My husband and I are looking into purchasing life insurance, and Id like to get some input. (Although I give a lot of answers in the insurance category for other types of insurance, I dont have much of a life insurance background.)
Heres our situation both of us are in our early 30s, nonsmokers, and relatively healthy. We have 2 preschool aged children.
My goal is basically to have some security for our children through adulthood/college if something were to happen to one or both of us.
Im thinking that a term policy would likely meet our needs, but welcome any suggestions/input. Thanks for your help!
(I did contact the agent who handles our home/auto insurance for a
quote and advice, but I probably wont hear back until after the weekend.
Thought it couldnt hurt to get more input here.)
I should also add we have relative financial stability. (80% of the equity in our home is ours, our kids have a decent sized college fund already started by my parents.)
To start off, there is basically two kinds of life insurance you should know about. The first type is a life insurance that builds cash value. The second type is pure life insurance that doesnt build cash value such as your car insurance or health insurance.
Here is the facts about cash value life insurance:
1) They are known as whole life, universal life, variable life, or a mixture of those words together such as Variable Universal Life.
2) They are permanent policies that provides coverage up to around the age of 100.
3) They build cash value. The cash value is sometimes mis-interpreted as "investments" or "emergency fund" or "retirement fund" or "college fund." Cash value is basically a tax-deferred savings which you can borrow against. It grows tax-deferred because the total amount of premiums you pay is greater than the value of your cash value.
4) No cash value is accumulated during the first two years of the policy. After that, it grows from 1% to 4%.
5) If you wish to take money out from the cash value, you have to borrow it and pay loan interest of 6-8%.
6) If you die, the cash value is generally kept by the insurance company. Your death benefit will be reduced by any missed premiums and/or any loans taken from the cash value.
7) Cash value life insurance is expensive to have.
Here is the fact about life insurance that doesnt build cash value:
1) It is called term insurance.
2) It is less expensive than life insurance that builds cash value.
3) Premiums remain level for certain period (either 1 year, 5 year, 10 year, 15 year, 20 year, 25 year, 30 year, or 35 year).
4) Most term policies are guaranteed renewable. That means, when the initial level term expires, you can renew it without having to provide proof of insurability.
5) Term policies are convertible into whole life, universal life, or into another term policy (you need to check with the insurance company to see what their term life policies are able to convert into).
Some tips when buying life insurance:
1) Check the financial strength of the company.
1) Find out what you want and stick with it. Its like going to the car dealership and knowing what kind of car you want to buy. Before meeting with a life insurance agent, you should stick to your plan of getting term insurance (at least a 20 year level term)
2) Buy one life policy for the whole household. Dont let the agent sell individual policies per person. Thats like getting different auto insurance policies on all your cars. The agent should be able to add spouse riders and child riders to your life policy. If he/she cant, you need to find another company.
3) Find out how much coverage you need. General guidelines is 8 to 12 times your annual gross income. If you make $40k annually, then you need coverage of around $400,000.