Life Insurance

[dollardaze]

It can be very confusing trying to decide whether to purchase permanent insurance or term life insurance. Buying the wrong kind of life insurance can be more detrimental to your financial plans than almost any other financial decision you may make.

Term life insurance offers only death benefits, which means that you (your beneficiaries actually) only get the benefits at the time of your death. If the length of the policy ends before your death, you (or your beneficiaries) get none of your money back.

With a permanent life policy, you not only get death benefits, but also get 'cash value', a kind of 'saving's account'. This means that should you live, you receive at least a portion of, and frequently much more than, the amount you paid on your premium. You receive this benefit by either cashing the policy in, or by borrowing against the policy.

The premiums you must pay for permanent life insurance policies are more expensive than those for term life, because some of the money is put into a 'savings account'. The permanent life insurance policy that is in force a long period of time has earned interest, dividends, or both, making it a higher cash value.

The first annual premium is much higher for a permanent life policy than for a term life policy. The premiums on a permanent life policy remain the same, but for a term life policy, the premums increase. The higher premiums paid for permanent life is invested and grows in value (of course your agent does get a certain amount of it as a sales commission). If you cash in the policy during your life-time, the gain is tax-deferred. The gain is normally tax-free to your beneficiary if you die.

Some people say it's best to buy term and then invest the difference. This though depends on how long the policy is in effect. If the permanent policy is kept long enough, this would be good advice, but it depends on how long 'long enough' is. It varies with the age of the policy holder, the insurance company, and the type of the policies picked. Also, interest rates and dividend rates must be factored in. In short, there is no easy answer, because life insurance is not simple.

There are some guidelines which you can follow to make a good decision. If you plan to keep the policy less than 10 years, then term life is clearly the best for you. However, if you plan to keep the policy over 20 years, then permanent life insurance is probably a better choice for you. If your answer is somewhere between those 2 numbers, then you should consult an expert for advice.

[pennypinch]

Life insurance policies are pretty confusing, thanks for clearing up some of that info for me. There are so many different little aspects to each one you can choose from, how do you decide what is best for you!!

The other issue is the costs. It kind of seems like you are throwing money out the window each month when the payment is due lol. They are beneficial though, especially if you pass on.. your family will not have to worry about all of the expense thats goes with passing, especially while they are grieving. They will be able to pay for all of your costs with the money from your policy.

[dollardaze]

I'm beginning to think that not only is having some sort of insurance policy imperative, but to help my family when it comes to my death, I'm seriously thinking of making my funeral arrangements ahead of time. This way my family won't have to worry about doing what they feel I would want, because all those decisions would be made by me.

I know this isn't a topic of conversation that many families would like to have, but death is a fact of life and must be faced. I was at the funeral of a dear friend just weeks ago, and she had her funeral pre-arranged. It was so much easier on the family, since they didn't have to worry about these arrangements.

[pennypinch]

I agree that having the insurance to cover expenses is a good thing and also to have the funeral already set up and taken care of is great. The last thing family members want to do is to have to make all of the decisions and wonder if thats what the person really wanted. Or, for them to have to try and come up with the funds to cover the costs, this can be quite difficult. Funerals are not cheap by any means!

[moneysense]

There are booklets called (Personal Arrangement Guide) that you can get that your family can fill out as to just what they want done upon their death. Some of the things in this booklet include:

Vital Statistics which could help in the writing of the obituary.

Preferences and requests: This asks for the preferred funeral director, preacher, and Disposition, as in which cemetary, and whether you want to be cremated or not.

It also has a section to fill out for your obituary.

There is also a section titled Please notify these people at my death.

Then at the end, it has 2 pages to be filled out to give to the funeral home. They are a Vital Statistics page and a Please notify these people upon my death.

With this booklet properly filled out, there would be no doubt as to your final wishes.

You could also add on the back cover, any thing you want to be left to each family member, that way it is in writing and cant be argued over.

Also, on the inside cover, you could list any insurance policies you have that other family members may not know about. Plus list any insurance policies for your remaining spouse that may need to be paid monthly.

[dollardaze]

This is great to know, moneysense!! I'll be looking into this in the very near future. The last thing I want is for my family to be second-guessing what I want or who I'd like to have certain things. This way it will be clear, and there will be no misunderstandings at all.