- Your spouse and/or children depend on any or all your income? True/False
- You implemented a savings plan to fund your children’s college tuition? True/False
- You have a mortgage with a high outstanding balance? True/False
- You have at least $10,000 in savings to help pay for final expenses? True/False
- You have at least 6 to 8 months of savings to help pay for your household expenses? True/False
- You have other assets in non-liquid form? True/False
If most of your responses are “False” you should consider “Term Life Insurance.”
If most of your responses are “True” you should consider “Permanent Life Insurance.”
Term Life Insurance provides coverage for a certain amount of years. It helps protect your dependents if you die prematurely during the term which can range from 1 to 30 years and usually has no other value. Term policy should coincide with the years your family would be most financially vulnerable if you were no longer there to provide for them financially. The payout should replace your income and help your family maintain their current standard of living. Ideally the life insurance should end around the time your kids are on their own, you paid off your house, and you have plenty of money in savings to serve as a financial safety net. If you don’t have enough money in your savings to pay off the mortgage and your family’s daily living expenses, at least until the youngest child is an adult and can fend for himself, Term is probably the best fit.
Whole Life Insurance provides lifelong coverage for the insured as long as premium payments are being made when due. It includes an investment component known as cash value. It usually grows slowly, but it grows tax-deferred, meaning that you won’t pay taxes on any gains. You can borrow a certain percentage against the policy’s cash value but if you don’t repay the policy loan with interest, your death benefit will be reduced. You can also cancel the policy and keep the policy’s cash value minus any surrender charges, but you’ll no longer have coverage. The premium remain level for the entire length of the policy, the death benefit is guaranteed, and the cash value account grows at a guaranteed rate. If you have a high net worth and plenty of savings but don’t want your beneficiaries to tap into any of your savings to pay for your final expenses or any potential estate taxes a Whole Life Insurance policy should be considered.