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Life Insurance Basics

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Who needs life insurance?

If someone depends on you financially, you probably need life insurance. If you're a breadwinner, life insurance can provide critical financial support to your loved ones if you die prematurely. Permanent life insurance can also help you establish a fund you can access for planned life events like college or retirement, or for emergencies and opportunities. Later in life, it can help you transfer your wealth to the next generation.

Read more about how life insurance can meet your needs throughout your changing lifetime.

How do I know how much life insurance I need?

You can start by identifying what you want your life insurance to do. For example, if you're a breadwinner, you probably want your life insurance to replace your income for a certain number of years in case something happens to you. Most experts say you should consider life insurance coverage worth five years of your current income.

Life insurance can also help ensure funds are there for college tuition, final expenses and to cover outstanding debt.

Everyone's needs are different, so use a needs calculator to get started, and then Find a Local Agent near you who can help with a full needs analysis.

What are the different types of life insurance?

Term

Term insurance provides coverage for a specific period of time, such as 10, 20 or 30 years. If you die during that period, the beneficiary you name on your policy receives the death benefit amount. When the term ends, so does your protection, unless you select a term policy that gives you the option of renewing your coverage.1

Term policies don't build cash value as most permanent life insurance products do. Because of this fact, when you buy a term policy you're paying for pure protection. So most of the time, term insurance is the least expensive kind of coverage you can buy.

Permanent

Term policies provide protection for your entire life by paying a sum to your named beneficiary upon your death.2 Most permanent policies build cash value over time, and you can access this cash value for emergencies, opportunities or planned life events such as a college education or retirement.

There are different types of permanent policies. Whole Life products usually offer level premiums and strong, traditional guarantees, such as a schedule of guaranteed values. Universal Life products normally offer flexible features, such as the ability to change your coverage amount or your payment schedule after you purchase the policy. Finally, Single Payment Whole Life is a type of insurance you buy with one payment. Because the death benefit is higher than the single payment, this kind of insurance is often a good fit for people looking to transfer wealth.


1 Some term policies offer the option to continue coverage at the end of the level term period. In most cases, premiums will increase annually as you age

2 Many permanent policies endow at age 121.

What should I consider when choosing a life insurance company?

Before you decide to purchase a policy, check the company's financial condition. If you're working with an agent, ask for that information, or request it from your state's insurance department. A number of independent rating services rank the financial strength of insurance companies. Examples of these rating companies include A.M. Best, Standard & Poor's, Moody's and Fitch. You can research a company's rating online or in large public libraries, or by contacting one of the rating companies directly.

You should also ask whether the company is a member of the Insurance Marketplace Standards Association (IMSA). IMSA-qualified companies commit to maintaining high ethical standards and to being fair, honest and open in the way they advertise, sell and service their products.


What if my life insurance needs change?

Life moves quickly and often coverage that was right at the time you purchased it may not be the best fit down the road. Look for a company that offers the option to convert term coverage to permanent coverage when it's a better fit for your needs and budget. You can also consider a universal life policy that may allow you to increase or decrease your coverage after you purchase the policy, as long as you follow the guidelines in your contract.

The best way to make sure your coverage is keeping up with your changing needs is by reviewing your coverage with your agent at least once a year.

Should I have life insurance on my child?

One of the primary reasons to buy life insurance is to replace the income of a breadwinner in the case of premature death. Since children don't usually have much current income, buying life insurance for this typical reason makes little sense. However, there are other advantages to buying life insurance for children. Buying a permanent policy for a child offers lasting protection at a relatively low cost. Plus, many policies offer a guaranteed insurability feature that gives the child the opportunity to buy more coverage at a later date, regardless of changes in health.