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6 Questions to Ask When Buying Life Insurance

October 19, 2016

Life insurance provides security for your loved ones, but deciding on a life insurance policy can be intimidating and confusing. But it doesn’t have to be. Get a better understanding of life insurance with this Q&A and find out how much life insurance you might need.

What is life insurance?

There are many types of life insurance, but for all of them, the concept is the same: they pay cash to your family after you die, allowing your loved ones to remain financially secure.

Today, life insurance can do more than ever. Of course, there are some rules around how these policy features work, but having the option to use life insurance while you’re living can ease your mind and financial burden if the unexpected strikes.

Why do people not have life insurance?

There are a number of reasons why people don’t have life insurance, but here are three common ones:

Not enough money. If you’re already living on a tight budget, it can be difficult to pay for a life insurance premium. Now’s the time to realize even more that if your household finances are tight while people are alive and well, it will be much more difficult should one of you pass away.

I have a policy at work. Many employers provide life insurance for their employees, but it usually caps out at a relatively low level. Additionally, what if you lose your job? You might lose your life insurance, too.

Fear of death. It’s common for people to not talk about life insurance because no one wants to think about their own death. In all reality, you will die someday, whether or not you have life insurance. 

Unexpected Uses for Life Insurance

What types of life insurance are there?

We offer three types of life insurance – term life, whole life, and universal life. Each serves as protection for your loved ones, but differs in price and coverage characteristics.

Term life insurance provides protection for a specific period of time, hence the name “term.” Term life insurance is purchased typically for 10, 15, 20 or 30 years and is designed for temporary circumstances and makes the most sense when your need for coverage will disappear, possibly when your children graduate from college. It’s generally less expensive than whole life insurance, making it a popular choice for individuals and families in the prime of their life.

Permanent life insurance offers lifelong protection, which you can accumulate cash value on a tax-deferred basis. The cash value can be used for multiple purposes if you get in a tough spot. The one downside is that initial premiums are considerably higher than what you would pay for a term policy with the same amount.

There are two types of permanent life insurance: whole life and universal life. Whole life insurance premiums remain the same for life, and the death benefit and rate of return on your cash values are guaranteed. With universal life insurance, you can seek potentially better returns by allocating your fixed premiums among investment sub-accounts, typically comprised of stocks and bonds. Universal life insurance offers the flexibility of varying the amount of your premium payments, as well as other tax benefits.

What are the benefits of life insurance?

Life insurance’s main goal is to ensure the safety and security of loved ones. Besides covering funeral costs, life insurance can be used for such things like the scenarios below:

Keeping the business in the family. Certain taxes may apply when passing a family business to the next generation, but life insurance can help cover these costs. It can help ease the tax burden on the future business owner and other family members.

Retirement. Certain types of life insurance policies build cash value over time that can be a form of income in retirement.

Mortgage/College. Life insurance can help protect your family from the obligations of making mortgage or college payments if your salary is no longer available to them.
 
Charity. You can also use life insurance to increase charitable giving in your community. Policy holders can have the opportunity to make a larger gift than would otherwise be possible by designating a favorite charity as a beneficiary on their life insurance policies.

Immediate Expenses
• Funeral costs
• Uncovered medical expenses
• Mortgage
• Car loans
• Credit card debt
• Taxes
• Estate settlement costs

Ongoing Expenses
• Food
• Housing
• Utilities
• Transportation
• Clothing

Future Expenses
• College
• Retirement

10 Life Changes to Tell Your Insurance Agent About

How much will life insurance cost me?

The cost of life insurance depends on your age, your health, and the size of the death benefit you want. The younger and healthier you are, the lower your premium will be. While everyone’s financial situation is different, consider these facts by a 2016 Insurance Barometer Study:

• 1 in 4 people said they feel they need for more life insurance protection
• 9 in 10 agree that most people need life insurance…but only 60% have it
• Almost 90% of millennials overestimate the true cost of life insurance

How much life insurance do I need?

One of the biggest questions when talking about life insurance is how much will you need? Since everyone’s financial situation is a bit different, there is no rule to tell you how much to buy. Is it $250,000, $500,000, $1 million or more? Each sounds like a lot of money, but when you have to pay for final expenses, outstanding credit card balances and other debt, the total can quickly add up.

As life changes, you should take inventory of your life insurance coverage. Take the next step to help protect your loved ones after you pass away and connect with a Farm Bureau agent to use our life insurance calculator.