ROCHESTER, N.Y. (WROC) — Determining the type of life insurance you need and the proper amount is important for you and your loved ones.
CPA Matt Bryant discussed the topic Monday during News 8 at Sunrise.
What is life insurance?
A life insurance policy will pay a sum of money to a named beneficiary when the insured dies.
Why is life insurance important?
It can provide money for your family or others close to you to replace what you would have earned if you lived longer. It can help pay off debt and pay for funeral expenses after an early death.
How do you obtain life insurance?
Life insurance providers will ask for personal health history. They may also ask for a medical exam. Life insurance providers will base the cost of a life insurance policy on the age, personal health history, and possible medical exam for the person to be insured.
How do you keep your life insurance policy in effect?
It is critical to pay your life insurance premiums as they are due. If premiums are not paid, the life insurance policy could be terminated.
How much life insurance should one have?
A general guideline is eight to ten times your annual income. A more precise calculation would be:
+ your annual income times the number of additional years that you plan to work
+ your mortgage balance and other debt
+ future costs you wish to cover (such as college and funeral expenses)
– existing assets and other insurance policies
= amount of life insurance to obtain
What types of life insurance are available?
The two most common types of life insurance are term life and whole life.
Term life insurance is coverage for a set number of years and then the policy ends. If one has a 20-year term life insurance policy, the policy would pay a death benefit during that 20 year period but the policy would end after the 20 year period if the insured has not died. Term life insurance will cost less than whole life insurance.
What is whole life insurance?
Whole life insurance will not expire as long as you keep making premium payments and it will build up cash value in addition to the death benefit. Whole life insurance will cost more than term life due to the cash value build and the policy will not terminate as long as the premiums are paid. After a few years, you may be able to borrow from the cash value as it builds.
How do you determine which type of life insurance is best for you?
A trusted certified public accountant can be a great resource for life insurance and future financial planning.