Life Insurance A Family Necessity
In the game that is life sometimes the roll of the dice does not come
up in our favor. Unfortunately, there are many things that can take us
out of the game leaving other teammates behind. That’s why life
insurance is so important; it allows the other players on your team a
chance to keep rolling the dice. How your dependents carry on after you
die will be determined by how much life insurance coverage you had.
We will discuss some of the choices you have in choosing a policy. We will also try and help you figure out how much insurance you should have and behaviors that may affect how much you will have to pay.
When it comes to life insurance there are basically two types, term and whole-life. Term life insurance is coverage for a specific time period, generally one to 30 years. You can also choose coverage that protects you until you reach a specific age, usually 65 or 70 years old. This protection will provide your spouse and dependents an ample amount for living expenses and debt if you were to die.
Whole life insurance provides protection and grows as cash value that you could use while still alive. You pay a fixed premium and over the years the policy will build up a cash value that is tax deferred. You can withdrawal from the policy, but as you do, it decreases the insurance benefits, which defeats the purpose of having a life insurance policy.
There is a good formula on how to figure out how much coverage you will need. Ideally, you want enough so that your spouse or any dependents can live comfortably without your income. Take your short-term needs plus your long-term needs minus your assets and savings and that should give you a good idea on how much coverage you will need. Your short-term needs include final expenses like hospital care, funeral charges, taxes, and attorney costs. Add up how much outstanding debt you owe, such as, car loans, credit cards, and student loans. You will also want to include extra for an emergency fund. Your long-term needs include your mortgage and any other monthly expenses (childcare, food, clothing, utilities, entertainment, travel, repairs, etc.) You will need to take these expenses and multiply them by the number of years you want or need to provide for your dependents.
College tuition is a long-term need that you may have to calculate the future cost for. If your child is older and expresses that he or she does not want to attend college or that they are planning on paying it for themselves, than you can exclude that when figuring out your costs.
You can subtract any resources you know you have from the total amount. This can include any mutual funds, stocks and bonds, social security, savings, or any other life insurance policies you may have. Calculate your formula and you will have a good number to go on for the amount of coverage you will need.
It will be important to update your life insurance with any major life changes like another child or long-term care for a child with disabilities. You will also need to adjust your insurance with any divorce.
Your lifestyle can play an important role in determining what your premiums will be. Many life insurance plans require a medical exam and blood tests. The healthier you are the less risk the insurance company is taking, which means you will pay less. It is important that you are honest when filling out insurance applications. Many insurers have access to your medical history and you could be denied for lying.
Tobacco users on average can pay three times the premiums than non-smokers. Excessive alcohol use will result in higher premiums. Any alcohol related convictions (DUI, etc.) will be a red flag that there might be a history of abuse. During an examination, a blood test can be used to measure liver enzymes; elevated liver enzymes may signal alcohol-related medical problems. Your weight will also factor in on how much you will have to pay. Insurers generally use a height-to-weight comparison to determine what kind of risk you pose. If you are not in the healthy weight range for your height you will pay more. High cholesterol and blood pressure are other warning signs that insurance companies will consider as high risk. If you are taking medications to help with your blood pressure or cholesterol, make sure you note that, it may help. You will be showing the insurance company that you are making an effort to better your situation and you are listening to your doctors. By showing improvement of your health, over a long period of time, you could save a significant amount of money.
Okay, so life’s not a game, but researching the right policies and then reviewing and updating your policy can prevent you from being played.
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