Life Insurance is to be paid to a beneficiary when the insured dies.

It covers loss of the deceased’s income and/or household services. To determine the appropriate coverage amount consider projected future expenses (e.g., medical, funeral, college, child care, etc.), earning power of the beneficiary and his or her other sources of income (e.g., Social Security), current assets, and debts. Life Insurance Calculators can be found at www.choosetosave.org/calculators/

Basic types of life insurance

Term

provides protection for specific period of time with no cash value or investment component. Most term policies include a guarantee that you can renew the policy for a specific number of years without having to prove insurability (good health). However, premiums will go up because you are older.

Whole Life

provides lifetime coverage at a premium rate that does not increase with your age after you buy it. These level premium payments build a reserve in your policy that is used to insure you as you age. Insurance companies call this reserve the “cash value.” Cash value is the amount of money you receive as a refund if you cancel coverage and surrender the policy. One can also borrow against the cash value in a policy. There are many types of Whole Life insurance. Premiums are generally much higher than for term insurance.

NOTE: Many financial advisors recommend: “Buy term life insurance and invest the rest.” Get guaranteed renewable or level-premium term life insurance. Use what you save in premiums (or more) to contribute to your retirement plan.

Never cancel an existing policy until you’ve been approved for a new one and have a new policy in hand. Otherwise, you risk having lapsed coverage. Also, evaluate fees and agents’ commissions before switching policies. The costs might outweigh the benefits.

Sources: Ohio Shoppers Guide to Life Insurance. (2004). Ohio Department of Insurance. Brennan, P.Q. and O’Neil, B.M. (2004) Money Talk: A Financial Guide for Women. NRAES Cooperative Extension Garman, E.T. and Forgue, R.E. (2006) Personal Finance. 8th Edition. Houghton Mifflin Company. p. 326.