To achieve your financial destiny takes financial planning. A solid financial plan has to consider good and bad times during a person’s life. Buying life insurance is accounting for the potential bad times during a person’s life and is the main reason to buy life insurance. Yes, I said those three evil words “buy life insurance.” A life policy is the foundation of any solid financial plan.
Basics on Life Insurance
For many people life insurance is looked upon as something they will buy “someday.” Most people know they need to have some life coverage, but never take the time to do basic research.
First of all life coverage is meant to be for income replacement if a spouse or parent dies prematurely. If you and your spouse produce some type of income then it needs to be protected. Today most families need income from both spouses regardless of the amount they earn to live their lifestyle needs.
Life coverage comes into play if one spouse dies prematurely and the income is still needed for the family. Most financial experts recommend a person should have about 5 to 10 times their annual salary. This is not a hard and fast rule, but this figure will give you a starting point for the amount of coverage.
Life insurance is not meant to be your retirement plan or your kids’ college fund. If your financial advisor sold you a policy to meet these needs you should consider receiving a second opinion.
Types of Life Insurance
For a couple when they are reviewing life policies they will find three common types of life policies: Group Insurance, Cash Value Insurance and Term Insurance.
Group Term Insurance
Group insurance is the easiest to explain. Group term insurance is the common life insurance an employer will offer to employees. The life insurance only covers the employee while they are employed. Typically the coverage is only for 1 or 2 times the employee’s annual salary, which does not meet the recommended 5 to 10 times annual salary. This type of insurance is a good bonus insurance and should not be your primary insurance.
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