What is Life Insurance?
Life insurance is basically defined as a reimbursement for lost income due to death. The reimbursement is paid by the insurer (insurance company) to the beneficiary (person named by the policy holder). Most people that purchase life insurance have dependants (children, spouse, etc.). These people depend on the income produced for support. In the event that breadwinner dies, that income will be lost. Term Life insurance guards against that loss of income. Term life insurance can also pay off outstanding bills and expenses, provide money to a charity, and to cover final expenses like funeral arraignments.

What Type of Insurance?
There are two basic types of life policies: term insurance, which provides life insurance coverage for a specified period of time in years (10yrs, 20yrs, etc.), and whole life insurance, which combines a death benefit and provides a cash value for the policy. Term life insurance is the least expensive type of insurance. However, it only covers a person for a period of time and can be expensive to renew. Some term policies allow for a portion of the premium to be returned at the end of the term, but most do not return any premium. Some policies (usually called “convertible policies”) will allow you to convert the term policy to a permanent life insurance policy at some point without any new underwriting by the insurance company.

The best part of permanent life insurance is just as the name implies, it is permanent. There is no term, and as long as you continue to pay the premium, it cannot be canceled. So when you die (we all will at some point), the policy will pay out to a beneficiary. Permanent policy premiums are much more expensive, but they do have value later on and can be borrowed against like any asset. Some of these types of insurance (not all) are tied to an investment vehicle (like stocks, funds or bonds). In that respect, these policies are used as an investment or in conjunction with a retirement portfolio. Keep in mind; all investments (no matter what type they are) carry a risk of loss of value.

How Much Life Insurance Do I Need?
The level of life insurance you should buy, depends on how much money you make and what type of debts you carry. It’s all about “what you own and what you owe”. For most families, it depends on who earns the income. If only one person works, that person will have the larger policy. However, if both husband and wife work, then both should have a policy. Most couples in this situation buy what’s called a “survivorship” insurance. This type of insurance pays out to whichever spouse lives longer. A good insurance agent will be able to determine the correct amount of insurance for you by asking a few simple questions.

Term Life Insurance. How Long Should It Be??
Term life insurance is available for any length up to about 30 years. Most couples buy a term policy to coincide with ages of the dependants. So if you are trying to determine a term for a policy, you would look at the ages of your youngest children. If your youngest child is 3 years old, you would want a policy that would cover you until he or she is on their own (maybe 25 years old). You would buy a policy that would have a 22 year term. This brings us to some different kinds of term life insurance. Level term pays the same benefit throughout the entire term. Decreasing benefit term will pay more at the beginning of the term (when your kids are still young and your mortgage is still big) and less as the term goes on. Again, a good life agent will be able to advise you on the advantages and disadvantages of these different policies.

How Much Will I Pay For Life Insurance?
The short answer: It depends. Some of the factors that determine how much you will pay for a policy are: age, gender, health risks, tobacco use, dangerous activities (skydiving, pilot, scuba diver, etc.). The process to determine your rate for life insurance can be complex. Some policies require a paramed exam. Some require a drug test or a driving record A good insurance agent will give you an idea of what to expect when applying for a policy.

See What’s Out There
The best way to find a good life insurance policy is to work with an life insurance agent. Keep in mind that some insurance agents are what are called “captive” agents. These types of agents only sell products from one company. The problem with these agents is that you only get a very small percentage of the policies available to you. It is best to consult a life insurance broker. Life insurance brokers represent many different companies and all of the products available at those companies. When you deal with a broker, you are getting the widest selection of products available to you. Also, since brokers are independent, you are getting an unbiased opinion of what policy is best for you.

Where Do I Start?
Sometimes it can seem difficult to know where to start. First, you should always use an insurance broker to be sure you are getting the widest range of policies. Contact the broker and find out what companies they represent. A broker should be able to draw up a term life insurance quote within an hour or two. When they give you the quote (mailed or emailed), see if they seem to “pushy” or overly eager to get the process started. An agent or broker who is pushy at the start of the process will be impossible to deal with by the end of the process. The last thing you want to do is get “pushed” into a policy that you may have for 30 years or more. Brokers should be patient and willing to answer any and all questions you have. Also, stay away from huge firms with thousands of clients. It is nice to be able to get a hold of your agent in the future if you ever have a question. If an agent gives you their cell phone number, that’s a good sign. It means they are willing to make themselves available to you if you ever need them.

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