Cost of Life Insurance

Life insurance is another expense which adds to the ever mounting bills in our everyday lives. Although daunting, tor many it’s a necessary expense. Don’t worry, it can be affordable if purchased smart. Here are some tips on how you can save on your life insurance costs

Can I do without any life insurance at all?

You may think of life insurance as just another unnecessary bill to scrap off your list. However, most people will need some form of life coverage during their lifetime, especially if there are children or other dependants involved.

There are some instances where you won’t need any life insurance. This would be the case, for example, if you were single, had enough saved to pay for your own burial and didn’t have any children, spouse or other people in your life that would suffer financially if you passed away. Even if this was the case, you may still wish to buy life insurance anyway for other reasons, for example to help your parents out with their mortgage.

How much life insurance do I need?

If there are loved ones in your life that you need to protect, then life insurance is very important. Most people don’t have enough assets (without debt/mortgage) to fully cover all their family’s needs should they pass away. Some form of coverage is needed particularly if you are the breadwinner in the family. You need to think of all the expenses that would need to be covered, such as the mortgage repayments, your family’s standard of living and even funds for college.

It’s important that you don’t try to save on the cost by dangerously reducing your coverage. If you’re going to get insured, get the right amount and then save by comparing plans and insurers rates. There are plenty of tools and calculators online to help you calculate how much coverage you actually need, so get this right to start from.

The amount should focus on two things; immediate expenses and your family’s needs. Immediate expenses are basically end of life expenses such as funeral costs, medical and estate settlement charges. For estates under $1.5 million this figure should be at least $15,000 or 4% of the total value of the estate (whichever is the higher).

As for calculating how much income your family needs, this is usually 60-70 per cent of the total income. It should be enough to maintain their current standard of living. Don’t forget to factor in your current savings, investments and retirement funds (at today’s value). If your spouse will continue to work after your death, then this can reduce the amount you need. If you’re unsure, see a qualified financial advisor to help you with the calculations.

Term or Whole Life Insurance

When it comes to lowering your cost of life insurance the key message coming from today’s financial experts is to buy term and invest the difference. What does this mean? Well, there are essentially two main types of life insurance: whole life and term. Whole life insurance includes an investment component. So, part of your premium goes toward life insurance and the rest towards investments. This means if you keep up a policy for 20 years, you’ll actually have something at the end of the period (as opposed to term, where once the period is over, you’re left with nothing).

This might seem ideal, but the truth is, the fees involved with whole life policies are very expensive and you’ll either need to sacrifice coverage to lower your premiums or pay high fees. The investment part usually costs more than what you’d find with standard (non-life insurance based) investments. This is why many experts recommend that you leave your life insurance separate to your investments – because you can invest more (lower fees) and get the coverage that you need at a lower cost.

Despite this general rule, there are circumstances where whole life would be more idea. This is because these types of policies don’t usually require a medical exam. If you have a medical condition or you’re of an age which would make term too expensive or even unattainable, then a permanent policy may be your better option.

Life insurance is a financial product which you shouldn’t choose light heartedly. The type of plan you choose can very significantly impact on your future needs. With so many options available, it’s best to see a professional – your accountant/financial planner. Don’t just rely on a broker to look after your best interests. While they may be good at finding great plans, you need to know exactly what you need to protect your loved ones.

When it comes to lowering your  cost of life insurance  the key message coming from today’s financial experts is to buy term and invest the difference.


FAMILY PROTECTION CONSIDERATIONS

If your primary reason in seeking insurance coverage is to make sure your family won't have to struggle financially if you pass away, you need to think about how much money they'll need to live comfortably without you. It will be important to get enough insurance to make up for the loss of your salary for the rest of your working years. For example, if you have young children, child care expenses are likely to increase if one of the parents is no longer living.

PROTECT YOUR MORTGAGE WITH TERM LIFE INSURANCE
Many people choose term life insurance to provide mortgage protection for their families. cost of life insurance  When you purchase a term insurance policy, you're setting up coverage that will be in place for a specific period of time. If your primary reason for purchasing it is to leave your family with money to pay off the house if something happens to you, it makes sense to select a policy with a term that matches the repayment period for your home.

BALANCING COVERAGE WITH COST
Many people postpone purchasing life insurance, because they think it's too expensive. Many factors impact the cost, and financial protection for your family's future doesn't have to cost a fortune. When you take the time to get quotes,  cost of life insurance  ,you'll be able to understand that variables that allow you to balance coverage with premium costs. You might be surprised to find out just how affordable insurance protection really is.

CONSIDER INFLATION WHEN CHOOSING LIFE INSURANCE
When figuring out how much life insurance you might need to provide protection and peace of mind for your family, it's important to consider the impact of inflation. It's important to look at inflation from the perspective of how it might affect your earnings and the impact it can have on cost of living. If you only consider how much money you earn right now and your family's current expenses, you might not make the best possible decision about life insurance coverage. Over time, your rate of pay is likely to increase from either performance or merit raises, as well as through cost of living adjustments. At the same time, the cost of consumer goods is likely to increase in keeping with the rate of inflation. cost of life insurance  When purchasing insurance, you need to think about how much coverage you need to protect your family's living standards. Twenty years from now, it's likely that your loved ones will need more money to live comfortably than they'll need tomorrow, or even five years from now. That's why it's important to consider inflation when purchasing insurance.

