Estate planning includes life insurance.If your loved ones rely on you financially, you need life insurance.After your death, your beneficiaries can use your life insurance policy to cover their living expenses.Depending on the size of the benefit you want to provide and the amount you can afford to pay on premiums, there are several different types of life insurance policies.
Step 1: Do you need life insurance?
You should buy a life insurance policy for anyone who depends on you financially.You may be able to purchase a life insurance policy at work.It likely only remains in place while you are employed, as the coverage may not be high enough.Depending on the amount of coverage you need, you may need to purchase an additional life insurance policy outside of work.If you are single with no dependents, you probably don't need life insurance.If you have just gotten married, you may not need life insurance.Some people buy a small policy.It would be possible for loved ones to cover their final expenses.
Step 2: You should estimate your family's living expenses.
If you are responsible for providing some or all of your family's living expenses, you will want to buy insurance to cover this amount so that they can live securely after your passing.If you want to determine the insurance amount to purchase, you have to add up your take- home income over the course of a year.This time period is not set in stone and will depend on how much coverage you want to purchase and how safe your family will be in the event of your passing.The cost of child care is another consideration.If you pass, a stay-at- home spouse may be required to work in order to pay for child care for your children.You can add this expense to your total amount.
Step 3: Take your debt balance and add it to it.
Determine how much money you still owe on your mortgage to keep your house.If you have any debt that isn't paid, add it to your mortgage.Car loans, student loans and credit card debt will be taken care of by your family.You should add in your final expenses.Your family will have to pay for your medical and funeral expenses, as well as estate taxes.If you owe $150,000 on your mortgage, then you have other consumer debt that adds up to $20,000.Your final expenses will be between $5,000 and $6,000.The display style adds up to $175,000.
Step 4: Consider the education of your children.
You would like to leave your family with enough money to cover future financial obligations.Your spouse may want to send your children to college.How much would be required for tuition, books, fees and room and board?Without your income, this might not be possible.It can be made a reality with a life insurance policy.If you want your children to be able to attend an in-state, four-year public school, you will need to have at least $130,000 per child.You would need $390,000 to have three children.
Step 5: Take the current financial resources and add them up.
After your death, make sure your family has all the financial resources they need.Your spouse may have an income.You can have savings or retirement accounts.You may have started saving for college.You may have other life insurance policies.You can add up the balances in all of your accounts.If you have $75,000 saved in your retirement accounts and $10,000 saved for college, that's a good example.You have another life insurance policy that is worth $50,000.You already have $135,000 in financial resources.
Step 6: Determine how much life insurance you need.
Paying off debt, sending your children to college, and paying off your house are all expenses you want to cover.Add your retirement savings, college savings and other life insurance policies to your financial resources.The total expenses you want to cover should be taken into account.This tells you the amount of life insurance you need.You want to pay off $175,000 in debt and $390,000 in college tuition.This adds up to over $500,000.You have $135,000 in other financial resources.You need to purchase $430,000 in life insurance.
Step 7: You can use an online life insurance calculator.
You can use online forms to figure out how much life insurance you need.How much debt you have and how many children you need to send to college are what you enter.You input information about your family's total annual income and how much you expect your spouse to make after you die.The calculator tells you how much life insurance you need after you submit the information.The life insurance products they have available to cover your needs would be discussed with the agent.
Step 8: When you reach retirement age, reexamine your insurance needs.
By the time you reach retirement age, a term life insurance policy is likely to have expired.The cost of a new life insurance policy would be too high if you were older.You don't need a life insurance policy if you have a good plan for retirement.In the event of your death, your retirement accounts should be able to provide for your family.If you have a cash-value policy, you shouldn't need it anymore.You can add the cash value to your retirement accounts by cashing out the policy.
Step 9: You can compare term life and whole life insurance.
There are two basic categories of insurance.Whole life insurance is good for your entire life if you pay the premiums, whereas term insurance only works for a specific period of time.Whole life insurance is expensive.Whole life is mortality risk, an investment portion, administration, and commission while term insurance is pure death risk.The investment piece is different.Whole life insurance policies set aside a portion of the premium to be invested and grow in value.Basic and inexpensive term life insurance is what it is.It's good for a certain amount of time.For 10, 20 or 30 years, your term life insurance may cover you.Your beneficiaries will get your death benefit if you die during the term of your insurance.Your beneficiaries don't get anything if you die after the term has ended.Cash-value policies are also known as whole life policies.They are good until you stop paying premiums.They don't last for a long time after a certain number of years.They have an investment component attached.The insurance company earns interest on part of the premium.Whole life, universal life and variable life are the three types of whole life insurance.Financial support for your family in the event of your death is provided by life insurance policies.It can be expensive to have a cash value policy that grows over time.If you can't afford the premiums on the policy, term insurance might be the best option for you.If you have maxed out your contributions on your pre-tax retirement accounts and can afford the premiums, a cash-value life insurance policy is a good choice for you.Since the cash value builds up tax free, you can build your retirement nest egg.
