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How to shop for Life Insurance
 
Of course you know that you buy life insurance to provide financial support for your family when you die. But, did you know that your life insurance policy can have many other uses—other than swatting flies? To learn more about life insurance in general and alternative ways to use life insurance in your financial game plan, click on any of the items below.
 
 
How much life insurance do you need?

If you're not sure, you're not alone. This question has puzzled families for years, but the only way to be 100% accurate is to know the exact date and time you are going to die, and no one knows that unless your psychic.

The purpose of life insurance is to "indemnify" (replace financial loss), and what most people should be looking for is income replacement for their beneficiaries. Independent financial planners recommend the following rule of thumb: purchase an amount of coverage equal to 6-10 times your annual gross income.

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Do you know the difference between permanent and term life insurance?


Life insurance goes by many names, but it comes in two basic forms—permanent and term. Understanding the difference can help you buy what's best for you.

Permanent insurance is protection that can be kept in force for as long as you live. The variations include whole life, universal life and variable life. One important feature of permanent insurance is its "cash value," a sum that increases over the years on a tax-deferred basis. That cash value is always available should you need the money—either as a loan against the policy or as cash surrender value if you cancel the policy.

Under the traditional type of whole life policy, both the face amount (the death benefit) and the premium (the amount you pay) are fixed at the time you buy your policy. Under most forms of universal life insurance, you may pay premiums at any time, in virtually any amount, subject to certain minimums. You can also change the amount of insurance more easily than with traditional policies.

Unlike lifelong permanent insurance, term insurance is written for a specific period of one year, five years or more. Policies often may be renewed, usually up to a maximum age of 65 or 70, but premiums are based on age and increase at each renewal. "Convertible" term policies may be exchanged for permanent insurance without a medical examination, but at a higher premium.

Term insurance has no cash value, so you cannot take out a loan on a policy, and there are no residual rights in the policy if it is canceled. However, term insurance is initially cheaper than other types of policies for the same amount of protection. Permanent insurance often is recommended as the core of an insurance program, but term insurance may be a useful supplement for young families needing large amounts of insurance protection.

Term and permanent insurance are both valuable, but they fulfill different needs. Your insurance agent can help you choose the best coverage for your own personal needs .

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Think twice before replacing that life insurance policy


If you own a life insurance policy, think twice before replacing it. Why? In many cases, you hurt yourself in the future.

Before you drop an in-force life insurance policy, consider the following factors:

If your health status has changed over the years, you may no longer be insurable at standard rates.

Your present policy will usually have a lower premium than a new policy of the same type just because you've grown older.

Even if both your present and proposed policies pay "dividends," you may wait years before the new policy's dividends equal those paid by your present policy.

If you replace one cash value policy with another, the cash value of the new policy may be small for several years and may never be as large as the original policy.

You may have to wait one or two years before the new policy passes its "contestable" period. During that time, the insurer may cancel the policy or refuse to pay a claim if you made any mistakes or untrue statements on your application.

Before you say "yes" to a policy swap, look into your options and carefully compare policy costs and features. Request detailed cost breakdowns about your present policy and the potential replacement. Ask why you should switch to the new policy and why you should retain your current policy.

If you do decide to surrender or reduce the value of your current policy, be sure:

  • to insist that the agent making the proposal puts it in writing;
  • that you pass any required medical examination; and
  • that you wait until your new policy is in force before you cancel the old one.

Your insurance agent can answer specific questions about replacing your life insurance policy.


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A few tips on naming life insurance beneficiaries


Whether proceeds from your life insurance policies will someday amount to $5,000 or millions, you want to be absolutely certain the money ends up in the right hands.

First rule: In general, you should name specific people as beneficiaries rather than having proceeds go to your estate. This way, your family receives the proceeds quickly. If life insurance is paid to your estate, the money must find its way through the legal system along with the rest of your assets—which can result in a long wait for those people you intended to receive the proceeds.

