Types of Insurance

There are many kinds of life insurance, but they generally fall into two categories: term insurance and permanent insurance.

Term insurance, the most affordable type of insurance when initially purchased, is designed to meet temporary needs. It provides protection for a specific period of time (the “term”) and generally pays a benefit only if you die during the term. This type of insurance often makes sense when you have a need for coverage that will disappear at a specific point in time. For instance, you may decide that you only need coverage until your children graduate from college or a particular debt is paid off, such as your mortgage.

Permanent insurance by contrast provides lifelong protection. As long as you pay the premiums, and no loans, withdrawals or surrenders are taken, the full face amount will be paid. Because it is designed to last a lifetime, permanent life insurance accumulates cash value and is priced for you to keep over a long period of time.
It’s impossible to say which type of life insurance is better because the kind of coverage that’s right for you depends on your unique circumstances and financial goals. Often, a combination of term and permanent insurance is the right solution. 

How much insurance do I need?

The best way to figure out the amount and type of life insurance that makes sense for your particular situation is to meet with a qualified insurance professional.

The answer isn’t really how much life insurance you need, it’s how much money your family will need after you’re gone. 

Ask yourself:

·         How much money will my family need after my death to meet immediate expenses, like funeral expenses and debts?

·         How much money will my family need to maintain their standard of living over the long run?

·         Life insurance proceeds can help pay immediate expenses including uncovered medical costs, funeral expenses, final estate settlement costs, taxes and other lump-sum obligations such as outstanding debts and mortgage balances. They can also help your family cover future financial obligations like everyday living expenses, money for college or your spouse’s retirement, and so much more. 
But how do you know if you need $100,000, $500,000, $1 million or more? The most common way to determine your life insurance needs is by conducting what’s called a Capital Needs Analysis. 
Here’s how it works. Start by evaluating your family’s needs. Gather all of your personal financial information and estimate what your each of your family members would need to meet current and future financial obligations. Then tally up all of the resources that your surviving family members could draw upon to support themselves. The difference between their needs and the resources in place to meet those needs is your need for additional life insurance (see diagram below).

This may look simple enough, but calculating one’s life insurance needs can actually get pretty complicated. So if you’re serious about protecting your family’s future, contact an insurance professional in your community.