Choosing Life Insurance – A Difficult But Necessary Process

No one really wants to think about Life Insurance. It does, after all, force you and your spouse to think about what life would be like without the other. The thought of your family being without food or shelter, however, is probably even more difficult to cope with, which is why it’s necessary to get your life insurance policy squared away.

How Much Life Insurance Do I Need?
Taking into consideration factors like how much your family spends on the necessities (food, housing, clothes) as well as things you’ll need in the future (college educations and cars for the kids, etc.) begins to give you an idea of just how necessary life insurance could end up being if the unthinkable were to happen. How many of those expenses would be covered by your spouse’s income or any funds you currently have out away or invested? The general rule of thumb is to insure yourself for six to ten times your annual income, but you can use the above questions to determine if this is the right figure for you.

Term Life Insurance – Is It Right for Me?
Term life insurance covers you for a set period of time, and does have an expiration date. Some of these policies let you renew for another term at the same price, though they can be a little pricier than their counterparts. Term life insurance is generally less expensive than whole life insurance because it usually offers no guarantees on what the rates for your next term will be. It’s ideal for younger families who aren’t wealthy, as a $300,000 policy for a 32-year-old non-smoker likely wouldn’t cost more than $250 to $300 a year. One newer, attractive type of term life insurance, known as return-of-premium, costs a bit more than standard term insurance but repays you your premiums if you outlive your policy.

Should I Get Whole Life Insurance?
As mentioned above, whole life insurance is considerably more expensive, but ensures that you’ll be paying the same rates in your sixties as you are in your thirties. Whole life insurance also serves as a kind of investment account, with a portion of what you pay into it being securely stored as tax-deferred savings. You can choose to cash out these policies once you’re retired, netting the years of savings. It’s a somewhat more complicated approach than term life insurance, but it’s one that could very well work to your benefit.

Disability Insurance – Do I Need It?
If you’re younger than 65, it’s more likely that you’ll become disabled and no longer able to work than it is that you’ll die while still in the workforce. Many people ignore disability insurance, but if you’re truly looking at the numbers, it’s probably even more of a necessity than life insurance. A good rule of thumb is to insure yourself for around 60 percent of your typical monthly earnings. This might cost you up to 3% of your annual income, which is why many people opt to pass on it despite the statistics.

What is Mortgage Life Insurance?
This is one that we recommend skipping. It sounds great on paper: If you die, it pays off your house and leaves your heirs with a payment-free residence. However, term life insurance offers this as well, while also giving your heirs the option of investing the insurance proceeds instead of paying off the mortgage.
Figuring out which type of life insurance is right for you isn’t nearly as intimidating as it seems, and the internet makes it extraordinarily simple to research providers. There are far too many stories about families putting off this all-too-important process (for obvious and understandable reasons) – so get motivated, do your research, and get the conversation started sooner than later.
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