Step 10: Evaluate the two types of life insurance.
There are two different types of term life insurance.The annual renewable term is the first.You can purchase one year of coverage at a time.Each year you have the option of renewing.Level premium term is the other option.You lock into a specific period of time, such as 10, 20 or 30 years.The premium is likely to increase each year with annual renewable term insurance.The level premium term guarantees the same premium for the life of the term.
Step 11: You can purchase different types of life insurance.
Whole life, universal life and variable life are what they are.Different kinds of investment tools are used to grow cash value.The rate of return is dependent on the risk involved in the investments.Though the death benefit is always guaranteed, policies with higher-risk investments do not guarantee an amount for the cash value of the policy.Your beneficiaries will receive a guaranteed amount upon your death.The cash value of your benefit is invested by the insurance company.You keep the policy and the fund grows tax-deferred.Universal life insurance combines a policy with an investment.This type of investment is riskier.Policyholders can expect a higher rate of return.Variable life insurance is tied to a stock or bond mutual fund investment.Several sub-accounts are invested in the cash value account.Along with the performance of the mutual fund accounts in the market, the investment grows or shrinks.Favorable tax treatments are enjoyed by beneficiaries.Whole life insurance has a guarantee that comes with it, but Universal and Variable Life Insurance do not.The rate of return may not be as high as expected.The fixed and variable rates of interest are different depending on the investment vehicle chosen.The premium is paid in excess of the actual mortality risk.
Step 12: Determine the reputability of insurance providers.
Financial strength and reputability are ratings for insurance providers.Standard & Poor's, A.M Best Company, and TheStreet.com are ratings firms.Not every insurance company will have a rating from all agencies, but it is important to get ratings from each one that you can before purchasing from an insurance provider, especially if the provider is not well known.Look into what the ratings terms mean for each firm.Firms assign ratings on different scales, with some using "A+" and others "AAA".An assessment of "secure" is a positive indicator of provider performance.
Step 13: When buying your first house, choose between mortgage protection and term insurance.
Buying your first house is a good time to consider buying term life insurance.The co-borrower on your mortgage can receive a death benefit that will cover living expenses and keep paying the mortgage.Purchase mortgage protection insurance if you can't meet the criteria for term life insurance.If you die, the beneficiary will be able to pay off the mortgage on the house.
Step 14: When you are expecting a child, give to your family.
You need a life insurance policy when you are pregnant to protect your family in the event of your death.The death benefit can be used to maintain the same standard of living for your children without you having to worry about losing your income.For at least 18 years of child-rearing and household expenses, choose a policy that is large.You can give enough to cover college tuition.
Step 15: Evaluate the annual benefits.
If you're locked into a rate for a number of years, it's a good idea to compare premiums.A fixed premium might be better for you if you are on a fixed income.The death benefits should be compared.Depending on the type of policy you are shopping, the amount of the death benefit may not be guaranteed.Do you know how much it will change each year?Term life insurance policies are less expensive than permanent policies.You pay the same amount each month as long as you have the policy.The death benefit is guaranteed.Your beneficiaries will get the amount of insurance you purchased.The cost of permanent life insurance policies is higher.Some people invest part of their monthly premium in order to grow their policy cash value.Your monthly premium might be different.Though your death benefit is, the amount of your policy's cash value is not guaranteed.Depending on how well your investments perform, it can increase or decrease.
Step 16: The amount of cash you can accumulate is calculated.
Determine how much cash value can grow if you are shopping for a policy.Variable life policies use different kinds of investment tools.The rate of return depends on the risk.When you don't die, cash value is important.Talk to your insurance agent about the kinds of investment tools they use and how risky they are.High rates of return can be achieved with the riskiest investments.The cash value can grow quickly.They can crash just as quickly and deplete your investment.The amount of death benefit paid to your beneficiaries will decrease.Before you make a decision on a policy, make sure you are comfortable with the different levels of risk.
Step 17: Determine the fees.
Fees are built into your premiums.Before purchasing a policy, read the fine print.Policy fees mean that some of your premium is being paid to the insurance company instead of going into your death benefit.Less of your premium is being invested and that will allow your cash value to grow.If you use your life insurance policy as an investment tool, the fees charged by the insurance company can be more than what you would pay to invest elsewhere.
Step 18: You might be able to convert a term policy to a cash value policy.
A clause in your term policy can allow you to convert it to whole life without new evidence of insurability.You can convert the policy regardless of your health.If you want to re-qualify, you don't have to take physical exams.If this interests you, choose a policy with this clause.
Step 19: The cash value portion of your policy may have dividends.
If you own a permanent policy, you would share in the company's surplus.Once the company has paid claims, expenses, other liabilities and has funded reserves for future benefits, it pays the excess to the policyholders in the form of dividends.You can either put the dividends into your policy or cash them out.This only applies to mutual companies, not stock companies.