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Investments and Insurance Products are:

  • Not FDIC insured
  • Not insured by any Federal Government Agency
  • Not guaranteed by the bank
  • Not deposits
  • May lose value

Insurance

Life Insurance

If you’re like many people, you probably wouldn’t mind owning additional life insurance. It’s just that you don’t want to buy it. You don’t have enough time or don’t want to go through the hassle.

Nonetheless, buying life insurance is an important task that should be addressed. Life insurance can help ensure that your family will have enough money to meet their financial obligations or pay for future expenses like college if something happens to you.

What is life insurance?

Life insurance is a legal contract between an insurance company and the owner of the policy. The owner pays "premiums" in exchange for the promise of payment of a specified amount of money to a named beneficiary when the insured dies.

There are different kinds of life insurance available. These include term life insurance policies and various types of permanent life insurance policies. Term policies provide life insurance protection for a specific period of time like 10 or 20 years. If you die during the coverage period, your beneficiary receives the policy’s death benefit. If you live to the end of the term, the policy simply terminates, unless it automatically renews for a new period.

Permanent insurance policies offer protection for your entire life, regardless of future health changes, provided you continue to pay the premium. As you pay your premiums, a portion of each payment goes toward building up the policy’s "cash value", which can build up over time and accessed through loans or withdrawals. Keep in mind, though, that loans and withdrawals will reduce the cash value and the death benefit, and could cause the policy to lapse. The cash value continues to grow--tax deferred--as long as the policy is in force.

Several different types of permanent life insurance are available, including:

  • Whole life insurance
  • Universal life insurance
  • Variable life
  • Variable universal life

Note: Variable life and variable universal life insurance policies are offered by prospectus, which you can obtain from your financial professional or the insurance company. The prospectus contains detailed information about investment objectives, risks, charges, and expenses. You should read the prospectus and consider this information carefully before purchasing a variable life or variable universal life insurance policy.

Why buy Life Insurance?

The specific purpose of life insurance is to replace the economic loss resulting from a person’s death. This loss can be personal or business loss if the insured was involved in ownership or a key employee of a company.

  • For Personal Needs

      Life insurance can is used by survivors and family in so many different ways. It is commonly used to provide cash for final expenses such as funeral and burial costs (which normally averages between $5,000 and $10,000). A major reason for having life insurance is to provide income replacement if the spouse or family member depended on the insured’s income from work. Most families will have an ongoing need for housing, transportation, medical care, food, clothing, and possibly education and day care, and the proceeds from life insurance can be used to pay off debt and financially support dependents.

      Life insurance can be used to create an estate when time or other circumstances have kept you from accumulating sufficient assets in excess of what is needed to provide day-to-day financial support for your family after your death. The death benefit can be used to provide your beneficiaries with a larger legacy than might otherwise be possible. Or, life insurance can be used to pay estate taxes which can quickly erode the value of a larger estate, meaning more money will pass to beneficiaries than to the government. Using life insurance in an estate plan can also allow family members to avoid liquidating assets to pay these taxes.

  • For Business Needs

      The specific purpose of life insurance is to replace the economic loss resulting from a person’s death. This loss can be personal or business loss if the insured was involved in ownership or a key employee of a company.

      Some companies take out life insurance policies on certain key employees ("Key Person"), such as officers or managers. The purpose of the policy is to protect the company from the loss of talent and profit that can occur at the death of certain high-level employees. In addition to the loss of the employee, the company may face replacement and training costs in filling the vacancy caused by the employee’s death.

      Life insurance can also be used to fund the buyout of a business following his or her death through so-called buy-sell agreements. Under a buy-sell arrangement, life insurance can be used to provide cash for the purchase of a deceased owner’s interest in the business, providing liquidity for the family of the deceased. If a cash value insurance policy is used, cash values may be accessed to help fund a buy out for a retiring partner's interest thereby creating a market for the retiring partner’s interest.

How do you know what to buy?

The first step in determining what type or amount of insurance you’ll need is a "needs analysis." An advisor from First Commonwealth Advisors can conduct a needs analysis to assess the financial impact on the family or business if the breadwinner or a key person in the business should die. The analysis will look at income sources from the spouse or family members, current assets, debts, and ongoing expenses. Goals for retirement, estate and tax planning, and education funding for any dependents will also be considered. The results will indicate whether you have a need for insurance and how much insurance is appropriate. This picture will also direct you toward a specific life insurance policy type, as well as identify potential insurance companies that can provide the coverage you need at the lowest cost.

This analysis can also be used to audit existing policies you own that haven’t been reviewed in a while. These reviews can often turn up opportunities to reduce the premiums being paid or increase coverage based on the declining cost of insurance.

Buying life insurance is one way you can help secure your family’s financial future. And what could be better than knowing your loved ones will be protected, even if you're no longer around to take care of them?