Life insurance as the base of a sound financial plan.

Anne | 5/7/2009, 12:47 a.m.

Every time I meet with a client I have them do a little exercise where we look at the elements of a sound financial plan and I ask, €What should come first: House, Investments, Life Insurance, or an Emergency Fund?€ Then I ask them to put the list in the order they think it should go. The majority of the times, no one gets it right. Most clients say emergency fund first; some say investments should be first; some say a house should be first; very few say life insurance first. In actuality, the base of a sound financial plan should be your life insurance coverage. The right life insurance policy can be utilized as an investment source for retirement planning or college savings; it can be utilized to cover an emergency or help you through a disability or sickness; and it can protect your home. Many people wonder what is the right type of policy to obtain? Well, before you can decide, you have to familiarize yourself with the three basic types of life insurance: Term; Term with return of premium; and Universal.

Term coverage is the cheapest coverage. Most often, you can obtain a lot of coverage for very little money. However, it is what it is. As the word €Term€ implies, coverage is guaranteed for a specified length of time; five years, 10 years, 15 years, up to 30 years and then the policy ends. The down side is that this type of policy does not build any equity that you can utilize while the policy is in force; and the renewal or conversion rate can be extremely expensive depending on age and if you have developed any health challenges.

Term with return of premium is a little more expensive than regular term and works the exact same way as regular term but the only difference is that you can get most of the premiums you paid for the policy back at the end of the term. Again, you do not build any equity in this type of policy that you can utilize during the time the policy is in force; and the renewal or conversion rate can be extremely expensive depending on age and if you have developed any health challenges.

Universal is the most expensive of the three but it is very much worth it. Universal life insurance is a type of permanent, whole life policy that builds equity (cash value). Once this type of policy is in force, it remains with you for life as long as you keep the policy. Unlike Term or Term with return of premium, the cash value that you accumulate can be utilized as a retirement plan (which in most cases the money grows tax-deferred); can be set up as a college savings tool; can be used to help take care of you in the event of a disability; can be utilized as an emergency reserve fund; and can be used to pay off a home mortgage. This type of coverage is the best to obtain because of all the many benefits this type of policy offers.

Having something is better than having nothing at all. If you do not have any life insurance in place for you or your family members, you need to obtain some type of coverage. If you do have a policy in force, when was the last time you had a policy review and is your current policy fully protecting you and doing all for you that it can? Even if you have been told in the past that you are uninsurable, there are programs available now that will give you coverage.

For questions or comments about this article, contact Anne-Jennell Burke of Burke Financial Services at
301-324-1346, by email at BurkeFinancial@gmail.com, or visit website: