Different Life Insurance Needs

Conventional wisdom says that the life insurance needs of young people, especially those under age 30, are met by owning simple term insurance. Young people, whether single or recently married, often need the protection of life insurance yet do not have the cash resources for a more expensive permanent product. A young couple, for example, who are both new to the job market and working in entry-level positions may have just enough cash each month to cover the rent or mortgage, a car payment or two and other mandatory monthly expenses such as utilities. But, the loss of one income can create a drastic financial crisis for the surviving partner if one salary is not enough to cover expenses.

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Term Insurance

Term insurance can effectively meet the life insurance needs of young people because of the flexibility of the term and death benefit. A couple can choose a term that covers just a few years or one that covers a much longer time frame. If, for example, they want coverage just long enough to cover the repayment of student loans or they want a longer term that will cover the repayment of a mortgage loan, an affordable policy can be found at most insurance companies. The death benefit can also be selected in an amount that covers essential day-to-day living expenses along with covering funeral and burial expenses.

Term insurance is also much less expensive for younger people than it is for older people. Young people tend to be healthier than older people, and based on insurance actuarial tables can be expected to pay premiums over a much longer period of time. Because the risk of paying the death benefit is lower, the insurance company charges less. This is why term insurance is so easy to understand: The cost of the premium is simply enough to cover the cost of providing the insurance.

Life Insurance Needs of Senior Citizens

Life insurance needs of senior citizens can also be met with term insurance. If a senior has few assets and wants to ensure that his or her loved ones will have enough money to pay the final expenses, a term policy with a death benefit large enough to cover these items will likely be affordable. Alternately, a senior with substantial assets may choose a term policy to ensure that the distribution of those assets is equal among beneficiaries.

Depending on the age at issue, seniors are usually advised to purchase a policy with the longest term allowed by the insurance company they choose. As the premiums for term insurance will increase each year with an annual renewal policy, a senior who chooses a level premium policy will lock-in the lowest rate possible at the time of issue.

Seniors may also feel their life insurance needs include leaving money for a grandchild. As the beneficiary of a life insurance policy, a grandchild can use the death benefit for college tuition, as the down payment on a piece of property, to start a business or anything else he or she feels is appropriate. As the death benefit on a life insurance policy is almost always tax-free, this style of giving and passing wealth from one generation to the next can be more efficient than other types of inheritances.

Do Life Insurance Needs Change with Age?

Life insurance needs change with age primarily because family and financial situations change with age. As people get older, they are more likely to have children and accumulate assets. Life insurance protects both. It protects a spouse and children by ensuring that they will not suffer a loss of their standard of living if the insured dies. It also protects assets by providing dependents with a source of tax-free cash that can be used to pay inheritance taxes.

How Does a Term Product Meet Life Insurance Needs?

Because of its flexibility and affordability, term life insurance meets the needs of those young people and senior citizens who want to make sure that at the very least, they are not leaving their dependents with debt. Term insurance also works well in conjunction with another policy, such as one that is offered by an employer, a union or professional association.

How Does a Permanent Product Meet Life Insurance Needs?

Because permanent life insurance also has an investment component, it typically meets the needs of older individuals concerned with saving for retirement and estate planning. All earnings credited to a permanent life policy grow tax-deferred until the money is either withdrawn or the death benefit is paid upon the death of the policyholder.

Whole life insurance, the most traditional form of permanent insurance, is sometimes used as an alternative to an annuity. A whole life policy that is purchased with a single premium has immediate equity and can be borrowed against or used as collateral. A whole life policy has significant tax advantages over an annuity when used for estate planning purchases. The death benefit of a permanent life policy is often used to help children or grandchildren pay inheritance taxes on a family owned business.

If a business partner is named as beneficiary, he or she can use the proceeds to buy out the deceased partner’s share of the business. And, in extreme cases, the death benefit can allow those who remain in the business to conduct an orderly sale or closure of the business. The death benefit can be used to pay final invoices, employees, attorney fees and all other expenses associated with closing a business.

While some young couples choose permanent insurance over term insurance, permanent insurance is usually more suited to those older, more established individuals with the financial commitment to maintaining the policy. If premiums are not paid on time according to the insurance contract, the insurance company has the right to terminate coverage. The associated surrender charges can lead to both a loss of principal and the loss of the death benefit.

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