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Understanding Insurance

What is life insurance for?

Life insurance protects the people who depend on your money to live.  In the event of an untimely death, the proceeds of a life insurance contract will provide income which either fully or partially compensates for the income you were providing.  Life insurance covers expenses such as mortgage and rent payments, every day living expenses, education costs, and other fixed payments.  Some forms of life insurance also act as an investment and build up a cash value that can be either borrowed or withdrawn while the contract is still in tact. 

How do I determine who will get my money?

When you buy a life insurance policy you specify who you want your “beneficiaries” to be.  These are the people who will receive the proceeds of your life insurance in the event of death.  It could be your spouse, (likely if you’re married) a split between your children, or a good friend you support if that is your desire. 

Who is most likely to need life insurance?

• Families with children who are dependent on parent incomes.  Younger children generally have greater needs than children at the high school or college level.
• A person with fixed financial obligations (not necessarily their own children) who wants to retain these expenditures after death.  For example, a person may want to continue their legacy with a charity or support of an organization.  Life insurance can be used for this purpose too. 

Who typically does not need life insurance?

• Single adults typically do not need life insurance.  They may if they are supporting children.
• A working couple which doesn’t have children.
• Older parents who have children that are independent and no longer relying on their parents to pay expenses. 

What are the different types of life insurance?

The two basic types of life insurance are “term” and “whole life.”  Term policies are inexpensive and simple.  You pay a fixed premium either monthly or annually and get a lump sum payment paid to your beneficiaries if you die while your coverage is in force.  Most term policies are convertible to whole life policies and are renewable for additional terms at the end of your contract dates.  Whole life insurance, unlike term insurance, remains in force for the duration of the insured’s life or until the policy owner cashes in their policy.  When the premium (monthly or annually) is paid in, a portion goes towards the cash value, another portion for the death benefit, and a portion to cover the insurer’s costs.  Within whole life policies there are a variety of ways to customize the policy to meet the needs of the policy owner.  For more specific information about either term or whole life policies, please call me or send an e-mail. 

Which type is better?

The proper answer to this question is that it depends on each individual situation.   For some, a term policy will be both easier and cheaper.  For others, a whole life policy will prove a better investment over a longer period of time because it builds up a cash value.   Personally, I prefer term policies b/c of their simple nature and low cost.  While insurance contracts are interesting mediums for investment, I prefer to keep insurance contracts for insurance, and investment accounts for investments.  Mixing the two creates a slightly more complicated product in which tracking fees and expenses becomes difficult.  Also, I don’t like to lock into long-term products since life insurance needs change (increase, decrease, or disappear) as a person ages.  A term policy allows you to walk away while a whole life policy does not.  Please contact me to discuss the differences and which type of insurance is right for you.

Russell Bailyn
Premier Financial Advisors
(212) 752-4343 *31
rbailyn@premiereadvisors.net