There are a few remaining questions I wanted to answer with regards to life insurance. I don't want to get into the whole term versus cash value life insurance debate at this time (I'll save that for next week). There are situations where cash value insurance can be useful, but typically you are better off with term insurance.
How do I purchase life insurance?
You can purchase coverage over the internet or through a life insurance agent. Insweb is one site that I have heard of, but there are many different providers out there. It is extremely important to select a company that will pay your claims. I would go with a company that has been around for some time (20 years or more) and is rated A (preferably better) by the rating agencies. Unlike much of the debt that was rated shadily by the agencies that has caused our current fiscal crisis, the ratings agencies actually do a pretty good job with life insurance companies because these type of companies have been around forever and are easy to understand.
How do life insurance agents get paid?
Agents work on a commission that is dependent upon the annual premium you pay for the policy. Most of your first year premium is actually going directly as compensation. For instance, if you buy a 20 year term policy for $1000 annually, the agent will get somewhere between 50%-90% of that premium as a first year commission. If you keep the policy in force for more than 1 year, the agent will usually get trailing commission of around 5%-20%. The actual percentage is going to depend upon the pay structure of the company the agent is working for.
Additionally, compensation for cash value life insurance is typically higher than term insurance. For example, for a $1000 annual premium policy, an agent may be paid $700 for a term policy and $800 for a cash value policy. This is not always the case, but it is typically what I have seen.
I will get more into the differences between cash value and term insurance in my next personal finance post. If you would like any particular questions answered as well, I will try to cover them in that post.
Showing posts with label life insurance. Show all posts
Showing posts with label life insurance. Show all posts
Saturday, March 14, 2009
Thursday, March 12, 2009
Personal Finance: How much life insurance do you need?
I hope to use Thursday's posts to talk about personal finance issues. Up first is the misunderstood world of life insurance. I'm assuming you already know that most people need it. I can attest personally to its importance as my dad died when I was in college, and if not for life insurance, I never would have finished college, and my mom, brother and myself would have struggled financially for sometime afterward.
Who needs life insurance?
Anyone who would inconvenience a loved one financially if they die. If you own a home, have kids, are married, or have a lot of non-student load debt, you probably need life insurance. Students and other young people don't necessarily need it, but if they can afford it, it is a good way to guarentee coverage against some future uninsurability.
How much coverage should you have?
A good rule of thumb is 7-10 your annual income, but much there are several calulators that will better estimate what you need (here and here). At a minimum, I would recommend enough to cover burial expenses, and 2-3 years of income replacement for your family. Ideally though, you want to pay all debts and provide several years of income replacement, possibly even funding retirement for your spouse, or paying for college for your kids. I am single without kids and I have enough coverage to pay off my house, pay off my debt, and give both my mom and my brother a nice inheritance should I die. Of course, how much coverage you get will be based upon how much you can afford to spend and your ability to qualify for coverage.
What type of coverage should I get?
In general, term insurance will be the most affordable for the majority of people, but there are some instances where permanent insurance is useful.
I will explain more about the types of coverage and how you go about purchasing it, in the next post on the subject.
What are your thoughts on life insurance? Post your comments below.
Who needs life insurance?
Anyone who would inconvenience a loved one financially if they die. If you own a home, have kids, are married, or have a lot of non-student load debt, you probably need life insurance. Students and other young people don't necessarily need it, but if they can afford it, it is a good way to guarentee coverage against some future uninsurability.
How much coverage should you have?
A good rule of thumb is 7-10 your annual income, but much there are several calulators that will better estimate what you need (here and here). At a minimum, I would recommend enough to cover burial expenses, and 2-3 years of income replacement for your family. Ideally though, you want to pay all debts and provide several years of income replacement, possibly even funding retirement for your spouse, or paying for college for your kids. I am single without kids and I have enough coverage to pay off my house, pay off my debt, and give both my mom and my brother a nice inheritance should I die. Of course, how much coverage you get will be based upon how much you can afford to spend and your ability to qualify for coverage.
What type of coverage should I get?
In general, term insurance will be the most affordable for the majority of people, but there are some instances where permanent insurance is useful.
I will explain more about the types of coverage and how you go about purchasing it, in the next post on the subject.
What are your thoughts on life insurance? Post your comments below.
Subscribe to:
Posts (Atom)
Posts
