Life Insurance

If you are looking to protect your loved ones, leave a legacy to your family or favorite charity, or ensure your debts will be paid off if anything happens to you, then Century Financial can help you find the right kind of life insurance for you. To us, protecting those close to you is part of our commitment to "safe money". Here, we will discuss the different types of life insurance available and why you might purchase it.

Life insurance can also be purchased for purposes other than to provide a death benefit; primarily, this is used for tax-free investing. This type of life insurance is discuss in our tax-free investing section, not here.

Basics of Life Insurance

Life insurance is quite simple. You pay a certain amount of money every month, known as a "premium", to an insurance company in exchange for that company's promise to pay your chosen beneficiary a determined amount of money if and when you die; this payment is known as the "death benefit". Life insurance is an excellent way to protect your loved ones in the event you die.

Reasons to have life insurance

To provide money to your spouse/partner and/or your children who depend on your income that will be lost

To ensure your children will be able to go to college if you are not there to pay for that education

To ensure your mortgage or other large debts is paid off should you pass away

It can be a relatively affordable way to possibly guarantee a lump sum to your church or favorite charity

To protect your business partner(s) if your untimely death effects your/their business

Many experts recommend you have ten times your annual salary in life insurance to benefit your family. Other experts recommend having more coverage. In reality, only a personal review of your situation will tell. Whether your spouse/partner works, how old your children are, what your living situation is, and other factors, will all determine how much insurance you need.

Additionally, you may wish to purchase separate insurance for a specific amount. For example, if you recently purchased a home and have a mortgage, you can purchase insurance that lasts as long as your mortgage term (for example, 15 or 30 years). Like most insurance, this insurance can over you a flexible monthly premium but unlike most insurance, it can offer a declining death benefit tied to the balance owed on your mortgage as time goes on.

Types of Life Insurance

Term Life Insurance
The most well-known form of life insurance is term insurance. This is what you see promoted for a small amount of money per month. Term is the cheapest form of life insurance. It offers a fixed death benefit, specified by you when you apply, in exchange for a monthly premium for a certain number of years. Usually the premiums are the same every month; this is known as "level premium". Level premium insurance is an advantage because you can lock in the rate for your age, and that rate will stay the same as you get older, when buying the same amount of insurance would be more expensive.

Term insurance is so inexpensive because it is good for a certain "term" that you determine up front. The shorter the term, the cheaper the insurance. Terms typically range from five to 40 years; 10, 20, and 30 year terms are the most common. Basically, the insurance protects you during that period. So a 20-year term policy purchased today would only pay a death benefit if you passed away in the next twenty years. After that, the policy would expire and, in most cases, all of the premiums you paid would be kept by the insurance company. This is why insurers can afford to offer such cheap rates, especially to younger people; they can predict, based on millions of current and former clients, that most people don't die during the term. In essence, they are banking that you won't die and they can keep your money without having to give you anything. For this same reason, term insurance can be a good strategy to get a high amount of death benefit for not much money. You can pay a small amount to protect yourself "just in case" anything happens.

There is one type of term insurance known as "return of premium" insurance. This insurance still functions like a traditional term policy, but will return some or all of the premiums you pay if you don't die by the end of the term. You will pay more for this type of policy because the insurance company will eventually have to return your money. This allows you use your life insurance policy as a sort of "forced savings plan", knowing you will get money back if you don't have any claims.

At Century Financial, we make recommendations to each individual client based on their situation, however, we do recommend protecting your future insurability. In many cases, this may mean purchasing the longest term possible within your budget. By doing this, you will lock in your rate at a younger age and be able to budget it for the longest period of time possible.

Several national financial commentators recommend purchasing only term insurance. This is typically under the guise of suggesting that you invest the difference between the cost of term insurance and more expensive permanent insurance (see below). At Safe Money Arizona, we believe different people have different needs. In some cases, term insurance may make the most sense. When purchasing term life insurance, you need to know that it is like you will lose all of your premiums. However, this may be a reasonable trade-off for the budget conscious consumer.

PROS OF TERM LIFE

It's affordable and easy to buy

It covers a temporary need

CONS OF TERM LIFE

It expires if you don't die within the term

You don't usually get any of your money back

Permanent Life Insurance
There are several types of permanent life insurance: whole and universal. At Safe Money Arizona, we typically use universal life insurance because it offers excellent flexibility. As the name suggests, permanent life insurance lasts your entire life. Unlike term insurance, the death benefit is guaranteed to eventually be paid out. Accordingly, this type of insurance can be more expensive. Permanent life policies offer death benefits as well as a built-in savings account (also called "cash value") so that if you live, you get back at least some of, and often much more than, the amount you spent on your premium. You get this money back either by cashing in the policy or by borrowing against it; such borrowing creates tax-free income.

Like a term policy, a permanent life policy typically guarantees your premium for as long as you keep the policy in force by paying the premiums. If you intend to keep life insurance for a longer period of time, a permanent policy may make sense, as you will be locked in at the low rate you got when you first bought the policy. Also, because the policy is permanent, you will not be able to be denied or "rated" (charged more) for coverage in the future if your health worsens.

PROS OF PERMANENT LIFE

Death is inevitable and it will eventually pay out

It automatically creates a savings account that can be accessed tax-free

It is helpful in estate planning and leaves a tax-free death benefit

CONS OF PERMANENT LIFE

It is more expensive than term

It can be more confusing to understand your future cash value

To read an impartial comparison of term and universal policies, read this article on MSN.

How to learn more or get started

No matter what your needs, we can assist you in determining which option is best for you. Whether you already have life insurance, need more, or want to buy it for the first time, we can help. For more information or a free quote, call Century Financial at (602) 283-3200. We work with a number of different top-rated insurance companies and can offer competitive rates. However, we can also point out cases in which it may be appropriate to pay a little more to get extra protection or more peace of mind.

Copyright 2011, Century Financial Group of Arizona. "Safe Money Arizona" is our trademark. All rights reserved. Content provided on this website is for informational purposes only and should not be used in making financial decisions, which only a qualified advisor should assist you with.

We are wealth managers in Scottsdale, Arizona, with offices in the Phoenix area and Tucson, providing financial services for our clients (also in Tempe, Ahwatukee, Mesa, Chandler, Gilbert, Apache Junction, Maricopa, Queen Creek, Wickenburg, Sun City, Surprise) from fixed indexed annuities to life insurance to retirement solutions from Main Street, not Wall Street. We frequently host informational dinner seminars at restaurants like Ruth's Chris and McCormick and Schmick's for local residents who qualify; call us to learn more. You can hear us on the radio in Phoenix and Tucson on stations like KFYI, KTAR, KNST, KJLL, KVOI, KFNN, KFNX, and others. Call us in the Valley at 480-553-6300 or 480-339-0939, or in Tucson at 520-280-0808 or 520-280-0822.