While it’s not a topic anyone wants to think about, making plans for the distribution of wealth after the death of a loved one is often necessary to ensure financial stability for surviving family members.
One smart way to effectively plan in this regard is to invest in a life insurance policy. But why is this investment worthwhile?
According to Attorney Samuel B. Ledwitz, president of the estate planning law firm Bezaire, Ledwitz and Associates in Torrance, it is simple.
“Life insurance replaces one’s earnings in the event of their untimely death,” Ledwitz said. “It allows for dependent families to maintain a source of income when the main income earner of the household passes away.”
The main questions to ask when considering a life insurance policy are what type to buy and how much of it to purchase, Ledwitz said. The two types of life insurance are term and whole life.
Typically, young adults who are just starting out choose term life insurance policies. This type of policy is for a fixed period of time, such as 10 or 20 years, is less expensive than a whole life policy, and can be used to provide for minor children until they reach maturity or to fund initial end of life expenses such as funerals. If the former, Ledwitz advises purchasing a policy worth about 10 times the insured’s income. If the latter, a policy of a few thousand dollars may suffice. One great bonus of a term life insurance policy is that premiums are guaranteed to stay the same over the term of years.
However, term life insurance has significant drawbacks.
“Term life insurance does not build up any cash value, so it is not an investment,” Ledwitz said. “And unlike a whole life policy, you can’t just cash money out of the policy at any time.”
In fact, if the insured person does not, in fact, pass away during the term indicated, the money essentially disappears.
“It’s like car insurance,” Ledwitz said. “If you don’t have an accident you can’t make a claim. With regard to term life insurance, the theory is that by the end of the term, your need for life insurance is gone.”
Whole life insurance, on the other hand, is an investment, Ledwitz said.
“You put in money, that money is invested in the stock market, and many years down the line you can cash some money out. The hope is that the investment returns will cover the cost of withdrawing funds from the policy. Alternatively, you can keep the funds where they are and the death benefit will provide nicely for your dependents or a specified beneficiary.”
How are insurance rates determined? Ledwitz said there are two main deciding factors.
“Insurance is based on your health and your age,” he said. “Having a history of chronic illness or smoking will either skyrocket your rates or hurt your chances of getting a policy at all. And the younger you are, the cheaper the product is going to be. Waiting until old age to invest in policy might be cost prohibitive.”
Essentially, the riskier something is to the insurance company, the higher the cost. Insurance companies will look at one’s medical record, perform urine and blood tests, and check one’s vital to determine whether or not the client can be insured, and if so, at what price.
Despite these strict restrictions, life insurance is attainable for the majority of those trying to procure it.
“Most people are insurable,” Ledwitz said. “If one company denies you a policy, there may be a different company that will provide one. There are 30 or 40 of these companies. Don’t give up after the first company tells you no.”
Author: SHEL SEGAL
Source: FontanaHeraldNews.com
Retrieved from: www.fontanaheraldnews.com
FINRA Compliance Reviewed by Red Oak: 696417
Comments
Post a Comment