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Life Insurance: The New Qualified Retirement Plan

Did you know that permanent life insurance is considered the new qualified retirement plan? I didn't either until I came across a revolutionary product. Let me share some facts about traditional qualified retirement plans and how they compare to a properly structured permanent life insurance policy.

A qualified retirement plan according to the IRS includes 401K, individual retirement accounts (IRAs), pension plans and annuities. While the structures of these plans are good, they are not the best. Here are some known facts about retirement plans:

Retirement plan savings are accumulated tax deferred. Although the money is tax deferred, have you ever thought about what tax bracket you will be in when you retire? More than likely it will be the same bracket you are currently in or a higher bracket because of the amount of money you will need to withdraw monthly to maintain your lifestyle. Who wants to pay more taxes when they retire? Not me.

Retirement plans have a maximum contribution amount per year. Now let's be clear that I am only speaking about retirement plans that you as the owner can contribute to. There are plans such as pensions and defined benefit plans that only an employer can make the contribution to. A 401K has a $17,000 and individual retirement accounts (IRA) have a maximum $5,000 contribution limit per year. What if you want to save more

Retirement plans have required minimum distribution age. The Uncle Sam, wanting to keep his hand in your pockets as usual, requires that you must start making withdrawals from your retirement plan by age 70 ½, unless it is a Roth IRA. Whether you need the money or not Uncle Sam forces you to receive regular distributions based on a calculation they came up with AND you have to pay taxes on it.

Retirement plans cost you early withdrawals fees and penalties. Now suppose you need the money before you turn 59 ½, do you think you can take what you want with no problem? Nope. If you make a withdrawal before you are 59 ½ you will not only have to pay tax, but also a 10% penalty fee. But isn't it your money?
Now let's compare these same benefits of retirement plans to a permanent life insurance policy. Permanent life insurance policies include a cash value account. This account is, in simple terms, a savings account that can be used as a retirement account. Did you know that IRS code 7702 states that you can use a retirement account as a supplement retirement account? It is truly an amazing thing. Let's compare.

Lifeinsurance cash accounts are accumulated tax-free. That's right tax free. Since you pay your life insurance premium after tax, the monies allocated to your cash account are after tax. This means that if and when you decide to pull funds out of your account, you will not have to report them to the Uncle Sam.

Life insurance cash accounts have a higher maximum contribution limit. I would love to tell you that you can shelter any amount of money you want in a life insurance policy but that is no longer the case. At one point in time you in fact could do this but over the years the rules have changed. However, the great thing about this limit is that it is based on the size of your policy and how much you contribute above your premium every year. As a result, this limit can be higher than the $17,000 maximum 401K limit.

Life insurance cash accounts can be withdrawn at any time. The cash accumulated in a life insurance contract can be taken out at anytime. The key is to withdraw these funds as a loan and not as a basic withdrawal. Why you ask? As a withdrawal, there is a possibility that you will have to pay taxes on the interest earned in that account. But with a loan you will not have to pay any tax. In fact you won't even have to pay the loan back. As long as the policy is current, the loan balance will remain. In the event that the funds have to be distributed to the beneficiary, the loan balance will be deducted from the payout amount.

Lifeinsurance cash accounts do not cost you additional fees. I just told you that you can take the money out tax free and now I am telling you that it is also penalty free. You don't even have to pay the interest on the loan, if you take the funds out as a loan like I told you above, because the interest owned on the loan is offset by the interest earned on the cash account.

Whenever someone says the word 'protection', another word comes to my mind. It is nothing but insurance. Insurance is an extremely crucial part of anybody's life. It can really come to your rescue at times of financial distress. When you become old, there is definite possibility of financial constraints coming your way. You would have retired from your job and it would get difficult to generate an income stream after retirement. You would not have any physical strength left in you to take up any part-time or freelancing job once you have crossed the age of 60. Depending on others to lend you money on a regular basis can really dent your relationship with them. This is true even in case of close relatives.

Even when you are old, there can be lots of commitments that can make you financially tight. Since people don't tend to be heavy eaters when they get old, food expenditure would not be a problem. But, old age can bring in various kinds of health issues along with it. Health issues can not only be frustrating for you and your relatives, they can also take away a lot of your money. A single visit to a nearby clinic itself can cost you a lot in the form of consultation fees. If you have some complicated issues, then the doctor might charge even more.

Blood pressure and diabetes are two of the most common diseases that are known to plague people at old age. Paralysis is also something that can occur at old age. You may have to frequently visit your doctor to check your blood pressure and blood sugar level and buy medicines regularly. The medicines can be quite expensive. Hence, having a health insurance cover is of paramount important. You can ignore health insurance at your own peril.

While health insurance is mandatory, life insurance can also be extremely useful after retirement. Even though I hate to say it, one needs to realize that life cannot go on forever. When you cross 60, this fact will definitely loom large on your mind. More than you care for yourself, you would care for your loved ones. You would want to keep your life partner financially secure even after your demise. You never know how settled your kids are going to be. So, having a life insurance cover can take care of the financial requirements of your life partner and children if you have any.

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