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Making the Right Decision Regarding Life Insurance

With so many factors involved in life insurance, most people feel as if they are trying to put pieces of a very large puzzle together. This type of purchase requires careful evaluation, which is why a good insurance company or agent is so vital. Trying to determine the amount of coverage needed for life insurance is usually overwhelming. However, a reputable insurance company would be able to guide the consumer through the process and help identify various factors that would need to be considered prior to purchasing a policy such as this.

Any person that has a family and wants to make sure in the event of death that his or her loved ones are cared for should give serious thought to buying life insurance. The coverage amount would depend on the individualís budget, the goal for the family, and a variety of other factors. Generally, life insurance is purchased to ensure that if something were to happen to the policyholder resulting in loss of life, family left behind would have enough money to continue living to the level of lifestyle to which they were accustomed. Therefore, anyone interested in life insurance would consider not just his or her income, but also income from the spouse, as well as children.

Life insurance is broken down into two primary categories. The first is Term Policy, which means if the policyholder were to die the face value of the policy would be paid. Term Policy insurance has a duration of 30 years but could be renewed for an additional 30 years if needed. The second option for life insurance is called Whole Life, which has the same coverage as Term Policy but with an investment option attached. In this case, the policyholder would still be covered but investments such as stocks, bonds, or money market accounts would be included.

As a part of Whole Life insurance are various types, which includes Traditional Whole Life, Variable, and Universal, which are set up as the following:

  • Traditional Whole Life For this type of life insurance under the Whole Life insurance category, death benefits along with cash surrender values would be paid upon early surrender.
  • Variable In this case, the beneficiary would receive money upon death of the policyholder but the amount paid would depend on how well the investments succeeded although a minimum would be guaranteed.
  • Universal For Universal life insurance, money market investments would be connected, with this policy being designed as an accumulation fund. This means the cash value portion of the life insurance policy would be established but credits from the investment would go into an accumulation fund so upon death of the policyholder, benefits would be paid from this special fund account.

In addition to people taking the time to become educated on life insurance, it is also imperative that people work with a qualified insurance company or agent. This professional would look over the familyís financials, analyzing the current situation but also planning for future expenses to include cost of living increases but also future needs for funeral expenses, retirement living, medical expenses, estate taxes, and so on. A good life insurance company representative would know exactly what to look for, followed by providing the customer with recommendations for the best planning possible.

A good rule to follow for anyone interested in buying life insurance would be to purchase coverage equal to six to eight times that of annual income, again, not just for the policyholder but from a working spouse and children. Therefore, if an individual made $50,000 a year, had a wife or husband that earned $40,000, and then two children with a total of $15,000, the amount of life insurance coverage at minimum should be anywhere from $630,000 to $840,000.

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