The need for life insurance varies depending on your personal life circumstances. If you have dependents and generate a significant portion of your family’s income, life insurance is probably essential. You need to consider how important your income is in regards to such things as paying your mortgage, handling the bills and sending your children off to college.
Choosing term life insurance versus whole life is an important decision. Whole life, which is much more expensive, offers both a death benefit and cash value. On the other hand, term life provides coverage for a stated period of time (like 5, 10 or 20 years) in exchange for a set premium that remains constant during the life of the policy. If the individual dies within the period of the term period, the insurance company pays the death benefit. No benefit is paid, however, if the individual survives the length of term of the policy, in contrast to whole life.
If you are thinking about term insurance, your term should cover the length of what your family’s financial obligations will be. Consider your age, the ages of your spouse and children, the number of years until you expect to retire and your financial obligations. For example, if your youngest child is 8 and you want to support her through college, a term policy might be appropriate as long as its length is at least 15 years.
How much coverage is also another consideration and depends on your situation. Usu-ally, I advise my clients to insure themselves up to 10 times their annual income. Keep in mind that your needs will likely change over the years and what seems like enough insurance today may not hold true in 10 years. Most insurance companies will allow a certain multiple of your annual income based on your age. They are usually flexible, however, if you can show other needs.
Most term policies are convertible to permanent life insurance. Usually, there is a time specified in which a permanent policy can be granted without providing new evidence of insurability. Should you decide on term insurance but think you might want to convert it to whole life at a later date, make sure you discuss this with your insurance agent.
When your term insurance expires, you may have the option to renew the policy on an annual basis without needing to provide evidence of insurability. The cost, however, is usually much higher than your previously guaranteed premium rate.
Regardless of the type of insurance you choose, there are often hidden costs, such as fees and commissions that you may be unaware of when you purchase your policy. Therefore, your choice of insurance agents is imperative. We recommend that you choose a highly-rated insurance agent who has an excellent reputation for being trust-worthy and discussing everything upfront. They also should be a representative of a leading insurance company like Farmers.
Gregg L. Goodman, LUTCF is the CEO of the Gregg L. Goodman Insurance Agency, Inc. He is an agent for Farmers Insurance and provides life, health, homeowners and auto insurance, as well as commercial insurance programs.
For more information, please call 661-254-6739.