David Lerner Associates: Review Your Life Insurance Needs
In this series of articles, we are discussing some financial housekeeping items that it might be a good idea to take a look at as we head into the New Year. In this article, we’ll explain why it’s important to review your life insurance needs and take a look at the different life insurance options that might be available to you.
Why Buy Life Insurance?
There is one primary reason to purchase life insurance: to provide financial protection for your surviving family members if you and/or your spouse die unexpectedly. When one family income-earner dies, it can be difficult for the surviving family members to earn enough money to maintain the lifestyle to which they had become accustomed.
While understanding the need for life insurance is relatively simple, the process of purchasing life insurance can sometimes be very confusing. There are many different variations and forms of life insurance, and reviewing all of the options can be difficult. David Lerner Associates Executive Vice President/Branch Manager Jonathan Jarow helps simplify things by explaining that all types of life insurance can be divided into two broad categories: term life insurance and whole life (or permanent) insurance.
“Term insurance is relatively simple: You buy a specific amount of insurance coverage (the death benefit) for a specific period of time at a pre-determined price. Premiums can usually be paid in a lump sum or on an annual, semi-annual or monthly basis. The cost of term insurance is based on many different variables,” Jarow adds, such as your age and health condition, whether or not you smoke and where you live.
Whole life insurance, also sometimes referred to as ‘cash value’ insurance, combines financial protection for your loved ones with a savings component. “A portion of the insurance premium goes into an account, where cash value is accumulated, while the remaining premium goes toward the insurance component that will pay a death benefit to your beneficiaries when you die,” Jarow explains. “Cash value can be withdrawn, borrowed against or used to buy more life insurance coverage (or ‘paid-up additions’).”
Term or Whole Life?
So which type of insurance is best for you and your family? Jarow says it depends on several different factors. “If cost is your primary concern, and you only need to insure for a specified period of time — until your children are grown, for example — then term may be your best bet. It is generally less expensive than whole life insurance, especially for young, relatively healthy individuals.”
Conversely, if you want to insure for an indefinite period of time, and you can afford the extra cost and want to include an investment component in your policy, then you might opt for whole life insurance. “Unlike term insurance, the premium amount for whole life insurance remains the same throughout the term of the policy with no future health exams required,” Jarow explains. “You could possibly lock in coverage permanently at a fixed price for the rest of your life.”
You might also be wondering how much insurance coverage you should buy. Jarow suggests buying enough insurance to replace your and/or your spouse’s income for a set number of years. “For example, if you earn $50,000 a year and want to replace this income for your family until your 12-year-old daughter graduates college, you might buy a $500,000 policy (10 years until college graduation x $50,000 = $500,000). This amount of coverage could enable your surviving family members to maintain their current lifestyle after your death.”
Material contained in this article is provided for information purposes only and is
not intended to be used in connection with the evaluation of any investments offered
by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection
with the purchase or sale of securities. Member FINRA & SIPC.
Founded in 1976, David Lerner Associates Inc. is a privately-held broker/dealer with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Teaneck and Princeton, NJ; and White Plains, NY. For more information contact David Lerner Associates 1 877 367 5960 http://www.davidlerner.com