a policy each month or year are not tax deductible, instead consider them an investment.
Is it smarter to buy term coverage and invest the difference?
There are major differences between “term life insurance policies” and “permanent life insurance policies.” A term policy covers you for a certain term of your life, determined usually by the insurance company. This coverage is generally paid in higher amounts over a shorter period of time or even sometimes as a lump sum. A permanent policy on the other hand covers you for your entire life, regardless of age or time of death. In this case you pay a premium monthly or annually for the duration of the policy (in other words, your entire life). Often, financial advisors will recommend that young and healthy individuals purchase term coverage and then invest the difference – the amount you are saving by not putting a monthly premium into a permanent policy – in order to enhance your liquid assets and have more financial accessibility in the event of another emergency life situation (other than death).
It is important to think about how the cost of term life coverage can become excessively expensive as you age and as the policy develops or as it has to be reset for a new term as you age. The safest bet for you and your family is to obtain full coverage in order to make certain that you will be covered at the time of your death regardless of when that might be. On the other hand, while a term policy may seem to be more costly at face value, premiums for permanent coverage could go on for much longer while a term policy does not increase for the length of the term.
You may also run the risk of becoming uninsurable as you age if you purchase a term policy. This can be a catastrophe for you when you age out of your term policy and cannot purchase a new one of any kind because the insurance company has decided you are too much of a liability to be worth insuring. Again, the safest bet is a permanent policy.
Are variable universal life policies better than regular universal life policies?
Many universal policies pay competitive interest rates whereas variable universal life policies contain several layers of fees relating to both the insurance and securities elements presented in the policy. Because of this, if the variable subaccounts within the policy do not perform well, the policyholder may see a lower cash value than someone with a straight universal life policy. You the consumer have to weigh the risks and rewards of the variable options to determine what is best for your life situation.
Should I purchase the return-of-premium rider on any term policy?
There are usually different levels of return-of-premium riders available for policies that offer this type of purchase feature. Many financial planners will tell you that this rider is not cost-effective and should be avoided. Whether you include this rider will depend on what you are willing to risk and what your investment goals are.
Above all, the most important thing you can do when you are consider financial questions and life insurance is to run a comprehensive cash flow analysis for you and your family and all of your assets. This way, you can determine what you need in a policy and what acceptable levels of risk are for your investments.
About the Author: This article was written by Al Boenker Insurance. Al Boenker offers auto insurance online with a focus on the Dallas auto insurance area. For more information on life insurance, affordable life insurance policies and auto insurance in Texas check us out online at www.thanksal.com.
