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1. New to life insurance?
Learning about life insurance is a matter of asking the right questions. Let’s start with a basic one: “Why do I need life insurance?” If you have a family, a life insurance plan is one of the best ways to ensure a secure Tomorrow for them. Should you die unexpectedly, life insurance gives you and your family the peace of mind to know their future will be financially protected.
2. What type of life insurance do I need?
a) Where are you in life?
People have different priorities at different stages of their lives. Situations like starting a family, putting your son or daughter through college, buying a house or getting ready to retire can influence the type of life insurance you need. So, too, can your income, debt and savings levels.
b) How much do you want to pay monthly?
You can use the Get-A-Quote tool on this website to find a plan and price you’re comfortable with. Generally, permanent insurance costs the most because it lasts your whole life. Term insurance is less expensive because it is designed to meet more temporary needs. Accidental Death insurance is usually the most affordable, providing significant coverage levels but only for deaths due to a covered accident.
c) Do you want the ability to build cash value that you can borrow against?
With permanent life insurance products like whole life and universal life, a small portion of the premiums you pay accumulates as cash value, which builds up over time. Your cash value allows you to take out loans or adjust your payments, depending upon the type of policy you choose.
3. How much life insurance do I need?
You can also base the face value of your life insurance on a multiple of your annual salary. How many years of salary do you want to cover? According to research from the Insurance Information Institute, a nonprofit, communications organization supported by the insurance industry, the number should be between three and 10.
Another way of deciding is to calculate the total income that would need to be replaced upon your death to help pay for your family’s financial needs. Consider living expenses [daycare, household bills, rent or mortgage, and credit card debt], immediate expenses [medical bills, burial costs, and estate taxes], and long-term financial goals [savings for college education and retirement]. To leave your family well- protected, be sure you create an exhaustive list of expenses.
4. What are my responsibilities after I purchase a life insurance plan?
5. How is the death benefit paid?
- Lump sum: The entire amount is paid out in a single payment.
- Specific income provision: Your beneficiary is paid both principal and interest on a predetermined schedule.
- Life income option: Your beneficiary receives a guaranteed income for life, based on the amount of the death benefit.
- Interest income option: Your beneficiary is only paid interest on the death benefit, with proceeds going to a secondary beneficiary upon your first beneficiary’s death.
6. Which type of life insurance is right for you?
Term Life Insurance
A term life policy covers you for a specific period of time (such as 10, 20 or 30 years). If you die during the term period, the person you named when you bought your policy is paid the coverage amount. If you don’t die during the specified term period, your coverage simply ends. Term life generally does not build cash value nor does it include any features related to cash value.
Why term life insurance might be right for you
When considering life insurance, term life insurance is a good first choice – especially for families just starting out. Term life insurance is an easy, affordable way to provide financial peace of mind for you and your family. It helps fill the gap left by the loss of your income and protects your assets.
Term life can also cover specific financial obligations that will disappear over time, such as a mortgage, wedding expenses, college tuition or loans. In short, term life insurance provides an excellent answer to the question: How will your family manage financially if you die prematurely?
Because term life insurance is temporary and does not typically build cash value, coverage is generally less expensive than permanent coverage. There’s no commitment, either. If you decide to end your coverage before the term is up, you can simply stop making payments and that’s it –there’s nothing more to pay or any other obligations. The icing on the cake: with Transamerica, you get a level of coverage you can count on at competitively priced rates.
Permanent Life Insurance
Permanent life insurance comes in two basic forms—whole life and universal life. Both forms are intended to provide coverage for as long as you live, provided you make your payments as described in your policy.
Why permanent life insurance might be right for you?
Permanent life insurance doesn’t limit your death benefit to a specific span of time. There’s always a payout, regardless of when you die. What’s more, permanent life insurance can build a cash reserve (known as cash value), which grows with each payment you make. Because of these valuable benefits, premiums for permanent life are usually higher than those for term life. Keep in mind: permanent life insurance requires a long-term commitment on your part, as it takes time for your insurance company to invest and grow its cash value. Cancelling your policy after only a few years can be expensive.
Cash value and the differences between whole life and universal life
With whole life insurance, you can usually make premium payments in the same amount over the length of your policy. Each payment goes toward covering the cost of your insurance and growing the cash value needed to fund the final payout to your beneficiary. However, your cash value will eventually reach a point where you can borrow money from it. It will be considered a loan, so you will be charged interest. If you don’t repay the loan (and you don’t have to), the insurance company will deduct the outstanding amount from the final payout to your beneficiary.
Universal life is all about premium payment flexibility. After your cash value grows to reach a certain level, you have some options. You can keep paying at the same rate and use your cash value to increase your death benefit. You can keep your death benefit the same but use your cash value to lower your ongoing premium payments. You can even reduce your death benefit and use your cash value to skip some payments. If you’re looking for some flexibility in choosing the amount, method and timing of your payments, universal life is probably the way to go.