Second rule: Always name one or more "contingent" or secondary beneficiaries, in case you outlive your first beneficiary. (Sure, you can easily change beneficiaries at any time. But you have to remember to do it.)

And remember, if you update the beneficiaries named in your will, the beneficiaries of your life insurance policy haven't been updated, too, unless your insurance agent and company have been notified.

Third rule: Be unmistakably clear when naming beneficiaries. Simply naming "my spouse" or "my children" could delay payment (for years!) or even cause the money to go to the wrong person. Similarly, you should keep your beneficiaries up-to-date. "Diane, wife of the insured" may create a problem if, at the time of your death, you're married to "Cheryl" or no one.

Even designating "children of the insured" may result in confusion and messy lawsuits. Do you mean to include your spouse's children from a previous marriage? Adopted children? Be clear!

Be precise about how proceeds should be distributed, too. If one of your children dies before you, do you want some of the proceeds to go to his or her children? Perhaps they'll need a bigger share due to hardship?

It's important to consult with both your insurance agent and your legal adviser when planning the future distribution of your assets. With forethought plus helpful advice from these professionals, it's possible to envision and provide for almost any set of circumstances. It's your money. Make sure it goes where you intend.


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Do you need insurance if you're single?


As a single person, do you need insurance?

The answer is almost definitely yes, and here are a few kinds of insurance you should consider:

Disability income insurance Frequently overlooked but very important, especially for self-supporting singles. Without other people or sizable assets to count on, this insurance can replace a good part of the income you'd lose if you were unable to work because of an accident or illness. Check with your employer to see if you have long-term disability protection. If not, talk to your insurance agent about an individual policy designed to replace at least 60 percent of your income.

Life insurance With no dependents, you may not need life insurance to replace your income after death. However, think twice before you dismiss life insurance altogether. Life insurance, especially some of the newer interest-sensitive varieties, can be an important part of your overall financial plan, helping you build your assets as you look to the future. Also, you may later have dependents. If you buy now when you are younger and healthier, you can "lock in" the lowest cost coverage, including guaranteed insurability. Talk to your insurance agent about which policies may be appropriate for you.

Health insurance You probably have on-the-job coverage—most people do—but, if you don't, an individual health insurance policy is your first line of defense against ever climbing medical and hospital costs. With an individual policy, keep premium costs down by choosing a large deductible, thereby "self-insuring" as much as you can afford. Buying insurance to cover ordinary doctor visits and run-of-the-mill illnesses can be expensive. Instead, choose the largest lifetime coverage you can find, with a "stop- loss" provision to limit your share of overall health care costs to a manageable sum.


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Life insurance can be beneficial for your children


As a parent, you worry—about your children's health, being able to afford what they need and about what the future holds for them. You want to do what you can today to help smooth the way for your children tomorrow. Life insurance for your children will help ease your mind on one important worry: whether your children will be able to purchase life insurance when they're adults, when their responsibilities make life insurance vital.

You can protect your children in one of two ways:

Add them to your existing life insurance policy. Coverage can be provided through a child's rider, typically with a value anywhere from $5,000 to $20,000. Children as young as 15 days are eligible for coverage. At age 25, your child can often convert the rider to a permanent individual policy for up to five times the rider's coverage. This means a child covered for $5,000 is guaranteed a $25,000 policy of his or her own at age 25—without answering any medical questions.

Purchase individual policies for your children. Your children can be covered under permanent policies in their own names. The cost is low because of your child's age, and the cash value accumulation in the universal life plan can mean extra funds for college. And no matter what medical problems surface, your child is guaranteed coverage, as long as you keep up with the premiums.

You can't predict what the future holds for your children, but you can help eliminate some uncertainty by contacting your insurance agent today to discuss a life insurance plan for your offspring.


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What effects does divorce have on life insurance?


If you're recently divorced, consider the impact on your life insurance policies.

Life insurance, more than most things you own, is intimately tied to your life circumstances. When changes occur, you need to review existing policies to make sure beneficiaries are correctly designated. You and your heirs will be living with your decisions for years.

