What happens to your family if something happens to you? Life insurance is a mechanism to mitigate that situation, so a personal and emotional loss doesn’t become a financial catastrophe as well.

The most important function of life insurance is to replace income for one’s dependents. The need is obvious in the case of couples with young children, but it may be no less important for adults who are dependent on another for support. Other uses for life insurance include:

  • Paying funeral and burial costs, as well as final medical expenses;
  • Providing an inheritance for one’s heirs;
  • Paying federal estate taxes and state death taxes, if any;
  • Making a substantial gift to charity;
  • With some life insurance policies, creating a source of savings to draw on during retirement

Adequate coverage
Someone who has no dependents, who has enough funds to cover final expenses, may not need any life insurance at all. That is not the usual case, however.

Determining the proper amount of coverage is no simple matter. Replacing one’s income will not be adequate if a death also means the loss of the family’s health insurance coverage. The expense of replacing that coverage must be factored in. If there are minor children, the cost of college education is also usually a consideration.

Offsetting the expense side are other sources of income, such as Social Security, the availability of other assets, and the possibility that the survivors will be able to find employment. The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable by having the policy approved. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.

Term insurance
Broadly speaking, there are two categories of life insurance, term insurance and permanent insurance. Term insurance provides temporary coverage, a stated death benefit, for a specific number of years. The premium is set when the insurance policy is purchased, and it remains level throughout the term in most policies. The younger the insured is at the outset, the lower the premiums will be (but the longer they will be paid). The term may be for a single year, for five, ten or more years, or until a specific age is reached, usually 65.

At the end of the term, the policy may be renewed for a higher premium. Some policies are guaranteed renewable at the end of the term, regardless of the health of the insured at that time. That can be an especially valuable stipulation for one who is older when a term expires. Similarly, some term policies are convertible; that is, the owner has the right to convert to permanent life insurance without providing proof of insurability.

Permanent insurance
Where term insurance provides financial protection during a period of vulnerability, such as when children are growing up, permanent insurance is designed from the outset to continue until the insured dies. Permanent life insurance couples a death benefit in case of premature death with a savings feature that enjoys some tax protection. There are many types of permanent life insurance.

Whole life insurance is the original form of permanent insurance. Premiums are level for life, which provides predictability for financial planning and budgeting. A cash value builds up inside the policy, which is why premiums don’t go up as the insured becomes older and the mortality risk increases. Should the insured decide that the policy is no longer needed, he or she may surrender the policy to receive the cash value. However, that amount will be much less than the death benefit.

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Langley Investment Agency (Langley Financial Services, LLC) is an affiliate of Langley Federal Credit Union (LFCU). Business conducted with Langley Investment Agency is separate and distinct from any business conducted with the credit union. Remember that any insurance required as a condition of the extension of credit by LFCU need not be purchased from Langley Insurance Agency, but may, without affecting the approval of the application for credit, be purchased from an agent or insurance company of the member's choice.

Securities and insurance products are offered through Cetera Investment Services LLC (doing insurance business in CA as CFGIS Insurance Agency), member FINRA/ SIPC. Advisory services are offered through Cetera Investment Advisers LLC. Neither firm is affiliated with the financial institution where investment services are offered.

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Investments are:
*Not FDIC/NCUSIF insured.
*May lose value.
*Not financial institution guaranteed.
*Not a deposit.
*Not insured by any federal government agency.

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