Purchase life insurance

Taking The Confusion Out of Life Insurance

 

There's one and only one principal reason to purchase life insurance — to pay a benefit upon the death of the insured person. If you have a spouse and children who depend on your income, you probably need it. If you have partners who depend on you, your firm may need to insure your life for the future of the practice.

 

The last thing you want your family or partners to worry about is coping with the financial consequences of your untimely death. Without you, could your family meet mortgage payments, provide for college, prepare for retirement? Immediate and future family needs may be put on hold as a result of your death, just as your firm's operations could be turned upside down.

 

Life insurance basically comes in two forms. One type pays only a death benefit — a specified sum of money — to the person or persons you designate, if death occurs within a specified period of time, or "term." The other, more permanent type, comes with an additional feature that builds tax-deferred savings called "cash value." Term Life Insurance — Simple, Affordable Cost Protection

 

In terms of dollars and cents, term life starts out much less expensive than cash value life insurance. This usually lets you purchase larger amounts of coverage at relatively lower rates. Term life can be an excellent buy at the time when you need coverage most — when you are younger and your spouse and children are most dependent on you, or when you are just starting out in practice and need to keep costs down. Rates will usually increase as you grow older, and the benefit amount usually stays the same over a specified period of time.

 

What's more, term life insurance lets you cancel or reduce coverage when you no longer need it, without the worry of tax or investment implications that go along with some types of cash value life policies.

 

Cash Value Life Insurance

There are different types of cash value policies, such as whole, universal, or variable life. They all share an investment component and, like any investment, include a certain amount of risk. Unlike many term life plans, the premiums usually do not increase as you grow older but are set at a much higher rate to begin with.

If you cancel your cash value policy, the surrender value is yours. In the event of death under some policies, however, the insurance company keeps your cash value and your beneficiaries receive the face amount. Be sure to carefully review any policy you are considering.

Many people find cash value policies perfect for their needs. Others find that when you mix life insurance with investing, you can sometimes end up with too little insurance and too low a return on your investment. One alternative is to purchase term life insurance and set up a separate investment account where you can set aside the premiums you'll save — whether for retirement, children's college, or to help pay the term insurance premiums as you grow older and rates increase. Important Features to Look For in a Life Insurance Plan

There are several valuable features to look for when shopping for insurance. A key one is "Waiver of Premium" which suspends your life insurance premium payments if you become disabled (as defined in your insurance policy). Another one that is relatively new and practical is a terminal illness benefit, sometimes called "living benefits." If you are diagnosed as terminally ill (as defined in your insurance policy), the policy can pay you (or whomever you designate) a percentage of the insurance while you're still alive.

When purchasing term life insurance, you should usually look for a plan that is renewable, whether on an annual or five-, ten-, fifteen-, or twenty-year basis. Also look for a conversion option in the event coverage terminates.

Insurance is only as good as the company that stands behind it, so don't forget to consider the company that underwrites the coverage. Look for an insurer that has a high rating from A.M. Best Company or similar rating services like Moody's which are good indicators of financial strength. Standard & Poor's rates insurers for claims-paying ability. You can find the rating guides for these companies in the reference section of most local libraries. You may also wish to visit these Web pages to learn more: