1. How much life insurance do I need?
It depends. The most common reasons for purchasing life insurance include covering debt, maybe covering a mortgage, replacing income to benefit survivors, and making sure there are funds available for children’s education.
To determine how much life insurance you need is really an individual decision. What we recommend is a simple approach.
- Make a list of all debt you have. This could include credit cards, mortgages, car loans, and other types of loans.
- Consider how much income a surviving spouse, children, and/or beneficiaries would need.
- Think about college or other education expenses that you want covered by a policy.
2. What is the difference between universal life and whole life insurance?
Universal life insurance and whole life insurance are both considered to be permanent life insurance products. However, there are very specific differences between the two types of life insurance.
Whole life insurance is viewed as a much safer product in that most whole life policies have a guaranteed premium. This type of policy gets you a fixed death benefit and cash value that grows at fixed, guaranteed rate. You should expect to pay more for whole life and you are restricted in when you cash in for the cash value.
Universal life insurance is more flexible. You can choose the amount of death benefit, the premium amount that you pay and the interest in the cash value account. Usually, there is a guaranteed minimum cash value. You may be able to “not make” payments if you have a sufficient cash value to cover them.
3. What is the difference between whole life and term life insurance?
Whole life insurance is a permanent life insurance product. When you purchase a whole life insurance policy that policy is guaranteed for as long as you can pay the premiums. A whole life policy has a cash account that grows at a pre-determined fixed rate.
Term life insurance is pretty simple. You choose the death benefit amount. You pick the number of years you would like coverage. The insurance carrier provides you with a premium amount based on your health. You pay the premium each year you have insurance until the policy runs out.
In a 2010 study, less than half of American consumers felt confident about making insurance decisions. Perhaps more frightening is only two out of five U.S. consumers could answer basic questions about insurance coverage.
Once you think about how the life insurance policy proceeds will be used, find a life insurance agent you can trust. Have an honest discussion about what you want to cover and what you can afford.