“What type of Life insurance is right for me?”
A good way to understand term insurance is to think of it as “renting” a policy for a specific time frame (term.) During the specified term (10 years, 15 years, 20 years, etc.) your premiums and benefit amount are set and should not change. After the term period has run out most policies will either not renew or renew on an annual basis with your premiums calculated yearly at your attained age. Term insurance is the most economical because it allows you to get the maximum coverage for the smallest premium dollar.
Good candidates for term insurance are young adults or families with young children. Parents of young children may need a substantial amount of insurance to help their family maintain their current lifestyle in the event of an untimely death. However, over time, liabilities tend to decrease. For example a 35 year old male with a wife and 2 children ages 4 and 8 may need in excess of 1,000,000 depending on his financial situation to cover things such as living expenses, mortgages, education and lost income for his family now…but 20 years from now his situation may be drastically different. Also by that time his youngest child will also be 24 and not as dependent as they were at 4 years old. The reason this concept makes sense is because this 35 year old male, assuming he is in average health, could buy a $1,000,000 20 year term policy with a guaranteed monthly premium of $55.00. If he were buying a permanent policy his premium would be 453.00 per month for the same face amount! On the other hand, if his budget was only $55.00 per month that would only buy him $105,000 in protection on a permanent policy…which doesn’t go very far these days!
Many people also use term to cover certain debts such as loans or mortgages. Business owners may also use term to protect them from an untimely death of a key employee or partner. Whatever the specific need may be it is always best to consult with a professional agent to see if a term policy is the best fit for you.
A Universal Life policy seems to be one of the most misunderstood policies…both by consumers and agents alike! An easy way to understand a Universal Life policy is to consider it a cross between a Term and Whole life. From a premium standpoint, a Universal Life policy is going cost less than a Whole Life but more than a term policy. Much like a term policy, a universal life policy can be structured to provide a certain death benefit with a guaranteed premium for a specified period i.e., to age 90, 95, or even out to age 121! Alternately a Universal Life policy can also accumulate cash similar to a whole life policy depending on how the policy is structured.
Universal Life policies seem to fit well in many circumstances that would require permanent coverage. A good example of when this would work well could be a married couple in their 50’s or 60’s whose income is dependent on one of the spouses. In this scenario if the bread winning spouse were gone, the surviving spouse would need the insurance benefit to replace the lost income. A Universal Life with a secondary guarantee fulfills this need because this need is normally not a temporary need (10 years, 20 years, etc.) Whether it happens in 5 years or 50 years when the bread winning spouse is gone there will be a need there for the surviving spouse to replace that income. The reason someone might prefer a Universal Life policy as opposed to a Whole Life policy is simply the premium. For example a 60 year old male who needs $100,000 to provide an income for his spouse could buy a permanent Universal Life policy for $162.00 per month. The same face amount in a whole life policy would have a monthly premium of $353.00.
One very important note for those who already own a Universal Life policy: Have it REVIEWED! Many policies sold prior to 2010 may not have the guarantees that newer policies do. These older policies are known as “current assumption” policies and are very sensitive to interest rate fluctuations. Some policies may require additional premiums in later years to prevent them from lapsing. To determine if a Universal Life policy is appropriate for you, or to have your Universal Life policy reviewed contact one of our professionals today!
Last, but not least, we come to the Whole Life policy. A Whole Life policy is exactly what it says…it is a policy that lasts for the whole of your life. Whole life policies typically do 3 things. 1. Provide a guaranteed death benefit. 2. Provide a guaranteed premium. 3. Accumulate cash value within the policy.
Outside of many advanced strategies that offer paid up additions, dividends, and countless other opportunities to accumulate more cash; in our experience the most common purpose for Whole Life policies is to cover final expenses…and most of these policies have a face amount of $50,000 or less.
A common practice that we see on a regular basis is an individual who is using their life insurance as an investment. More often than not, when your life insurance is tied to your investment and your investment is tied to your life insurance you negate the performance of both. If you need life insurance, buy life insurance. If you want to invest, invest. Either way, don’t try to navigate these decisions without guidance from a professional.
There are many factors that need consideration before purchasing a life insurance policy to protect your family. Health, income, and debt are just a few. Most people know that they need life insurance but unfortunately all too often put it off, many times waiting until it is too late because of health conditions. A good saying to remember is “you can pay for insurance any time you want to, but you can only buy it with your health.” So don’t delay! For a comprehensive review of your life insurance needs contact one of our professionals today. Below are a few of the companies our agency has partnered with to be able to match you with the most appropriate policy.