Life insurance is typically considered a cornerstone of the family retirement plan. It is the only certain risk that must be dealt with since everyone will die at some point during their life. In today’s economy, a moderately priced funeral has reached $12,000 and the National Funeral Directors Association reports that costs could possibly double over the next ten years.
Certainly, the last thing anyone wants to leave their surviving loved ones is a debt for the cost of their funeral. But, there is certainly more to consider if a breadwinner dies prematurely. The most efficient method for determining life insurance requirements is by having a financial planner perform a needs analysis for the family. This analysis will take into consideration every financial requirement that must be replaced in the event of the death of a breadwinner:
- Final expenses to include funeral/burial costs and health care expenses
- Mortgage balance
- Vehicle loan balance
- Personal Loan balance
- Unfunded college tuition
- Monthly living expense for a selected period
- Income replacement for a selected period
Once the needs analysis is completed, the amount of insurance will be evident, and an informed decision can be made on how much insurance should be purchased.
There are many types of life insurance products to consider to determine which product bests solves the problem and all should be examined and considered
Term Life insurance is considered to be the most affordable life insurance product. Since the premiums charged are for the cost of insurance only, and the policy is not permanent, but only for a block of years, many young families choose this product to cover their accumulated debts and final expenses. Most insurers will allow a conversion to a permanent product which will become necessary as the insured outlives the term of the policy. Some carriers offer a “return of premium” rider that allows the insured to be refunded for all premiums paid in when they reach the end of the term which is normally 20 or 30 years.
Universal Life is also considered very affordable. Unlike Term Insurance, Universal life can be a permanent product if properly funded. The Universal Life policy builds cash value since the premiums paid in the first half of the policy are more than the actual cost of insurance and earn interest that is kept in a cash account. The policy has “living benefits” because the cash value can be accessed through loans or a partial surrender of a portion of the benefit. The product is flexible in that the death benefit and premium can be changed in order to accommodate the financial situation of the insured. In other words, as the insured ages and debts are reduced, the insured may elect to reduce the face amount thereby reducing the premium needed to keep the policy in force.
Whole Life is considered to be the most stable type of life insurance to own. Even though this product is more expensive than Term or Universal Life, it is permanent insurance that builds cash value, and rates are guaranteed for the life of the policy. It also contains living benefits because of the guaranteed cash value earned in the policy that can be accessed using policy loans or partial surrender of the policy. This product has become very popular for seniors since the major Whole Life companies have been advertising it as the best way to pay for final expenses. Many companies are providing guarantee issue policies for applicants up to age 80 and will sell the product with very low face amounts such as $3,000.
These are only the basic insurance products currently available today. We encourage all prospective clients to speak with our experienced financial specialists to help determine which product is most appropriate for your individual needs.