Wednesday Sep 09 2009
Do you have enough life insurance — and the right type?
September has been designated as Life Insurance Awareness Month — so you may want to take this opportunity to learn more about your life insurance needs and determine if you’re adequately covered. In fact, helping people understand the necessity of being properly insured and the need to seek professional advice regarding those needs is the ultimate goal of Life Insurance Awareness Month, which is coordinated by the nonprofit Life and Health Foundation for Education. Approximately 68 million adult Americans have no life insurance at all, according to LIMRA International, a worldwide association of insurance and financial services companies. And many people with insurance have far less coverage than they need. If you have loved ones depending on your income, it’s important to discuss how life insurance may protect them. But choosing the right amount of coverage, and the right type, is not quite that simple. So let’s take a look at two key questions you need to ask: How much insurance do I need? And what type of insurance is right for me? There are many factors to consider when determining how much insurance you need. That’s why you’ll need to look at some key variables in your life, such as: How many children do you have? Do you plan for them all to go to college? Do any of them have special needs? How many years are left on your mortgage? What other debts do you have? An experienced financial professional will be able to use the answers to these questions and others to help determine how much life insurance you need. Your next step is to decide which type of coverage best fits your needs. Essentially, your choice is between term insurance, which offers a death benefit for a specific period of time, and permanent insurance, which can provide lifetime protection plus the potential to build cash value tax-deferred. Keep in mind that all guarantees are based on the claims-paying ability of the issuing insurance company and that certain features come at additional costs. There’s no hard-and-fast rule as to which type of coverage to choose. However, when you’re starting out in your career, and your children are young, you might find that term insurance could be a cost-effective way for covering a short-term need (generally 20 years or less). On the other hand, if you choose a permanent insurance policy, such as whole life or universal life, you can potentially build cash value that you can access during your life on a tax-advantaged basis. Since permanent insurance has a cash value component, the premiums may initially be more costly than those for term insurance. Which choice — term or permanent — is right for you? It depends on a variety of factors, including your cash flow, your investment portfolio and how many years you plan on keeping your coverage. Also, you’ll need to review your insurance coverage regularly to make sure it still meets your needs and addresses any changes in your situation. A financial advisor can help you make the right selections. Gene Delyon is a financial advisor with Edward Jones in Rocklin. He can be reached at 624-0201 or firstname.lastname@example.org.