Buying Life Insurance

Choosing the right policy can protect and preserve your assets for your kids without costing their inheritance

as an investment in your future while you’re young and in good health and the rates are low because of your age, forget it. There are better ways to build investment assets for yourself. As long as you have group life coverage available as a benefit in a health insurance plan through your job, that is probably enough to pay your final debts and give you a decent burial.

If you are married and both of you are working, then any group life insurance that you have through your job is still sufficient, especially if you have no children, no mortgage and no major expenses. But for a working couple with two or three children, school loans, future college bills, private school tuition, dental bills, summer camp fees, a mortgage, a car note and lots of credit cards (your typical American family!), the story is different.

A young father with all these financial responsibilities needs more than $1 million of life insurance to meet all these obligations over a lifetime. A single parent should carry at least $250,000 of term life insurance made out to whoever is chosen as the guardian for the children, especially if the guardian is the child’s grandparent. Many African American grandparents, as senior citizens with limited financial resources, are finding themselves suddenly left with the unexpected financial responsibility of caring for small children.

HOW MUCH INSURANCE DO YOU REALLY NEED?
A recommended rule of thumb is five to eight times your salary, but that’s not carved in stone. It really depends on how many people you support financially and what other resources you have. If your assets are tied up in real estate or a family business that would have to be sold in order for your family to survive, you may need more than that. Your need is based on your personal savings profile, family budget and present net worth.

Once you know how much insurance you need, you must decide which is the best policy to buy. Term? Whole life? Universal life? No matter what names the insurance companies give them–flexible life, adjustable life, conservative life, new classic whole life, convertible premium life, modified life–there are still only two types of insurance policies: term life and cash value. (Whole life and universal life are types of cash-value insurance.)

WHAT IS TERM INSURANCE?
If you took out $750,000 worth of life insurance, it could cost you as much as $8,920 a year for a whole-life policy or $400 a year if you bought a term policy. Both policies will pay your beneficiary $750,000 if you die. Term insurance costs much less than whole life because there is no cash value to it. If it expires and you don’t renew it, you cannot cash it in and get money back. That’s the biggest difference (See Comparisons of Life Insurance table).

As you get older, the cost of term will increase every year unless you buy a kind of policy called a “level-premium” policy. When you purchase term life insurance without level-premium payments,

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