The Financial Planning of Life Insurance

Chapter 10 is about financial planning with life insurance. This is important because if history is any guide we are most likely going to live longer than our ancestors did. From 1900 to 2004 the average life expectancy for men increased by about 30 years and the average life expectancy for women has increased by about 35 years. Deciding whether or not you need life insurance and choosing the correct policy takes a lot of time, research, and careful thought.

Even though putting a price on your life is impossible, that’s what life insurance attempts to do. Life insurance basically protects the people who depend on you from financial losses caused by your death. You agree to pay a certain amount of money-a premium- every so often. For this the insurance company agrees to pay a death benefit to your beneficiary. A beneficiary is a person named to receive the benefits from an insurance policy. To figure out your life insurance needs you can use the easy method, the DINK method, the “non-working” spouse method, or the “family need” method.

When going to look at life insurance companies there are two types of companies, stock and mutual companies. A stock company sells nonparticipating policies, while mutual companies sell participating policies. The main difference between the two is that a participating policy has a higher premium, but a part of the premium is refunded to the policyholder annually. Also, they both sell two basic types of insurance, term life and whole life. There are numerous variations of both of these available.

There are numerous variations and provisions that can be included in life insurance plans. Most life insurance policies have standard features, some of which include naming your beneficiary, a grace period, misstatement of age provision, suicide clause, as well as others. Before buying life insurance, you should consider all of your present and future sources of income, then compare the costs and choose appropriate settlement options.

An annuity is a financial contract written by the insurance company that provides you with regular income, usually on a monthly basis for as long as the person is alive. The two types of annuities include fixed and variable annuities. With a fixed annuity, receive a fixed amount of income over a certain period for life. With variable annuities, the monthly payments vary because they’re based on the income received from stocks or other investments.