Types of Life Insurance Available and How Much You May Need
AAA Life Insurance Company offers both term and permanent life insurance to meet your needs. The type of life insurance as well as the amount of life insurance that you need may vary. Our life specialists (888-349-7309) may help you better understand what your options are and what may work best for you given your situation.
Term Life Insurance
Term life insurance provides coverage for a specified number of years. Level premium term policies have premiums that remain level for the term period. AAA Life Insurance Company offers level premium term policies with premiums that remain level for up to 30 years. After the level premium period, the premium will increase each year, but generally no more than the guaranteed maximum stated in the policy.
Term life insurance may be beneficial when your life insurance needs are 30 years or less and when the cost of permanent insurance is more than your budget might allow.
For newlyweds or young families, term life insurance is a way to help ensure that the people you care for most may have a better chance to maintain their standard of living. Even when debt loads are highest, term life insurance may help your family stay in your home and your kids attend college.
Term life insurance is also a practical choice if you need to supplement your employer-sponsored life insurance or don't have an employer-sponsored policy. It's also a competitive alternative to employer-sponsored group term life policies. Compare our rates online today.
Whole Life Insurance
Whole life insurance is permanent life insurance designed to help provide coverage for a lifetime. Whole life insurance policies are generally designed to have a level premium. This type of policy builds a cash value that generally accumulates on a tax-deferred basis, under current tax law.1
Universal Life Insurance
Universal life insurance is another type of permanent life insurance. Policies differ from whole life insurance policies in that they offer some flexibility to change the premium payments and death benefit amount. Even though premium payments are flexible, a minimum premium is required to keep the life insurance coverage in force. A universal life policy generally has a stated target premium. A universal life insurance policy builds cash value and the cash value accumulates on a tax-deferred basis.1 The mortality rates charged and the interest rate credited by the insurance company affect a universal life insurance policy's cash value and the minimum premium required to keep the policy in force.
Deciding Between Term and Permanent Life Insurance
The type of life insurance that may be best for you is dependent on your particular needs and circumstances. Term life insurance is generally appropriate for temporary needs for periods up to thirty years. Permanent life insurance is better for needs lasting longer than 30 years. Your individual needs may require a combination of term and permanent life insurance.
Deciding the Amount of Life Insurance Needed
With your financial information and your goals, you can use a formula to determine how much life insurance you may need.
Most financial planners recommend that generally, people need life insurance in the amount of 6 to 10 times their annual salary. Special circumstances may dictate that more or less coverage may help meet one’s needs. There are a number of factors to consider when estimating how much life insurance you may need. They include:
- Final Expenses - Final expenses usually include funeral expenses, unpaid debts, unpaid hospital bills, probate costs, and estate and inheritance taxes.
- Emergency Fund - Due to premature death, your family may need to make adjustments in their lifestyle. They may need to move, or the surviving spouse may need additional training to qualify for a higher paying job. The emergency fund may help cover the cost of making these necessary adjustments. It may also cover unanticipated expenses such as car repair, home maintenance, appliance replacement, etc.
- Educational Funds - The cost of your childrens' education, including elementary school, high school, and college. Life insurance may help cover this expense.
- Mortgage - Providing the money necessary to pay off the mortgage or provide an income stream to pay the monthly mortgage or rent payments may be a consideration.
- Payment of Debts - Funds needed to payoff any debts including auto loans, credit cards, and other loans should be considered.
- Income Replacement - There may be a need for a continued income stream to help with the family's living expenses, such as mortgage payments, monthly bills and daycare.
- Retirement Fund - The amount needed to help provide your family with anticipated retirement income in the event of your death is suggested to be 5 times your current annual income.
- Non-Employed Spouses - Non-employed spouses make a valuable contribution to the family's needs. Fulfilling these needs may require additional income.
Everyone's life insurance needs are different. In general, an individual's needs are greatest when they start their careers and their family. When they reach retirement, their need for life insurance may be reduced. It is important to review your life insurance needs at least every two years.
Use our life insurance needs calculator to help you estimate how much life insurance you need.
