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A good estimate is 7 times your salary; however, as life changes, your insurance needs might, too. It’s a good idea to reassess your needs annually to make sure you have enough. Beyond death benefit protection, life insurance can provide savings and wealth transfer opportunities.
When you’re ready, The Advisor Group can help you determine the amount of protection you may need and the type of insurance that’s right for you.
There are two types of life insurance available today: term and permanent. One is basic life insurance with a cash payout. The other works a little harder for you. The type you choose will depend on your financial situation and what you're looking for in an insurance policy.
Term Is for a Time
Term insurance is the most basic type of insurance. You can buy protection for a certain amount of time (or term) such as 5, 10, 15, 20 or 30 years.* If you die before the term is over, your beneficiary gets the death benefit stated in your policy. If you live beyond the term, your beneficiaries get no payment. This type of insurance is usually the least expensive to buy.
Renew or Convert
Term policies often allow you to extend your coverage for another term without having to get a medical check up. This can be very beneficial, as most people's health will often get worse over time.
In some cases, you may be allowed to convert your policy to a permanent policy. This flexibility allows you to decide how you want your insurance policy to work for you. One approach is to use the term as your “starter” policy and upgrade to a permanent policy once you become more financially established.
*Some states prohibit policies to extend past 20 years without accumulating cash value.
One main difference between term and permanent life insurance is that permanent continues for the rest of your life. As long as premiums are being paid, it stays with you permanently.
Cash Value
The other big difference is that with permanent life insurance, your premiums are invested to produce returns. This gives your policy a cash value, which usually accumulates at a guaranteed minimum interest and is available to help fund retirement, emergencies and more.
More About Permanent Life Insurance
There are also different types of permanent life insurance, all of which provide a cash value. The most basic way to break them down is into fixed and variable. With fixed, your cash value earns a fixed rate of return. With variable, you have more control over how your cash value is invested, and your return may vary.
Whole Life
(Also known as straight life), whole life is the most basic form of permanent life insurance. You pay the same amount of premium for the rest of your life. Your cash value accumulates based on a guaranteed rate. As long as your policy is currently paid up, you can borrow against the cash value at the current policy loan interest rate.
Universal Life
This type of insurance gives you more flexibility than whole life. You pay a set initial premium, and after that- you decide when and how much you want to pay (subject to certain limits, of course). How does this work? The insurance company simply takes money from your cash value account to pay for your policy. You can even skip payments as long as you know your cash value is adequate enough to cover the insurance costs. You can also increase or decrease your death benefit amount without buying a new policy.
Variable Life*
With variable life, you pay a fixed premium amount. You also have the option of investing your premiums in one or more sub-accounts, which can be conservative to more risky. Your cash value is not guaranteed (as it is with whole life). Instead, it will vary based on the performance of your investment choices. Think of the stock market that goes up and down. The good news is you have potential for higher levels of growth. The bad news is your cash value could decrease. Even so, your death benefit protection is not in jeopardy as long as you meet the conditions in your contract.
Variable Universal Life*
This option combines some features of variable and universal policies to create a more flexible life insurance product. As with universal life policies, you decide, after the initial premium, when and how much more you want to pay into your policy. You can adjust the death benefit, plus (as with variable life) you have the wide range of investment options. Again, your cash value will increase or decrease depending on the performance of your investment choices.
*Loans, withdrawals and surrenders are treated first as distributions of the policy gain subject to ordinary income taxation, and may be subject to an additional 10% federal tax penalty if made prior to age 59½. Consult your tax advisor for additional information.
The law currently allows your cash value to grow tax deferred. Because of this benefit, a permanent life insurance policy has become more than a protection tool for some people—it’s also a financial tool.