Q and A with Denisa - Life Insurance :: Certified Financial Planner : Colorado Springs, CO

Dear clients, colleagues....friends

We are moving our COLORADO SPRINGS office location on June 1st

to:

The downtown PLAZA OF THE ROCKIES
121 S. Tejon, Suite 1107, Colorado Springs, CO 80903

Q and A with Denisa - Life Insurance

7. Life Insurance

A double hit from a pair of viewers who would like to know more about the different types of life insurance options:

From: James
Age: 45 - 49

"I would like to hear more information about the different kind of life insurance? I hear about variable and term insurance but it is confusing. Thanks, Denisa!"

From: Mary
Age: 60 - 64

"Dear Denisa, We are being advised by our insurance agent to replace our term life insurance policies with Universal life policies. It all sounds confusing to me. I am not sure how do we decide how much coverage we really need and what kind of life insurance is the right one for us. Your advice would be greatly appreciated. Thank you."

ANSWER:

There are essentially two types of life insurance categories: TERM life insurance and PERMANENT life insurance.

TERM insurance will cover you for a limited amount of time and is typically used in connection with a specific event, such as providing coverage until the kids are in college, or until mortgage is paid off. This type of insurance offers an affordable coverage.

Then there are all other types of insurance, some of which you are referring to, universal life, variable universal life, whole life, and other hybrids. They all fall into the PERMANENT insurance category. That means that as long as you pay your premiums you will be covered, and essentially providing coverage for life. This category also offers an opportunity to build a reserve from the excess premium dollars that do not pay for the cost of insurance. This reserve grows and the insurance company either pays you an interest or can invest your dollars to a mutual fund LIKE vehicles. Therefore, over time you accumulate savings inside your life insurance policy that is referred to as cash value. These dollars can be pulled out on a tax-advantaged basis. HOWEVER, this category of life insurance comes with a price tag.

Therefore before you buy:

Understand if you have a need for insurance.
Calculate how much you need.
a. The rule of thumb is 6-10 times annual income. However, for more precise figure, you can do a quick calculation of survivor's income needs by using an online calculator. It can be found at www.moneycentral.msn.com.
Figure out if you need term insurance to cover you for a limited time or PERMANENT insurance to cover your lifetime.
Finally, thoroughly examine the insurance products and understand the TOTAL cost, including any penalties (these are sometimes referred to as surrender charges).