By: Bill and Cindi Porter, AILERON INVESTMENT ADVISORS
Q: How do I know what type of life insurance I need?
A: First, you need to determine how long you will need it. There are two basic types of insurance: temporary and permanent, with many variations within each type. Temporary needs call for temporary coverage (1, 5, 10 or 20 year terms etc.). “Term” life insurance has the lowest premiums because the short durations mean the policy will probably not result in a death claim. However, it is critical that the term chosen is adequate.
The uncertainty in selecting the best “term” of coverage is one reason some people opt for permanent insurance instead. If maintained, “permanent” insurance will become a death claim one day, so the insurance companies must price it accordingly. This results in much higher premiums.
However, because of the social benefits that life insurance proceeds provide to beneficiaries, Congress has given permanent and term life insurance a major tax benefit: in most cases, the death proceeds are paid TAX-FREE. Additionally, permanent policies have a cash value account which grows TAXDEFERRED. The government is trying to motivate us to cover the financial needs of our families and businesses in the event of our premature demise. Two additional key items to consider when buying life insurance are age and health. The younger one is at the time he or she obtains a life insurance policy, the lower their premiums will be. Health is also a major consideration. Insurance companies will not accept high risk applicants. However, once a person already owns a life insurance policy, the insurance companies are not allowed to drop their coverage.
If there is a need, there is no substitute for life insurance. A discussion with your advisor can help you determine if you have a need, and the best way to insure it.
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