Most of us work with financial professionals to manage the risks associated with our financial portfolios. You may be familiar with their suggestions to diversify by investing in mutual funds, stocks, and bonds, but did you know that life insurance is a crucial addition to your overall financial plan?
Many believe there are only two choices regarding life insurance – term or permanent. However, evaluating life insurance should not be simplified to only two choices. You may be better off asking yourself a series of questions designed to help you find the right policy for your needs:
- How much insurance do you need, and how long do you need it?
- How do you anticipate your insurance needs changing in the future?
- How much can you afford to pay in premiums over time?
With a permanent life insurance policy in force at the time of your death, a death benefit is paid to your beneficiaries. Some permanent policies provide level premiums, and most offer a cash value component. On the other hand, with a term policy, a death benefit is paid to your beneficiaries only if you die within a specified period of time. The premiums are subject to increase each time you renew your policy, and there is no cash value. Term policies are attractive because the premiums are initially lower than a permanent policy. Still, if the policy is kept for an extended period, you may pay more premiums than a permanent policy.
After considering the differences between term and permanent policies, you may purchase a term policy and invest the premium difference. However, many of us do not have the self-discipline to set aside that extra money each month if we are not already bound to do so by a premium. You should honestly evaluate your ability to set aside money and the financial goals you are trying to achieve before ruling out the idea of a permanent life insurance policy.
An excellent financial representative will ensure you are educated about adding life insurance to your portfolio. Life insurance is a conservative addition to financial plans and should be closely examined. Your financial representative should ask questions about your needs and goals, analyze the reality of achieving those goals, create a plan, and make sound recommendations about products that best meet your needs. Furthermore, your representative will be available to provide service on your policies and will be a valuable resource for your future financial needs.