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Life Insurance Plans from Sedona Benefits
You probably insure your home, your car, and your possessions. But is your life fully insured? Almost everyone needs life insurance. It is of utmost importance that the income earning capacity of the primary breadwinner be fully protected, if possible, through the purchase of the required amount of life insurance. In a dual-earning household, it is important to protect the earning capacity of both spouses. Life insurance on a non-wage earning spouse is often recommended for the purpose of paying for household services lost at this individualís death. If you, your spouse, and children donít have enough, your familyís future could be at risk.
In general there are two categories of Life insurance Ė term and whole life:
Term insurance is temporary insurance and is life coverage only:
- On the death of the insured it pays the face amount of the policy to the named beneficiary.
- Term life provides death benefit only for a low cost in the early years. It gets very expensive as time goes on.
- Only 2% of term policies ever pay a death benefit because most people drop them when the cost goes up. It is excellent for short-term coverage.
- Term can be purchased for periods of one year to 30 years.
Whole life insurance combines a term policy with an investment component and is considered permanent insurance:
- The investment could be in bonds and money-market instruments or stocks.
- The policy builds cash value that you can borrow against.
- The three most common types of whole life insurance are traditional whole life policies, universal, and variable.
- With both whole life and term, you can lock in the same monthly payment over the life of the policy.
- Whole life provides lifetime coverage.
- The premiums are more expensive in the early years, but you get level cost, a cash value buildup in a tax friendly environment, low cost loans, and lifetime coverage.
- This can be an excellent long-term solution.
There are blended policies that have both term and whole life in one policy for a lower premium cost. In addition, there is universal life and variable universal life that mixes permanent and term in one policy.
How do you tell how much life insurance you need? The first thing to determine is the amount of your outstanding monthly obligations, then you need to determine your future obligations such as college costs and taxes on retirement plans. In addition you need to look at inflation. Your cost of living today will increase by 2 to 10 percent per year due to inflation. If you are spending $75,000 per year to live in 2006 dollars you will need more money to live 10, 20, 30 or 40 years from now. Typically people need 10 to 20 times their income in life insurance and other liquid assets.
Most people are substantially underinsured based on their income and their consumption. It is good to run a human life value calculation to see what you are worth to your family in the event of your death. To compare alternative policies you need to look at how long you will need the coverage, what your financial situation is now, and what the outlook for you and your family is in the future.
If you do not need your life insurance any more there are several options depending upon your age and state of health.
- If you are under age 65 and are in good health you can cash in your whole life, variable life, and universal life policies.
- If the policies are term you can cancel the policies.
- If you are over age 65 and have some health conditions, you should see if a senior settlement option would work for you. This is where a company would run a life expectancy analysis and offer you some percentage of the death benefit in return for them taking over the ownership of your life insurance policy.
- You can usually get a substantial amount of cash over and above the cash value of your life insurance policy. This can also work for term life insurance also.
- You should look at all of your options prior to surrendering any life insurance policy.
You should review your insurance coverage every few years. Perhaps your income has increased or decreased. You may have more responsibilities such as new children, new marriage, a spouse not working any more, or larger debt obligations. The amount of coverage and the type of coverage may need to be changed or modified. You may be at the tail end of a 10 or 20-year term life insurance policy and the rates are ready to increase substantially.
For most people, the right type of life insurance can be summed up in a single word - term. Premiums for term insurance are downright cheap for people in good health up to about age 50. After that age, premiums start to get progressively more expensive. The same holds true for whole life policies, though people who need coverage starting in their 60s and beyond may have no alternative but to buy whole life. Some companies simply won't sell term policies to people over about age 65.
If you're looking for whole life coverage or a term policy that you'll want to keep 20 or 30 years, the financial soundness of the insurer is a critical concern. You want some assurance the company will be around in case you aren't. For insurance companies, the major credit agencies like Standard & Poor's rate claims-paying ability.
Fortunately, information on the credit worthiness of insurance companies is easy for Sedona Benefits to obtain for you. In general, go with an insurer rated A or better. The most financially sound insurers are rated AAA, though some rating agencies use slightly different letter grades.
Sedona Benefits can solicit quotes from over 20 carriers, which allows the client to choose the best combination of features, cost, and size and strength of the company.