"How much life insurance do you need?.....James Hunt, a director of the National Insurance Consumer Organization, or NICO, has a rule of thumb. A four-person family, with one wage earner and two young children, should buy 5 times the wage earner's annual income. If your making $ 40,000 a year, for example, you need $ 200,000 worth of coverage. This assumes the wage earner also has coverage through his or her company, equal to two or three year's salary, Hunt says. If not, you should buy a policy equal to seven to eight times income."
Jane Bryant Quinn,
"Insurance Rule of Thumb Signals How Much To Buy," The
Richmond Times-Dispatch, April 13, 1992, page 16.
There are many types of Life insurance contracts. It is important to understand how each kind works so that you can effectively plan for your future.
 | Term Insurance - provides protection for a limited period of time. Generally speaking it is used to cover debt, loss of income or where a person has a modest budget to live on. The coverages can be guaranteed for 1, 5, 10, 15, 20 or 30 years. The longer the guarantee the more expensive per year the premium is but over the length of the term you have paid less. Even though term insurance is less costly, it builds no cash values. |
| Permanent Insurance - provides for permanent coverage and a tax deferred cash build up. Generally speaking, you will use permanent insurance to cover long lasting debt and for final expenses. In permanent insurance the mortality costs are guaranteed to never go up, thus allowing for a guaranteed premium. The premium is generally higher than term insurance in the early years, but as you get older it will become less expensive then term insurance. |
| Universal Life Insurance - offers many unique features such as flexible premiums, adjustable death benefit, and cash values that are sensitive to current interest rates. A universal life contract does not have a guaranteed mortality charge like permanent insurance does, but because of this, the cost of insurance is generally lower. The cash value does grow tax-deferred and the death benefit is income tax free. If it is set up properly and maintained properly it is a very good value for buying life insurance. |
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