Life Insurance 101

Although life insurance may be a morbid discussion, it can be a very important piece of your financial plan.  Rates can be very affordable, even for people in their 40’s and 50’s.  We believe that it is important to educate yourself by doing your homework and getting a good understanding of what you are buying.  Remember that your family is dependent on your income, and it will make such a difference in the lives of those you may leave behind.

There are two basic types of life insurance to choose from, permanent and term insurance.  Term means it is for a specific period of time with a set premium.   Permanent insurance is designed to provide you and your loved ones with coverage until your death.  There are no fixed time periods for coverage.   Permanent insurance comes in several forms, variable, whole life, or universal.

Term insurance gives you the biggest bang for your buck.  It is low cost insurance so you can choose to buy term instead of permanent and invest the difference.   Permanent insurance, on the other hand, may give the best protection for those individuals who own lots of non-liquid assets such as real estate.

There are some great resources on the internet for helping you decide which insurance coverage is best for you.  Smartmoney.com provides a Life Insurance Calculator tool for deciding the right amount of coverage needed.  You must determine who is depending on your income.  Here are some things to consider when looking at term insurance.

• What are the living expenses for the spouse left behind?  How many years will they need your income to be replaced?
• What are your children’s annual living expenses and what are their educational needs?
• How much will your funeral cost?
• How much emergency reserve funds do you want to leave for your family?
• How much outstanding debt do you have?  (Add mortgages, car loans, and credit cards)

You can back out after-tax assets, social security benefits, and any other incoming assets that they may have from your passing.  This gives you a good idea what amount of coverage to get.  Another rule-of-thumb is 10 times your annual income.  While you are young, term insurance is your friend.  It’s not such a big financial drain and allows you to still invest and plan for the future.

If your situation changes several years later, you can add to a policy and have extra coverage.  This gives you the opportunity to extend the clock on your policy.

There are many websites that offer quotes on term insurance.  Some of these websites require you to enter your name and phone number.   The Michael Gasses agency provides a quote without requiring your personal contact information.   You can type in your state and date of birth and get a quote without adding other personal data.

When it comes time to purchase, you really should buy from an actual broker.  If you ever have problems with the policy, it’s good to have someone to call when you need help.

Once you have decided on your life insurance plan, you will need to complete a medical exam which may include blood work and a urine sample.  Here’s a list of what to do to prepare for the medical part of the insurance check.

• Schedule the appointment where it’s convenient for you.
• Keep your diet healthy, low in sugar, salt and alcohol one week before the test.
• Avoid food, products and medicines that contain stimulants such as caffeine, nicotine or decongestant drugs for 24 hours before the test to ensure that your blood pressure does not register as elevated during the test.
• Save strenuous exercise for the day after the test to prevent artificially elevated protein levels in your urine.
• Abstain from eating and drinking (except for water) 8-10 hours before the test.
• Relax and get a good night’s sleep the night before the test.
• Make sure to be answer honestly on all of your test questions.

We encourage you to consider life insurance because it makes such a difference in the lives of those you leave behind and because it’s so affordable.

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