When developing a financial plan, the first step is to establish your life insurance protection. Life insurance can replace lost income
in case of premature death, pay the mortgage, provide for college education, and pay off debt. Every individual needs to evaluate
his own situation. However, a basic rule of thumb is to have at least five times your annual income. Term insurance pays a death
benefit if you die within a specific period of time. Typically, the term period can be from 5 to 25 years. When it is time to renew,
the premium rates can increase quite dramatically. Because term insurance has a lower initial rate, it allows you to purchase more
coverage at a younger age when more protection is usually needed. It is also very effectively used to cover mortgages and /or car loans.
Permanent insurance is usually whole life or a form of universal life insurance. Permanent insurance provides protection
for your entire life. Permanent insurance is considerably more costly than term insurance. It does, however, provide a cash value.
In some polices, called Indexed Universal Life policies, the cash value can be indexed to the stock market. This can provide even
a higher return than the more traditional products. There can be tax advantages in these products as well. With universal life, the
premiums can be increased or decreased within certain guidelines. Also the face amount
(death benefit) can be reduced or increased relatively easily.