Q.) How much life insurance should an individual own?
Q.) What about purchasing life insurance on a spouse and/or children?
Q.) Should term insurance or cash value life insurance be purchased?
Q.) Is credit life insurance a good buy?
Q.) How does mortgage protection term insurance differ from other types of term life insurance?
Question:
How much life insurance should an individual own?
Answer:
Rule of thumb suggests an amount of life insurance equal to six to eight times your annual earnings. However, many factors should be taken into account when determining the right amount of life insurance for you and your family.
Important factors include:
- Income sources (and amounts) other than salary/earnings
- Whether or not you are married and, if so, your spouse's earning capacity
- The number of individuals who are financially dependent upon you
- The amount of death benefits payable from Social Security and from an employer-sponsored life insurance plan
- Whether any special life insurance needs exist (e.g., mortgage repayment, education fund, estate planning need, etc.)
- Calculating the correct amount of life insurance to buy is not as simple as it appears. We recommend contacting us for help in determining the right amount of coverage for you and your family. As independent agents, we are unbiased advisors that will help you avoid buying too much, show you appropriate optional coverage for your need and recommend a company that will best serve your interests.
Question:
What about purchasing life insurance on a spouse and/or children?
Answer:
In certain circumstances, it may be advisable to purchase life insurance on children; generally, however, such purchases should not be made in lieu of purchasing appropriate amounts of life insurance on the family breadwinner(s).
It is extremely important that the income-earning capacity of the primary breadwinner be fully protected, if possible, through the purchase of the appropriate amount of life insurance. This should be done before contemplating the purchase of life insurance on children or on a non-wage-earning spouse. Life insurance on a non-wage-earning spouse is often recommended for the purpose of paying for household services lost due to this individual's death. In a dual-earning household, it is important to protect the income earning capacity of both spouses.
Question:
Should term insurance or cash value life insurance be purchased?
Answer:
This is a difficult question -- one whose answer will vary depending on your personal circumstances.
In any life insurance purchasing decision, we believe that it comes down to two basic questions:
- How much life insurance should I buy?
- What type of life insurance policy should I buy?
First, you should always determine the amount of life insurance that you need. In some instances, the amount of insurance required will direct you to a particular type of insurance.
Important factors affecting the type of insurance include your income tax bracket, whether the need for life insurance is short-term or long-term (e.g., 20 years or longer) and the rate of return available on alternative investments possessing similar risk. For those individuals that require a large amount of insurance, your best option may be to purchase term life insurance. Term life insurance has a lower premium.
Question:
Can an existing life insurance policy be used to provide for the repayment of an outstanding mortgage loan?
Answer:
Yes. An existing policy, either term or cash-value life insurance, can be used for many purposes including the payment of an outstanding mortgage balance in the event of the insured's death. Although a lender may offer a mortgage protection term policy to you, the lender rarely requires it.
Credit life insurance is frequently recommended in conjunction with purchasing expensive appliances, a new car, and/or debt consolidation.
Question:
Is credit life insurance a good buy?
Answer:
Credit life insurance is frequently more expensive than traditional term life insurance. If you already own a sufficient amount of life insurance to cover your financial needs, including debt repayment, the purchase of credit life insurance is normally not advisable due to its relatively high cost.
Question:
How does mortgage protection term insurance differ from other types of term life insurance?
Answer:
The face amount under mortgage protection term insurance decreases over time, consistent with the projected annual decreases in the outstanding balance of a mortgage loan. Mortgage protection policies are generally available to cover a range of mortgage repayment periods, e.g., 15, 20, 25 or 30 years. Although the face amount decreases over time, the premium usually remains the same. Further, the premium payment period is often shorter than the maximum period of insurance coverage. For example, a 20-year mortgage protection policy might require that level premiums be paid over the first 17 years.
