What you should know about buying life insurance
Life Insurance is the foundation of financial security for you and your family. It protects your financial resources against the uncertainties of lie so you can plan for the future. Choosing a life insurance product is an important decision, but it can be complicated. As with any major purchase, it is important that you understand your needs and the options available to you. The American Council of Life Insurance (ACLI) has prepared this guide to help you know what questions to ask when you're buying life insurance. The ACLI is a trade association of more than 500 life insurance companies, which collectively provide about 90 percent of the life insurance in the United States.
Why do I need life insurance? The main purpose of life insurance is to provide cash to your family after you die. The money your dependents will receive (the "death benefit") is an important financial resource: It can help pay the mortgage, run the household, end ensure that your dependents aren't burdened with debt. The proceeds from a life insurance policy could mean that they won't have to sell assets to pay outstanding bills or taxes. What's more, there is no federal income tax on life insurance benefits.
Where do I Begin? Start by evaluating your family's needs. Gather all your personal financial information and estimate what your family will need after you're gone. Include ongoing expenses (such as day care, tuition or retirement) and immediate expenses at the time of death (like medical bills, burial costs, and estate taxes). Your family also may need funds to help them readjust... perhaps to finance a move, or pay expenses while job hunting. Remember, life insurance provides financial protection. If protection is not your primary goal, you should consider other financial products
How much life insurance will I need to purchase? While there's no substitute for evaluating needs, one rule of thumb is to buy life insurance equal to five to seven times your annual gross income.
What are the different types of life insurance? There are many kinds of insurance, but they generally fall into two categories: term insurance and permanent insurance.
What is term insurance? Term insurance provides protection for a specific period of time. It pays a benefit only if you die during the term. Some term insurance policies can be renewed when you reach the end of the term -- which can be from one to 30 years. The premium rates increase at each renewal date. Many policies require that you present evidence of insurability at renewal to qualify for the lower rates.
What is permanent insurance? Permanent insurance provides lifelong protection. As long as you pay the premiums, the death benefit will be paid. These policies are designed and priced for you to keep over a long period of time. If you don't intend to keep the policy for the long term, this may be the wrong type of insurance for you.
What are the types of permanent insurance? Whole Life or ordinary life is the most common type of permanent insurance. The premiums generally remain constant over the life of the policy and must be paid periodically in the amount indicated in the policy.
Universal life or adjustable life allows you, after your initial payment, to pay premiums at any time, in virtually any amount, subject to certain minimums or maximums. You also can reduce or increase the death benefit more easily than under a traditional whole life policy. (To increase your death benefit, the insurance company usually requires you to furnish satisfactory evidence of your continued good health.
Variable Life provides death benefits and cash values that vary with the performance of a portfolio of investments. You can allocate your premiums among a variety of investments offering different degrees of risk and reward -- stocks, bonds, combinations of both, or accounts that guarantee interest and principal. You will receive a prospectus in conjunction with the sale of this product.
The cash value of a variable life policy is not guaranteed and the policyholder bears the risk. However, by choosing among the available fund options, you can allocate assets to meet your objectives and risk tolerance. Good investment performance will lead to higher cash values and death benefits. If the specified investments perform poorly, cash values and benefits will drop. Some policies guarantee that death benefits cannot fall below a minimum level. There are both universal life and whole life versions of variable life.
(http://www.pueblo.gsa.gov/acli/index.htm)
