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Life Insurance

How do I shop for Life Insurance?

Determine your insurance need.

How much insurance do you need?

Special circumstances, such as pre-existing medical conditions or tax-efficient estate planning, can signifcantly complicate the question of how much life insurance you need. The insurance industry itself has many different formulas. Let’s narrow it down to what you would need to replace your income if you, or your spouse died suddenly.

Some experts suggest buying life insurance equal to five times your yearly income. This assumes there is group life insurance from work for an amount equal to one year’s salary, and that the person who will get the life insurance payment is eligible for social security survivor benefits. If both husband and wife work you should buy insurance for each of you. You need more insurance on the person with the highest income.

5x Rule
You earn  $35,000
Spouse earns  $60,000
Using this rule, buy life insurance
on your life  (5 X $35,000) $175,000
on your spouse’s life  (5 X $60,000) $300,000

Research the different types of policies available. There are many different types of products available to meet different needs. The two most common types of life insurance are Whole Life and Term.

Whole life is permanent coverage designed for people who know their life insurance needs will not change or who want to build an investment for future funds. This type of plan offers level premiums that are based on the policyholder’s age when the policy is issued (issue age). Some policies offer a paid-up option after a specified period of time, such as 10, 15 or 20 years, which means premiums cease but coverage continues for life.  Whole life insurance also builds cash value.

Term insurance provides coverage for a specific period of time, such as 1, 5 or 10 years. After that period, coverage is terminated unless renewed for another term. Unlike Whole life coverage, term life builds no cash value. However, term insurance generally provides a larger amount of immediate coverage for lower initial premiums. Rate increases occur upon the term renewal. This type of insurance is ideal for those requiring temporary or supplemental coverage or who need large amounts of coverage but have budget restrictions.

Do cost and company comparisons. Just as there are many different types of products available, so there are many different companies selling them for different prices. The cheapest policy is not always the best. Look for a financially sound company with high ratings from industry rating services. Also look at how premiums will change with age or on term renewal periods. A trusted agent can do much of this footwork for you and provide you with personalized comparisons based on your needs and budget, as well as answer any questions you might have.