Reader’s Question:

I’ve heard a lot about how much coverage one should have under a life insurance policy (my neighbors here in Minnesota just loves to talk about these things!), How much universal life insurance, in essence, would you recommend?

Lee

Minneapolis, MN

This is a very good question. Everyone who wishes to have life insurance coverage should know how to recognize how much life insurance would be adequate for their needs. Many experts say you have to get a coverage amount that is ten, twenty, thirty times your annual income as a good rule of thumb. While this may be a good estimates, you can never really be sure if these are enough or in the other hand, this may be too much and you might end up wasting too much money on life insurance that could have been put to good use elsewhere. Where do you even begin?

It would be highly advisable that you get a good understanding of your family, your household, your kids (anyone who relies on you there in Minnesota, financially) needs. On an annual basis, try to determine how much you spend on bills, groceries, mortgage, loans, debts and any other financial obligations that you may have. You will now have a way of more precisely identifying how much money your beneficiaries would need in order to survive decently in the event that you pass away.

Let’s say you do pass away, how much money or income do you want to leave your beneficiaries? For how long? Also, who will take care of burial costs? Let these questions guide you in determining the right kind of life insurance policy for you with the right amount of coverage.

Readers Question:

What are the benefits of a Universal Life insurance policy? Will I have to spend much on such a plan?

Shirley

Des Moines, IA

Good question. Let’s define Universal Life insurance first: this is a special kind of Whole life or Permanent life insurance coverage that allows a policyholder more flexibility when it comes to adjusting how much you pay for premiums, and even your death benefits. It has the savings or cash value feature of a whole life insurance policy as well. The benefits of such a life insurance plan include:

1. More options when it comes to pay-outs after the maturity of the policy – you may choose to have either the cash value as the death benefit, making premiums lower, or the face value amount of the policy.

2. A Guaranteed minimum interest rate stipulated on the policy – your cash value is sure to grow at a set rate, regardless of the insurer’s financial performance.

3. Tax-deferred accumulation of wealth – There are only certain instances where state and federal taxes can apply.

4. Your money is placed in a diversified range of investments – reducing the risk of loss in case a particular investment goes south.

Similar to any type of permanent life insurance policy, when you buy universal life insurance coverage your initial premiums can be very expensive, this is because you’re building up your cash value, and like most permanent life insurance plans, premiums become cheaper in the long run.

However, it is still highly recommended that you shop around for the most competitive policies before you even decide to buy life insurance coverage. The Internet is a great place to start; with many life insurance portals and websites giving access to the latest rates and offers, making it possible to effectively identify the providers that is most affordable to you.

Do maintain a healthy lifestyle and seriously consider quitting smoking. Smoking alone and push rate up by as much as three to four times above the average. Hazardous activities or hobbies also tend to make life cover more costly; so if you intend to keep premiums affordable, then reduce your risk of dying sooner.

Reader’s Question:

I understand that universal life insurance would be relatively an expensive type of insurance in Memphis, TN. Would there exist a cheap universal life insurance considering that it has a flexible premium? With flexible payment, it means the premium fluctuates so it can be considered neither cheap nor expensive.

Tanya

Memphis, TN

Good question, Tanya

It’s an interesting question because you argue that having a flexible rate, the price cannot be determined if it is high or low compared to others type of life insurance. That seemed to be a wise observation.

To answer your question, universal life insurance is actually more expensive than the term life insurance. But when you compare it to other types of permanent life insurance that’s available in Memphis TN, we cannot conclude that it is cheaper than others just because it is simply flexible. Although the premium is flexible, the flexibility is only based on the foregoing interest rate in the investment side.

But universal life insurance is not just investment, it also has insurance. When you are unhealthy, for instance, the price of the insurance is higher. The combination of high life insurance and investment makes up an expensive premium. Meaning, there is still a required premium to pay to keep the universal life insurance in force. It is not purely flexible to the sense of your capability to pay. Another advantage of universal life insurance is you can borrow the accumulated amount to pay the premiums at the right time and amount. This way it is not hard for you to pay.

If you are simply concerned of the flexibility side, it is not about your capability to pay per se. It is about the interest rate to accumulate the tax-deferred investment side of the universal life insurance. Other than this, you can still find options to pay cheaper premiums for universal life insurance. In conclusion, universal life insurance is not cheap when compared to other life insurance available in Memphis Tennessee because this has investment side. It is flexible only on the investment side but you are still obliged to pay the life insurance side which actually has fixed base premium to pay.