Life insurance 101: What you need to know
Life insurance; everyone says it’s important but it can be a difficult topic to talk about and even more difficult to understand. However, it is a critical topic to grasp because of its importance when building a financial strategy.
Life insurance is a cornerstone of a sound financial strategy. It can help provide for the people and organizations you care about. Choosing the right life insurance solution makes a difference in the future of your loved ones, and gives you a sense of reassurance knowing they’ll be taken care of. Here’s a quick primer from Thrivent Financial on some of the most common types of life insurance.
Types of Life Insurance
Term Life Insurance – Temporary life insurance that offers simply a death benefit and is generally less expensive than permanent insurance. It’s ideal for short-term life insurance needs, like when you are raising a family, paying off a mortgage, or starting a business.
Whole Life Insurance – Permanent life insurance that gives you a guaranteed death benefit, guaranteed level premiums, and guaranteed cash value that increases each year. The guarantees are contingent on all premiums being paid and no loans or changes being made to the contract.
Blended Life Insurance – Permanent life insurance with added flexibility. It lets you “dial-in” your premium to the level of whole life and term insurance desired. Offers lifetime protection through a blend of whole life insurance plus term insurance and paidup additional coverage.
Universal Life Insurance – Permanent life insurance that allows you to increase or decrease your death benefit and your premium is flexible; subject to any limitations in the contract. Accumulated value in a universal life contract earns interest at a current rate, with a minimum rate stated in the contract.
Variable Universal Life Insurance – Permanent life insurance that gives you a flexible premium and the potential to build accumulated value. However, death benefits and other values may vary, because you direct how the cash is invested among the investment portfolios offered. Do remember that the investment performance has no guarantees and could lose money and remember to review the prospectus offerings of any investment decisions you make.
How Much Life Insurance Should You Have?
When purchasing life insurance, think about your goals for your overall financial strategy, your economic value to your loved ones, as well as your wishes for your survivors.
First you’ll need to calculate your economic value. To calculate your economic value- the value of your future earnings over your life timeconsider the following factors:
Your current annual earnings.
The amount your annual earnings may increase.
How many years you plan to work until retirement.
The rate of return you expect your invested assets to earn.
You can use these numbers as a starting point when you sit down with a financial professional to determine the level of coverage you might need. Another key factor is the consideration of how much of your future economic value you want to replace in the event of your death. This will depend on the financial goals you set for yourself and your survivors.
Life insurance is an essential part of any healthy financial program. It is essential that you choose what’s right for you and your situation and that you plan accordingly with a licensed professional.
Steven T. Bond
Scot R. Guldin