What would happen to my family if I was in an accident or died suddenly?
Would they have enough money to pay the bills, stay in our home, and go to college?
Life Insurance is a product that none of us want to buy, but most of us need. Let’s take a look at how much life insurance a person needs, and the differences between term insurance and permanent life insurance policies.
How Much Life Insurance do I Need?
A typical rule of thumb is to have life insurance that is 10 times your annual income. Personal obligations such as personal debt, mortgage, net worth, and future college expenses are also important to factor. Some experts recommend adding $100,000 for every child who will be going to college.
When to Review your Insurance Policy
When major life changes happen, you need to take a look at review your life insurance policy, too. Life changes include marriage, divorce, new job, growing your family, home purchase, change in health, retirement, etc. Don’t let your life insurance be out of sight, out of mind. Review it when you have a major life event to make sure you are still on track.
Which type of Life Insurance is Right for Me?
The main differences between life insurances include:
- Duration of the term versus permanent
- Cash value accumulation
Let’s take a closer look at Term Life Insurance and permanent Universal Life Insurance options.
Term Life Insurance is a basic insurance policy that will provide coverage for you for a specific term, such as 10 or 20 years at a fixed premium. At the end of the term, the life insurance expires, and it can typically be renewed although usually at a higher rate. Term insurance is cheaper to buy earlier in life, with prices that rise with age and increasing risks. Term generally has a lower fixed premium compared to Universal Life Insurance. Term Life Insurance is the appropriate choice for most people who are looking for a basic life insurance.
Cash-Value or Permanent Insurance
With Universal Life Insurance, the premiums and administrative costs are deducted from the savings component. The rest of the savings remains to gain more interest and grow the account. In additional to the cash accumulation through savings, other options include flexible premiums, living benefits, and death benefits. Long-term care insurance can also be combined with permanent life insurance for people who want a combination policy.
Universal Life Insurance (UL)
Universal Life Insurance is permanent life insurance with an investment element, so it can accumulate cash value. Universal Life Insurance gives consumers the flexibility in the premium payments, death benefits and savings all within their policy. With Universal Life Insurance, a minimum interest rate is guaranteed, but it can perform better depending on the market.
Indexed Universal Life Insurance (IUL)
Indexed Universal Life Insurance allows the owner to allocate cash value amounts to a fixed account or an equity index account. Well-known indexes such as the S&P 500 or the Nasdaq 100 and others are offered. Indexed Universal Life Insurance is more volatile than a Universal Life Insurance but less risky than Variable Life Insurance.
Variable Universal Life Insurance (VUL)
Variable Universal Life Insurance is a permanent life insurance policy with a built-in savings component. It offers increased flexibility and greater return potential over a traditional whole life or universal life insurance, however it is riskier.
Combining Term & Permanent Insurance for Full Coverage
Many people choose to have both term and permanent insurance, or even multiple insurance policies. Many people like the cash accumulation and flexible premiums that the permanent insurance offers, but want to combine that with lower cost term insurance to reach the amount of coverage they are aiming for. Others may find that their needs change over time. Life insurance is not a set it and forget it decision so adding a policy to what you already have may be necessary. Mortgage Protection Insurance is also an option that would pay off mortgage debt to protect your family in the case of an illness, injury or death.
At MG Insurance, we are here to guide you through the process of determining what insurance policy is best for your family. We have multiple insurance carriers and various options. We can also help you calculate what amount of insurance will protect your family in the time of need. Give us a call at 320-235-9394 or contact us here and we will get back to you.