Life + Health Insurance
Life insurance is a crucial step in planning for your future and your family’s future. It can fulfill promises and obligations to your family if you are no longer living. The death benefit is income-tax free and can be used to cover funeral expenses, repay debt, provide education, pay estate taxes or any other expenses your survivors may incur. Life insurance may also be used to help ensure that a family business will pass to your intended survivor. There are also benefits to certain types of life insurance plans during your lifetime.
Health care costs are high and getting higher. Who will pay your bills if you have a serious accident or a major illness? With health insurance, you protect yourself and your family in case you need medical care that has the potential to be very expensive.
There are several different types of individual health insurance. You can get fee-for-service, HMO or PPO plans, but you should know the differences and coverage limitations before making any purchase decision.
Policies differ widely in coverage and cost. Your agent will shop various policies to find the best one for you. He will make sure the policy protects you from large medical costs and does not contain any hidden exclusions or stipulations that you do not understand at the outset.
If your family includes just two adults, it is sometimes less expensive for each of you to have individual coverage than for just one of you to have a family plan. If you have children, or if you might have children soon, you need a family plan. Because situations change, it is important to review your health insurance regularly with your agent.
Cost is not the only consideration when buying health insurance. It is difficult to determine exactly what you will spend per year on health care. You do not know whether you will be sick 6 months from now and need an operation. You also need to consider the benefits of each policy - compare plans carefully for both cost and coverage with your agent.
Some common questions when it comes to Life Insurance
How much life insurance should an individual own?
Rough "rules of thumb" suggest an amount of life insurance equal to 6 to 8 times annual earnings. However, many factors should be taken into account in determining a more precise estimate of the amount of life insurance needed. Important factors include:
- Income sources (and amounts) other than salary/earnings
- Whether or not the individual is married and, if so, what is the spouse's earning capacity
- The number of individuals who are financially dependent on the insured
- 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.
It is recommended that a person's insurance advisor be contacted for a precise calculation of how much life insurance is needed.
What about purchasing life insurance on a spouse and on children?
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 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 before contemplating the purchase of life insurance on children or on a non-wage earning spouse. In a dual-earning household, it is important to protect the income 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 individual's death.
Should term insurance or cash value life insurance be purchased?
Although a difficult question--one whose answer will vary depending on circumstances--several principles should be followed in addressing this issue. It must first be recognized that in any life insurance purchasing decision, there are at least two basic questions that must be answered: "How much life insurance should I buy?" and "What type of life insurance policy should I buy?"
The question contained in (1) involves an "insurance" decision and the question contained in (2) requires a "financial" decision.
The "insurance" question should always be resolved first. For example, the amount of life insurance that you need may be so large that the only way in which this needed amount of insurance can be afforded is through the purchase of term insurance with its lower premium.
If your ability (and willingness) to pay life insurance premiums is such that you can afford the desired amount of life insurance under either type of policy, it is then appropriate to consider the "financial" decision--which type of policy to buy. Important factors affecting the "financial" decision 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 on alternative investments possessing similar risk.
How does mortgage protection term insurance differ from other types of term life insurance?
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 is usually level in amount. Further, the premium payment period often is 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.
Can an existing life insurance policy be used to provide for the repayment of an outstanding mortgage loan?
Yes, the purchase of a new mortgage protection term insurance policy is usually not required by the lender. An existing policy, either term or cash-value life insurance, can be used for many purposes, including paying off an outstanding mortgage loan balance in the event of the insured's death. Credit life insurance is frequently recommended in conjunction with the taking out of an installment loan when purchasing expensive appliances or a new car, or for debt consolidation. Is credit life insurance a good buy?
Credit life insurance is frequently more expensive than traditional term life insurance. Further, 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.