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Janice France-Pettit: Answers to common life insurance questions

Union Bank

Posted: November 6, 2009 9:17 p.m.
Updated: November 7, 2009 4:55 a.m.
 
While life insurance might be a difficult topic to discuss, it can be a very important family decision that shouldn’t be avoided, especially if anyone in your family depends on you financially.

Life insurance answers the very difficult question: How will my family manage financially when I die?

There are many types of life insurance, but they each serve the same function: to help ensure that your family will remain financially stable after you pass on.

Whether you are newly married, expecting children, single or married and taking care of aging parents or planning for retirement, life insurance should be considered part of your personal financial program.

Selecting life insurance involves many decisions such as what kind of life insurance to buy, how much to purchase, and for how long.

Below are some answers to common questions about life insurance.

How much life insurance do I need?
Since everyone’s financial goals and circumstances differ, there is no rule of thumb to tell you how much to buy.

Policies are often sold in amounts of $250,000, $500,000, $1 million or more.

Remember that those funds will be used to help cover living expenses, mortgage, college tuitions and/or retirement for a remaining spouse.

To determine how much is needed, you may want to consider immediate, ongoing and future financial obligations.

Mathematical calculators found online at sites such as the nonprofit LIFE Foundation (www.lifehappens.org/lifecalculator) will help you determine your needs.

Your life insurance professional can also help.

What types of life insurance should I consider?
The two types of insurance to consider are term insurance and permanent insurance.

Term insurance. This type of insurance is easy to understand if you think of what the word “term” means — a set amount of time.

This is how you purchase it — for 10 years, 20 years, etc. If you have a policy, you pay a monthly premium for a certain amount of coverage.

Coverage continues for the length of the policy as long as you pay the premiums.

If you die during this time, your beneficiaries receive the money to pay for financial obligations such as living expenses that your regular income would have covered.

When the term expires, you do not receive your premiums back. They all go to the insurance agency.

When you are in your 30s, term insurance is less expensive, assuming you are in good health.

Some insurance companies require a physical exam and take blood tests to secure the policy.

If you decide to add to it as you get older or to secure your first policy later in life, term insurance can get more expensive because you are viewed a greater risk to the insurer.

Permanent life insurance is different from term in that the policy lasts for your whole life.

As you pay premiums, your policy builds cash value.

One way to think of permanent life insurance is that it combines an investment product with the life insurance product.

This means that you will pay a higher premium (for the same amount of insurance) because not only are you paying for the security of the policy for your family, but part of your premium is going into an investment account, managed by the insurer.

The policy’s cash value grows tax-deferred, and depending on the type of policy you buy, the cash value is invested in stocks, bonds or other investments.

You can borrow from this account or withdraw the cash value, which will be taxed as income.

These types of permanent policies are usually more expensive than term, but can have advantages as they help ensure you are saving money for a rainy day.

Several types of permanent life insurance are available such as whole life, variable life and universal life.

Each offers different premiums and investment packages so research your choices thoroughly.

Life insurance is one of life’s complex choices, but with the help of an experienced life insurance professional, you can select the right plan for your family.

Your banker, lawyer, accountant or friends can help you find a reputable professional to help you.

There are also several nonprofit groups such as the Insurance Information Institute and the Life and Health Insurance Foundation for Education to help educate you on this important life decision.

Janice France-Pettit is a senior vice president and regional manager for Union Bank, overseeing the Simi Valley, San Fernando Valley and Antelope Valley regions. Her column reflects her own opinion and not necessarily that of The Signal.

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