Which life insurance policy should you buy? You will at some time in your life come to the conclusion that you need to buy some life insurance.
You have a pretty good idea how much you need but deciding which life insurance policy is best for your particular need is another question. There are many to choose from.
May be if we examine the varying reasons why people buy life insurance and which policy best fits a particular need you would more easily come to a decision. Here goes.
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Which Life Insurance Policy Do You Need?
- Mortgage Life Insurance Protection
Most people have a desire to own a house at some time. Some are small and cozy and seem to just ooze family. Others are larger and may seem to project affluence and success. One thing they all seem to have in common is that this piece of property is very important to it’s owners.
Sometimes it is simply pride of ownership that drives a person to buy a house. In other situations this home is bought because the couple may just want a home for the family. They want their children to know that this is their home.
You buy homeowners insurance to protect your home in case of fire or any type of disaster that may destroy it. You also need to buy some mortgage life insurance in the event of the death of the person who pays the mortgage.
One of the best policies to use is the decreasing term policy. You buy this policy for the duration of the mortgage…for example 20 years. Upon your death the insurance company pays your beneficiary an amount equal to the balance owed…
They therefore have a house free and clear. Some people prefer to use, for our example, a 20 year level term life insurance policy. If you died in the first year the same amount would be paid to your beneficiary but if you should die for example in year ten there would be sufficient money to pay off the mortgage but there would be considerably more cash that your loved ones would certainly welcome.
- Family Protection
One of the main reasons for buying life insurance is for the protection of your family in case you should prematurely die. They will need money to pay last expenses like burial costs, probate costs, attorneys fees and of course the big one…estate taxes.
Although the congress has repealed the estate tax it has been done on somewhat of a sliding scale until the year 2010…so the fact is that if you are in that tax bracket you have estate taxes to pay upon death.
You also must consider that your family still needs your income after your death. You need a policy the proceeds of which can be paid out in the form of an income.
The best way to do these things is to buy a policy to take care of the cash needs and another life insurance policy that would provide income at your death. In either case the most commonly used policies are the 20 year term life, the 25 year term life or the 30 year term life insurance policies.
Some people like universal life insurance, variable life insurance, variable universal life insurance or whole life insurance. These life insurance policies include cash values which you could use during your lifetime.
- Business Life Insurance Needs
Small business owners need for life insurance policies differ from individual need or family protection needs even though the focus still is in the surviving family.
A corporation or a business partnership would buy life insurance on each of the partners or stock holders that would provide sufficient cash to buy a deceased partners or stock holders shares from his or her heirs.
A buy sell agreement is drawn up by an attorney. It is funded by life insurance and is binding. Most business people use 20 year term life insurance policy or the 30 year term life insurance policy for this. Any of the permanent cash value policies can also be used.
Business owners may also buy life insurance to protect the business against the loss of a valuable key employee. The business would own the policy and also be the beneficiary.
Upon the death of the key employee the cash from the life insurance policy would be used to help the business stay afloat while they search for a capable replacement.
Life Insurance On Homemaker
Life insurance policy for homemaker. Any well thinking home maker knows that buying a life insurance policy on his or her life is one of those things that is simply…the intelligent thing to do.
We live in a world today where both spouses in many a case have full time jobs. We also realize that it can be difficult for a family if there are young children involved.
A decision is sometimes made to have one parent stay at home and be in essence a full time homemaker. This person may be the husband or wife…
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Life Insurance Policy On Spouse
This family has now become a one income family. It doesn’t take too long for these people to be intensely aware that if the working spouse died the family would be in what could only be described as a very serious financial position…so a decision is made to buy a life insurance policy sufficient to provide an income until the youngest child is at the least out of school.
It would be wise to really provide until this child has graduated college. After this is done they can now relax and go about their daily chores…or can they?
Let us look at some of the chores of the home maker. He or she has to take care of the children, preparing meals, doing the laundry, shopping and keeping the home clean and tidy.
All this while keeping a sharp eye on the children, making certain that they do not hurt themselves or otherwise get into any trouble. In the evening they have to sit and listen to the problems the working spouse experienced that day. What kind of value can we put on that…
Even though the homemaker’s worth cannot be worthily measured these people realize they must put life insurance on his or her life.
You see if this person dies, even though initially friends or relatives may step in and help with the chores, eventually someone is going to have to be paid to take care of this home makers job.
The salary of such an employee can easily be between $30,000 and $50,000 per year…
Now let us say your youngest child is age 10. You would need to employ a home maker until he or she is at least age 18. At minimum you would need life insurance in the amount of $240,000. That is $30,000 x 8 years.
If you anticipate you would have to pay a salary of $50,000 you would need a life insurance policy in the amount of $400,000.
It is imperative that the homemaker has his or her own life insurance…for the sake of the survivors.
Most people use term life insurance policies to do the job. One of the favorite policies is the 20 year term policy but depending on the age of the children a 10 year term policy or a 15 year term policy may do.
It may be wise to maintain a life insurance policy after the children have graduated college. Some people choose a 25 year term policy or a 30 year term policy.
Most of these life insurance policies have a conversion privilege so if you have a need for life insurance for a longer period of time you can convert your policy to a permanent policy like universal life insurance , variable universal life , variable life or whole life insurance.
These life insurance policies have cash values which may be used to top up your retirement income. You can also add the waiver of premium rider or the double indemnity rider to your life insurance policy.
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