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LIFE INSURANCE: THE BASICS
(1). Life Insurance is a contract in which an insurance company agrees to pay a sum of money upon the occurrence of an event, usually death or serious injury, of the insured person. The insured person agrees to pay a sum of money, called a premium, at regular intervals.
(2). Term Life Insurance is the most common type of life insurance. Under a term policy, the insurance company will pay a fixed sum of money upon the death of the policy-holder. A term life insurance policy lasts for a specific amount of time, which can range from a days to decades. The policy will have to be renewed at the end of each term. Term life insurance policies generally have lower premiums than whole life or universal life policies.
(3). Whole Life Insurance is a type of long-term life insurance. A whole life insurance policy will remain in effect for a person's entire life, so long as he or she pays the insurance premiums every year. Over time, a whole life insurance policy will accrue a cash value, which can be borrowed against or paid out. Upon death, a whole life insurance policy provides a specific sum of money, just like a term life policy, to the beneficiary.
(4). Universal Life Coverage is a blending of whole life insurance and term life insurance. A universal policy has a cash account that pays interest, offset by mortality charges and administrative costs. The benefit of a universal life policy is that the interest rate paid on the cash account is often higher than the rate of return on a whole life policy. As the cash account value in the policy increases, the insurance premiums can either: (Option A) decrease until the cash value and the policy's payout equalize; or (Option B) stay the same and the payout is equal to the cash value plus the policy's face value.
(5). Accidental Death and Dismemberment Policies pay out only in a very small number of circumstances, and typically do not cover deaths resulting from health problems, suicide, or abnormally dangerous activities (such as skydiving). This type of policy would only pay out in the event of an accident that causes death or loss of a limb.
(6). Annuities are a type of account where the insured first pays into an account, and the insurance company later pays out a sum of money to the insured. The primary benefit of an annuity is that the money paid into the account is not taxable. The money paid out, however, is taxed as normal income.
(7). Face Value the face value of a policy is how much it will pay out in the event that the insurance condition occurs. In a term life, whole life, or universal life policy, that event is usually death. Face value is also called the "Death Benefit."
(8). Beneficiary a beneficiary is the person selected to receive the benefits of the policy in the event that the insurance policy pays out. This person is typically a spouse, child, or other close family member.
(9). Mortgage Insurance is a type of insurance where the premiums stay the same, while the benefit decreases. In the event of death, a mortgage insurance policy will pay the balance of the mortgage.
(10). Insurance Premiums are the amount paid (typically each month or every few months) for the insurance. The premiums vary based on the type of insurance, the amount of coverage, and the health of the insured.
Stay Home Parent vs. Career
Parents must often decide how to raise a new child in their family. Whether both of the parents should work or should one of them stay home with the child. There are two sides to this argument.
If both parents are working, a new baby can cost the family $17,000 a year. This often persuades parents to stay at their current jobs or to find new jobs if they are unemployed. However, the true benefit of working can be much less than what is expected. If a parent is making around $30,000 a year, the true benefit of working at that job after deducting day care expense, work lunches, clothes for work, and other work related expenses including taxes, can be as low as $400 a month. This would be lower than the minimum wage. Is this really worth working rather than spending time with your child? Although in other circumstances such as when the salary is greater than $30,000, the benefits of working might be much greater.
However, there are also reasons to continue working. Skipping five years to raise your child will hinder your career. Coming back to the work force after the break might not guarantee you the same opportunity, and will prevent you from growing in your position for five years. Furthermore, oftentimes work can offer great benefits including health care and retirement. Health care might be very expensive outside of work. In addition, working for five years will increase your social security benefits upon retirement. Others also have personal reasons to work. Some need the work environment, the interaction with adults rather than their child. Others believe that kids benefit more at day care than staying with parents because of the interactions with other peers.
This choice has to be made on a case by case basis. These two options have to be weighed and carefully analyzed to pick the optimal choice for your situation.
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