If you have a spouse or children, make sure you have adequate life insurance coverage. Here are seven tips about life insurance.
1. There are two types of life insurance. You can either buy pure term insurance coverage or a permanent plan that can last a lifetime with various investment vehicles that can gain value and enjoy tax advantages while the policy remains in force. With some plans, you can mix pure term insurance with an investment—with a policy referred to as Whole Life or Permanent Life.
2. Lifetime plans can resolve estate-planning problems. With additional investment vehicles (some include the use of the life company’s dividends), the cost of life insurance coverage is higher. The tax-free death benefit can solve estate-planning problems, such as paying an estate’s tax liability on capital gains.
3. What young families can afford. If you cannot afford the premium for lifetime coverage, consider term insurance or a combination of both. Term plans are pretty affordable. For example, invested at 4%, $1,000,000 will generate $40,000 annual interest as pre-tax income.
4. Buy enough insurance to meet your needs. Many families need $250,000 or more—even up to $1,000,000 during low-interest periods—to generate sufficient investment income if the breadwinner were to die.
5. We can do a capital needs analysis. You will want to replace the income of the life insured—either yourself and/or your spouse. It is easy to calculate the capital needed over any short or long period in any situation if the life insured were to die. Where both spouses work, both should be insured to replace their income from new funds, which would be provided by a life insurance tax-free death benefit.
6. Buy lots of insurance when you are healthy. If you get high blood pressure or diabetes or suffer from angina before you buy insurance, you may find that your premiums will be higher than for a healthy person. So buy as much as you can afford when you are younger and healthier if you have capital needs in relation to your dependents.
7. Tell the truth. Don’t hide any medical or lifestyle facts about your health when applying. Otherwise, your policy may be cancelled and it may not pay benefits. Even certain health risks such as taking a cholesterol-lowering medication, or Viagra, are acceptable risks and underwritten by most life insurance companies.