"Life and death" points to consider:

Certainly, don't assume your insurance agent is aware of your changed marital status. If your "ex" is your beneficiary and you do not change the designation, he or she may receive the proceeds upon your death. If a beneficiary designation simply reads "wife of the insured" or "husband of the insured" and you do not remarry, the secondary beneficiary will receive the proceeds. Is this what you intend? If not, changes are easy to accomplish with the help of your agent.

Policy ownership rights may be transferred as part of a property settlement or as a way to ensure continuation of alimony payments.

As alternatives to transfer, you can: 1) take out a new cash value policy with your "ex" as owner; 2) provide that your estate use insurance proceeds to continue alimony payments after your death; or 3) have your "ex" buy a new policy on your life—he or she can make the premium payments or the divorce agreement can specify that you are responsible for payments.

Divorce can be tumultuous enough without insurance complications. By all means, consult your lawyer and tax adviser about your insurance policies. And be sure to talk to your insurance agent.


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You can protect your mortgage through life insurance

You've done it—you've purchased a home! It's probably the biggest investment you'll make. But it doesn't come cheap—after securing a mortgage, you'll take on tens of thousands of dollars in debt. With this high cost in mind, very few homeowners would not consider insuring their new home.

But homeowners insurance may not be enough. More homes are lost due to the death of the homeowner than to fire—simply because the money wasn't available to make the payments. That's what mortgage protection is for—to help complete home payments when the income that used to pay them is no longer there.

There are two types of mortgage protection: term and permanent insurance. Term insurance is often cheaper, since a term policy is "pure protection," providing no cash values or benefits beyond a death benefit on the life of the insured. This choice is ideal for families with two wage-earners who wish to protect against the premature death of either person.

Permanent insurance has the same benefits as a term policy, but also accumulates a cash value that the homeowner can use to pay off the mortgage early. This fund's projected value can be designed to accumulate to an amount equal to the remaining mortgage balance in any given year. Many people choose to pay off their mortgage with permanent insurance in the 20th year—and save thousands of dollars in interest!

Putting your mind at ease with the security of mortgage protection won't take a large chunk of your savings, either. A simple mortgage protection policy can protect you and your home for just a small additional amount each month.

Ask your agent for more information about mortgage protection policies.


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Life insurance can also benefit the living


If you think life insurance should be purchased just for a death benefit, you're only half right! "Universal life insurance" provides a death benefit with a cash-value fund, and is ideal for several "non-traditional" uses, such as:

Paying off a mortgage: By the end of the typical 30-year mortgage, the total payments you've made are probably double the amount you paid for the house when you bought it. Many homeowners are now using a universal life policy to accumulate the cash they need to pay off their mortgages an average of 10 years early , saving thousands of dollars in interest payments.

Saving for college: Parents of young children know that in order to have enough money to help with college costs, they need to be putting away an average of up to $300 each month! A universal life policy can be an excellent long-term funding vehicle, based on very competitive current interest rates.

Living benefits: While families learn to cope with the emotional costs of a loved one's terminal illness, they are often unable to recover from the financial costs. A lifetime of savings can be wiped out in a shockingly short period of time, leaving families with a mountain of medical bills. Many life insurance policies are now offering "living benefits," which allow terminally ill insured individuals to claim a portion of their death benefits while they are still alive. This benefit can be a valuable source of funds at the most difficult of times.

The death benefit feature of a life insurance policy is unique, providing a benefit no other investment can match. But universal life policies can also help meet a variety of other needs. Let your insurance agent help you decide if universal life is the right choice for you.

Term Life insurance protection can help cover:
•  Outstanding Mortgage
•  Education costs
•  Income Replacement
•  Your Funeral ( * avg. costs for a funeral exceeds $20,000)

You have taken steps to provide the appropriate coverage on your auto and home. Why not call today to see just how easy and affordable it is to begin a Term Life Insurance Program to protect YOUR family's most important asset-YOU!

Click here to have your Term Life Insurance Quote E-mailed to you without any pressure or obligation to buy.

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