1. Life Insurance Policies
Life insurance is the most important insurance you can have. It protects your loved ones by paying a death benefit that can be used to replace your lost income, pay your final expenses, or create a legacy for your heirs. Life insurance can also be used to pay estate taxes or to leave a contribution to your favorite charity.
If the purpose of the insurance is to protect your family in case of your death, you should have enough to pay off your house and other debts, and to give your wife and children the income they need to continue on in the same comfort you have provided. Remember to include in your calculations your estimated “final expenses”: funeral and burial expense and costs of settling your estate.
3. Types of Life Insurance
There are two basic kinds of life insurance: term and whole life. Term is for a specific number of years, then expires. Whole life is intended to remain in place for an insured’s entire life with part of the premium funding a savings vehicle.
4. Term Insurance
Term insurance protects the insured for only a certain number of years that the insured or his family needs the protection. The premium paid is strictly the cost of the insurance, as there is no cash-value buildup. Therefore, the premium is cheaper than for whole life.
Term insurance is appropriate if you need the protection just for a certain number of years: while the children are growing up, while you have a mortgage on your house, or to fund a business buy-sell agreement.
Life Insurance, Whole-life insurance, or permanent insurance, is intended to remain in place throughout the insured’s life. Not only does whole life provide life insurance, but it also contains a savings vehicle, as part of the premium is credited to a cash account. This cash value increases each time a payment is made. An attractive variation of whole life is the universal-life policy, which offers flexible premiums and benefits.
With today’s whole-life policies, you don’t have to die to collect on them. Optional riders are available that offer living benefits. For example, an accelerated-benefits rider will pay a portion of the premium early to the insured if the insured has only six months or less to live. Also, a nursing-home rider can be used to help pay costs of a nursing home or assisted-living facility.
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