Sigma Wealth

What is insurance planning?

The risks that involve life insurance are the risks of a premature death or the risk of dependent old age. Premature death occurs when the death takes place while others remain dependent on the individual's income. Dependent old age is the risk of outliving one's income, that is, the risk of retiring without adequate assets to cover living expenses during the period of retirement.

Life insurance can help provide for your dependents in the event of your death, possibly covering such obligations as liquidity for estate administration and taxes, mortgage debt, college expenses, child-care costs, family income, and retirement income. A detailed life insurance needs analysis can help determine the coverage and type of policy right for you.

Assessing Your Life Insurance Needs

You can insure against some major risks and protect yourself from some major losses. You probably already have insurance for your car and home, but what about insurance for your life and your ability to work? Also, are you insured adequately to cover expenses for retirement?

Before reviewing the details of the different types of life insurance policies, it is important to determine whether you have a need for life insurance. Your need for life insurance is dependent upon your financial situation and your goals. An insurance agent can help you in examining both your financial situation and your goals to determine whether you have a need for life insurance coverage, and, if you do, how much coverage you should consider.

Whole Life Policies

A typical whole life policy provides life insurance coverage for as long as you live or until age 90 or 95, whichever comes first. Upon your death, the death benefits will be paid to your beneficiary. When purchasing a whole life insurance policy, you know your premium amount and payment schedule, as well as your guaranteed policy value and guaranteed death benefit. The premium amount remains the same throughout the life of the policy. It is very important to select the right insurance company, as it will be managing the investment of the premiums for the guaranteed policy value. While this type of policy is reassuringly stable for many individuals, you should keep in mind that you will not be able to change your premium payment amount or your payment schedule if your financial circumstances change.

Endowment Insurance Policies

Endowment insurance pays the face value of the policy either at the insured's death or at a certain age or after a number of years of premium payment. Therefore, it is more of an investment than a whole life policy. Endowment insurance is a method of accumulating capital for a specific purpose and protecting this savings program against the saver's premature death. Many investors use endowment policies to fund anticipated financial needs, such as college education or retirement.

Term insurance

It provides coverage for a limited "term" or period of time. Most insurance companies offer term insurance policies with terms from one to thirty years. If you die during the term period, the policy's death benefit is paid to your beneficiary. If you are alive at the end of the term period and wish to continue the coverage, you will have to reapply for an additional term of coverage. In order to renew your policy after its term is up, you may have to prove that your health has not significantly declined, and you will likely have to pay a higher premium rate for the new term. The frequency of increases in your premiums depends upon the term you select. If you purchase a one-year term policy, and you want to continue the coverage at the end of the one-year term, you have to reapply and most likely pay a higher premium. If you purchase a five-year term policy, and you want to continue the coverage at the end of the five-year term, you have to reapply and most likely pay a higher premium. However, the premium paid during the five-year term will remain the same throughout the term rather than increasing each year. Term insurance is a good product for individuals who need coverage against the possibility of their death for a short period of time. For individuals who want a long-term policy or want to combine investments with life insurance coverage, endowment life insurance may be more appropriate.