Choosing the Best Life Insurance for You and Your Family

Choosing the Best Life Insurance for You and Your Family

Many of us buy life insurance because we want our loved ones to remain financially secure after we die. For those interested in estate planning, cash accumulation, wealth transfer and estate tax liquidity, life insurance can be a tool to achieve these goals as well.

Before purchasing a life insurance policy, it's important to consider your financial situation and the standard of living you want to maintain for your dependents or survivors. For example, who will be responsible for your funeral costs and final medical bills? Will there be adequate funds for future or ongoing expenses such as day care, mortgage payments or college?

When it comes to choosing a life insurance policy, it's all too easy to get overwhelmed by the various options. Here are some basic types of life insurance options, including the pros and cons of each. Keep in mind that these recommendations are only a rule of thumb, and you should consult your Investment Partner to discuss your individual situation and options.

Term Insurance

Term insurance provides a pre-set amount of cash if you die while the policy is in force. With this type of insurance, you pay only for life insurance coverage, and the policy doesn't develop reserves. Term insurance works best for younger people who want substantial insurance coverage at a low cost. Younger parents and newlyweds are particularly suitable for this type of coverage. Also, if you need insurance for a loan, term is best for you.

Permanent or Whole Life Insurance

This type of insurance provides a set dollar amount of coverage in exchange for fixed, uniform payments. While permanent insurance is more expensive than term, it has the most guarantees and options including easy addition of various riders and options for growth.

Whole life insurance is a great option for those who don't want to worry about investment risks. With this type of policy, however, the inflexibility of premium payments could be a burden, especially for younger couples with small children who might not be able to afford high premiums during the early years of the policy.

Universal Life Insurance

This type of policy combines some of the desirable features of both whole and term life insurance and offers other advantages. With universal, you build up a cash reserve as with whole life. But, you can also vary the premium payments, amount of coverage, or both. Universal life works best for people who want to purchase insurance up front with a large chunk of cash. This can result in major estate tax savings. Universal life is also a positive option when engaging in buy/sell agreements, deferred compensation from corporations and other planning initiatives.

Survivorship vs. Joint Life Insurance

Survivorship and joint life insurance provide a single policy that insures two lives, usually spouses. In survivorship policies, when the first spouse dies, no proceeds are paid. Instead, the policy remains in force and the surviving spouse must continue to pay premiums. The policy pays off only upon the death of the second spouse. Joint life insurance pays off at the death of the first spouse.

These types of policies are mainly used as part of an estate plan for couples who expect substantial estate taxes to be assessed on the death of a spouse. It is also desirable when a major family asset is a valuable family business, real estate interest or another nonliquid asset that the survivors may not want to sell.

Variable Life Insurance

Variable life insurance is a policy in which cash reserves are invested in securities, stocks and bonds. In a sense, these policies combine an insurance feature with a mutual fund. That means your investment return is tied to the financial market's performance. On the downside, variable insurance doesn't offer premium flexibility or guaranteed cash value as with other policies.

It's important to re-evaluate your insurance options with your Investment Partner annually or whenever you experience a major life event such as a marriage, divorce, the birth or adoption of a child or the purchase of a major item such as a house or a business.