The Protection You Need
Most of us have coverage in place to protect the things in our lives that are valuable to us. This can include our homes, vehicles, boats, motorcycles, and even our cell phones. What about securing the future of our families, in the event that something were to happen us? While we cannot place a price tag on the value of our lives, having life insurance can help to offset financial burden caused by the loss of a loved one.
Take a moment to think about this. Would your family's life be interrupted financially if they were to lose you? Would you want that financial burden to be added to the grieving they will already be experiencing? We surely cannot predict when the unexpected will happen, but we can most certainly prepare for it!
Keep in mind, all life insurance is not created equal. There are a number of different types, catagorized as either permanent or term. It is best to have a conversation with a licensed professional and allow them to complete a needs analysis.
Using a life needs calculator is a good introduction to understanding the coverage amount of your need.
Whole Life Insurance
As a type of permanent life insurance, whole life insurance provides coverage for your entire lifetime, paying your benefit no matter when you pass away — as long as you keep paying your bill. Whole life insurance also includes a savings component that a portion of your premium will pay into. The savings component has a fixed interest rate that builds cash value over time, which is part of the reason whole life policies typically cost more than term life policies with similar coverage.
The cash value of your policy won't affect the death benefit paid out upon your passing. However, if it grows to equal your death benefit amount by the time you're a set age (usually 100 or 120), your insurer will terminate your policy and pay out the coverage amount.
If you're not banking on living to 100, you can choose to withdraw a portion of cash value funds as a life insurance loan. There's typically no credit check required and a minimal loan approval process. You can pay back the loan with interest, or if you pass away before returning the funds, the remaining loan amount and interest will be withdrawn from the payout to your beneficiaries.
Term Life Insurance
Term life insurance is generally more affordable than permanent life insurance. It provides coverage for a set number of years, paying out as long as your policy hasn't expired and you've paid the premiums. You can lock in your rate for the entire term period, which makes budgeting and planning easier.
At the end of the term period, and based on the product options available, you may be able to renew your policy at an adjusted rate. However, you can typically only renew a term life policy on a year-to-year basis — not for another term period. Your new rate will be based on your age and health at the time of renewal, and you may or may not need a medical exam to obtain coverage. You may also be able to convert your term life policy to whole life at the end of your term.
A good example of how term life insurance is used is mortgage protection. A policy is taken out for the amount of the outstanding mortgage loan amount to pay off the your house in your passing. In this scenario, your family will be able to payoff the house, as long as the policy is still active.
Universal Life Insurance
Universal life insurance is another permanent life insurance option, so it provides coverage for your entire life as long as the premiums are paid. It's sometimes called adjustable life insurance because it offers more flexibility than a whole life policy. For example, universal life policies allow you to increase or decrease your death benefit and even adjust or skip your monthly premium (within certain limits).
As with whole life, a universal life policy has a savings component that grows and allows for borrowing. However, a universal life policy works differently than a whole life policy in two key ways:
- The interest rate for a universal life policy's cash value is not fixed. You'll have a guaranteed minimum interest rate, but in general, the rate at which your cash value builds can change over time based on market conditions.
- Your universal life policy's cash value can eventually grow and result in a zero-cost policy, in which all premiums are paid from the built-up value.
Final Expense Insurance
Also known as funeral or burial insurance, final expense insurance is a type of whole life insurance that offers a smaller and more affordable death benefit designed to help cover your end-of-life expenses like funeral costs, medical bills, or outstanding debt. While other types of life insurance may have age and health requirements, final expense policies can be easier for older or less-healthy individuals to qualify for. A final expense policy's cash value would operate the same as a whole life policy's.
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