What is Life Insurance?

 Life insurance helps to ensure that your family and loved ones are protected against financial difficulties in the event of a premature death.   In general, it is an essential component in planning for the future. 

  Combined with investments, retirement and estate planning, life insurance is a fundamental part of a sound financial plan.   With the help of an  HSH insurance professional you can develop a complete plan that will protect you and your family. This section gives you basic information about various types of life insurance, how to conduct a needs analysis, and the basics of estate planning.  Life insurance is the foundation of a sound financial plan. It provides financial security for your family by protecting your financial resources, such as your present and future income, against the uncertainties of life.

More specifically, life insurance provides cash to your family after your death.  This cash (the death benefit) replaces the income you would have provided and can meet many important financial needs: It can help pay the mortgage, run the household, send your kids to college, and ensure that your dependents are not burdened with debt.  The proceeds from a life insurance policy could mean that your family won't have to sell assets to pay outstanding bills or taxes.  What's more, there is no federal income tax on life insurance benefits.  To evaluate your future financial contributions to your family, use the Life Insurance Needs Calculator on this site. 

Most people with dependents need life insurance.  While there's no substitute for evaluating your specific situation, one rule of thumb is to buy life insurance equivalent to five to ten times your annual gross income.  To determine how much, if any, life insurance you need, start by gathering all your personal financial information and estimating what your family will need after you're gone. Include ongoing expenses (such as day care, tuition, or retirement) and immediate expenses at the time of death (like medical bills, burial costs, and estate taxes).  Your family also may need funds to help them readjust: perhaps to finance a move, or pay expenses while job hunting.  Use the Life Insurance Needs Calculator on this site to help you begin evaluating your needs.  The best way to evaluate your specific needs is to contact a HSH life insurance professional.  Choosing a life insurance product is an important decision, but it can be complicated.  As with any major purchase, it is important that you understand your family's needs and the options open to you.

There are many options with coverage, depending on your situation. And there are three main categories of life insurance: term life, universal life, and whole life insurance.

Term life insurance is the simplest and least expensive type of policy. It's pure insurance with no cash value account. A term life policy has only one function: to pay a specific lump sum to whoever you've designated, upon a specific event - - your death. The death benefit and the policy limit are the same - - a $200,000 policy pays a $200,000 death benefit. The policy protects your family by providing money they can invest to replace your salary, as well as to cover final expenses incurred by your death.

Whole life insurance provides permanent protection for your dependents while building a cash value account. With this type of insurance, the insurance company manages the policies various accounts. Whole life insurance provides permanent protection for your dependents while building a cash value account. With this type of insurance, the insurance company manages the policies various accounts.

What it does:
It pays a death benefit to the beneficiary you name and offers you a low risk cash value account and tax-deferred cash accumulation.

It provides a fixed premium which can't increase during your lifetime as long as you continue to pay the planned amount.

It allows the insurance company to exclusively manage the cash value account in your policy.

It provides you the option to receive dividends from your policy or apply them to reduce payments.

It offers you the right to withdraw from the policy during your lifetime.

What it doesn't do:
It doesn't offer the account flexibility to invest in separate accounts such as money market, stock, and bond funds.

It doesn't allow you the account flexibility to split your money among different accounts or to move your money between accounts.

It doesn't offer premium flexibility.

 
Universal life insurance provides permanent protection for your dependents and is more flexible than whole or variable life. Universal life insurance provides permanent protection for your dependents and is more flexible than whole or variable life.

What it does:
It pays a death benefit to the beneficiary you name and offers you a low risk cash value account and tax deferred accumulation.

It allows you to earn market rates of interest on your cash value account.

It offers the right to borrow or withdraw from the policy during your lifetime.

It allows you premium flexibility.

It offers face amount flexibility.

What it doesn't do:
It doesn't offer you the account flexibility to invest in separate accounts such as money market, stock, and bond funds.

 

Do you need Life Insurance?

It depends on your situation. Several key questions follow below to help give you an idea of signals pointing to “yes”.

1. Are you married?

2. Own a business?

3. Dependent children?

4. Other dependent relatives? (seniors, disabled)

5. You possess a formidable estate

6. Currently have major financial obligations? (mortgage, multiple loans)

A good life insurance policy would handle the financial responsibilities you left behind so family members wouldn't be burdened. Unlike the funds from an estate, the benefits from a life insurance policy will shoot straight to the beneficiaries, without any roadblocks.

Which Type of Life Insurance is Best for You?

There are two basic types of life insurance: term and permanent. Term insurance is purely life insurance while permanent (aka "cash value" or "whole life") policies include a savings element.

You've probably heard lots of sales pitches and marketing hype regarding cash value polices, and other arguments about how term policies are the better deal. The truth of the matter depends on each persons individual situation.

Benefits of a Term Life Policy

1. It's straightforward. If you die during the term of your policy your beneficiaries get paid -that's all there is to it.

2. It's inexpensive. You aren't paying anything extra to fund a savings account or cover investment fees. And because the market is so competitive for term insurance, companies have a huge incentive to keep prices low.

3. It's easy to shop for. With relatively little effort you can comparison shop and assure yourself of a good deal.

4. You pay only for what you need when you need it. You typically need life insurance coverage for a specific period of time (until the kids are out of college, for instance).

Benefits of a Permanent Life Insurance Policy

1. Flexibility. A permanent plan can give you access to some or all of the premiums that you have been paying for in a way favorable to your taxes.

2. It's with you until you die. This type of policy coverage is guaranteed for your life with no out of the blue payment increases. A term policy will expire at a certain date, and a renewed policy could have much higher premiums.

3. Inheritance. Maybe the best reason for a permanent policy is to make sure  your estate and investments don't get eaten up by the government. A permanent policy can provide peace of mind that your family and loved ones will be taken care of for the future.

Remember, the decision to buy a permanent or a term life insurance policy will depend on your situation, your age, your financial  well-being, and other factors. If you are a young family with some investments to protect but not financially stable a term life policy might be a good idea to protect those investments and your family. However, if you are financially stable with considerable investments, it may be a better decision in the long run to purchase a permanent plan.