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Financial Planning

Let us look at term insurance first. It is much cheaper, since you are paying specifically for one peril, death. The cost is determined by the insurance company’s estimation of risk. In other words, they are gambling that they will collect enough premiums to pay off claims. Added to this is their overhead and profit. There are very few non-profit insurance companies.

The lower the risk the cheaper the insurance. Younger is cheaper than older. Healthier is better than sick. A non-tobacco user is less than one who smokes. Proper weight is better than over weight. There are more factors, but you get the idea.

Other factors that affect term costs are items such as:
Locked in rates. These can give you a fixed price for a period of up to 20 years or more. You can expect to pay a little higher in the beginning than annual term, but if it is going to be for a long period, it is your guess against the insurance company how much your rates may go up.

Guaranteed insurability or convertible term insurance. This can be very important, especially if you are purchasing insurance strictly on a cost basis. What happens if you become gravely ill with a disease such as cancer? Could your insurance be taken away from you? If the insurance company feels you are to great a risk, they can just say that they will not insure you. This guarantees clause allows you to keep your insurance and not have it taken away.

Term insurance is sold for its perceived financial advantages. The old saying went, “Buy term and invest the difference.” This can be a fantastic strategy! The concept is to take the money you would have otherwise spent on a whole life or universal policy and buy a cheaper policy designed to do only one thing, pay for a death. Then take the savings and invest it in a great investment to make you money.

The drawback of this strategy is that many people will buy term and blow the difference. Now they went backwards. Financial discipline is not easy for everyone and often needs to be learned. It is a combination of knowledge and wisdom. This is part of the reason there are so many financial advisors. It is the reason why this financial help and free advice web site was built. Although this site gives great advice it is basic advice, and may not cover everyone's situation. That is why we have terms of use policy on our site. If ever in question, consult a financial planner or attorney.

Whole life, which we will also include universal and other similar products, is a combination of life insurance coupled with an investment. What are you investing in? It depends on which insurance agent you ask. Obviously, the premiums are higher since you are buying both insurance and investing money. This gives both good and bad reasons to buy this kind of insurance.

The bad part is you only get the death benefit or the cash value, not both. Keep in mind that the insurance company is making financial decisions based upon risk. They will give you so much money back based upon what you paid and what they earned while calculating what they will need based upon the percentage chance of death. It is like a huge Las Vegas gamble with a cut going to the house.

The greatest benefits of whole life are that the death value may increase with the additional premiums. Your cost is mostly locked in. The money known as cash value can generally be taken out or borrowed with no tax consequences. Once the cash value is large enough, the policy’s own earning could actually be used to pay the premiums.

I personally feel you need to consider what you can afford and the purpose of the insurance. Depending where you are at with your pyramid of wealth will determine what risks and diversifications you need to financially make.

Keep in mind, life insurance is death insurance. With that in mind we can only take our best financial projection and make our best financial estimates for what our life insurance needs are.

Since we do not know the future, it is really an educated guess that is needed to determine the financial life insurance needs we have.

Check out our life insurance calculator, and see if it can help give you some direction.

Life Insurance Financial Information

© 2009 - First Finacial Help. All rights reserved.

Got Life Insurance?

Two primary choices for insurance are term and variations of whole or universal life.

Term life is often thought of as pure insurance, since it is death insurance in case you die. The primary advantage of term insurance is the lower cost. Life or universal policies have an investment and earnings aspect to them. Which is the better financial decision? It depends.

© 2012 - First Financial Help. All rights reserved.