zondag 25 mei 2014
Koyal Group Training Services: 5 tips for new parents considering life insurance
Few personal milestones compel someone to buy
life insurance coverage like
becoming a parent.
In the event of an untimely death, life
insurance can serve as a financial
safety net to ensure there's money available to pay for everything from
medical bills to a home mortgage and the future college education costs.
Many Americans have taken steps to line up
such a financial cushion.
At the end of 2012, there were 146.2 million
individual life insurance policies in effect, with coverage totaling $11.2
trillion, according to the American Council of Life Insurers.
Here are
five tips for new parents looking to buy life insurance:
1. LEARN
INSURANCE OPTIONS
Life insurance policies can vary widely, but
they generally fall under two categories: Term insurance and permanent
insurance, which are often referred to as whole life or universal insurance.
With term insurance you pay a premium for a
set period, commonly 10 years or 20 years, and your policy entitles you to a
specific amount of money. Unless the policyholder dies, triggering a payout,
any premiums paid are lost once the policy term ends.
In contrast, whole life insurance policies
cover insured individuals as long as they live. These policies also function as
savings vehicle. A portion of the premiums paid for the policy are invested to
provide a pool of money that the policyholder can access, tax-free, while
they're still alive. Such policies are generally more expensive than term life
insurance, however.
Andrew Porter, a certified public accountant
in LaFayette, California, advises clients who are new parents to avoid whole
life insurance.
"The cheapest form of insurance,
generally speaking, for healthy, young adults is term (policies)," Porter
said.
2. DETERMINE
COVERAGE PRIORITIES
Generally, an insurance agent will help you
determine an appropriate coverage amount for the policy by examining some of the
key costs your family will have in years to come, such as the cost of child
care, education and the mortgage.
Another approach is to figure out how much
income you're expected to earn over your lifetime.
Still, while it might be tempting to think of
life insurance in terms of a dollar amount, it makes more financial sense to tie
that amount to a goal, like paying off a mortgage or college tuition, said
Porter.
"If you're going to buy insurance you
want to have a specific use for each policy," he said. "It opens the
way for insurance agents to oversell insurance that you may or may not
need."
3. BUY A
POLICY EARLY
The cost of life insurance doesn't hinge on
your credit rating, savings or assets. It's determined by your age and the
results of a medical evaluation that's required every time you seek coverage.
If you're a couple in your 20s and healthy,
you'll pay less than when you're in your 30s and 40s.
"If you can qualify now it's better to
do it, versus waiting and something could change in your medical situation and
you may end up not qualifying," said Craig DeSanto, head of life insurance
and long-term care at New York Life. "And the younger you buy, the cheaper
it is."
A 20-year-old man who is healthy and doesn't
smoke could be charged, on average, $32.53 a month for $500,000 in coverage on
a 20-year term life insurance policy, according to an estimate by insurance
quote portal TrustedChoice.com.
By comparison, a 50-year-old with the same
health characteristics would be charged $111.38 per month for the same
coverage.
4. CONSIDER
INSURING BOTH PARENTS
It's common for both parents to work and
contribute to household expenses and the costs of caring for their children.
That's one reason experts recommend both spouses have life insurance,
particularly if they both pitch in to pay the mortgage.
But even in cases where one parent quits work
to care for a young child, that parent should be insured.
"If you're providing for someone it's
not just income that you make as an employee, it's the value you're providing
taking care of a dependent," said DeSanto.
5. CONSULT
THE PROS
Wading through the trove of life insurance
offerings can be challenging. It's best to consult with a financial advisor and
meet with an insurance agent who can provide the most up-to-date rates and
policy options available.
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