No one likes talking about or even thinking about life insurance, but purchasing a policy means your loved ones will not find themselves in a difficult financial situation if you were to die unexpectedly or at the time when you do eventually die.
Let’s get this out of the way right now:
Sooner Or Later…
We Will All Eventually Die.
Regardless of whenever that may be, and regardless of your financial situation when you do die, the probability is high that there will be a need for life a insurance payout, and a real benefit to be realized by your beneficiaries at that time.
Life Insurance is NOT some sort of morbid lottery that your dependents “win” when you die.
A life insurance policy will provide you with some peace of mind in case you’re diagnosed with a terminal or debilitating illness. With some types of life insurance, although not ideal, you may also have the option to cash out your policy in the case of an emergency.
The Main Types Of Life Insurance
These Are The Thee Most Common Options For Insurance Policies:
- Whole Life. A whole life insurance policy is valid for your entire lifetime, provided that the premiums are paid up. Some of the advantages can include:
- A guaranteed pay out for your loved ones
- Premiums that do not increase
- The possibility of some cash value (which means that a portion of your life insurance builds up cash value that you may be able to borrow against).
- Universal Life. Similar to whole life insurance, you can also build cash value with this type of policy. You receive interest on your cash value and some policies do have a minimum guaranteed interest rate. Some policies let you choose from various investments within the policy, like using investment funds as the “savings” portion but such investments don’t come with a guaranteed interest rate.
- Term Life. A term life insurance policy, on the surface, may be a more affordable option. Although the term of the policy can vary, clients typically purchase coverage for twenty years. In most cases, term life insurance policies only include a death benefit and are without any savings or investment element. Most insurance providers will give you the possibility to renew your policy once it expires, but the premiums will be re-evaluated and are usually higher at each renewal anniversary of the policy
Most other options of life insurance coverage are usually some sort of hybrid policy incorporating the different aspects of a whole life policy with a term life policy.
It can be that as a short-term solution to a life insurance need that a term life insurance policy is your best option especially if you’re on a limited budget and want to secure a death benefit for your loved ones right now.
However, a whole life insurance policy can be a better life insurance solution in the long-term since your premiums never go up and you may always have the option to borrow against a portion of the cash value of your policy.
Depending on your situation, a mix of whole-life and term insurance can be the most ideal solution. Having a base of whole-life insurance with fixed premiums and coverage that would pay out even if you lived to be 120 years old, and then having the remainder of your required coverage coming from term-insurance to cover the loss of income to the age of your retirement might be the best way to go.
For Example:
If your insurance needs are for $500,000.00 of coverage you could arrange your life insurance to be such that anywhere from 10-50 percent is covered by a whole life insurance policy and the rest to be covered by term insurance. Assess your needs. Whatever amount of insurance would be needed to be paid to your beneficiaries regardless of how long you live should probably be covered by one of the variants of a whole life type of insurance policy.
Factors That Affect The Cost Of Life Insurance
It’s important to understand the factors that affect the cost of life insurance before you buy a policy. The type of coverage that you could buy directly influences the cost of your premiums, but insurance providers also look at other different factors to assess how much of a risk you represent for them.
These are some of the factors influence how your insurance premiums are calculated:
- Your medical history, existing health conditions, and weight
- Your occupation and any risks associated with your profession
- Any risks associated with your hobbies. Dangerous hobbies include sky diving and more.
- Whether or not you smoke or drink
- Personal information such as your age, gender, and your family history
A no-exam policy may be your best option if existing health conditions or bad habits such as smoking and drinking prevent you from securing affordable premiums. Typically, a no-exam policy costs more than other life insurance products, but it might be the best option.
If you cannot find an affordable policy, look into making a few changes to your lifestyle so that insurance providers will see you as less of a risk. You should, for instance, lose a few pounds, quit smoking, or take steps towards managing an existing health condition.
Also, it’s smart to take the time to compare rates and policy benefits from several different companies.
More About Age And Life Insurance.
- If all things are considered equal between two people, the older person of the two will always pay a higher premium than the younger one.
- For any type of life insurance, putting off buying a life insurance policy from one year to the next means that the premium will be higher in each subsequent year that the purchase was delayed.
- As you get older still, since statistically speaking, you are one more year closer to dying, the cost of a new policy starts to increase exponentially.
The increased costs of a life insurance premium as you get older and older can be one good reason to own a life insurance policy starting today, even if you do not currently have am immediate need.
Selecting A Life Insurance Provider
Besides choosing a policy that meets your needs, it’s also important to select a reputable life insurance provider.
Since many of us will live a long life, it’s best to buy a policy from a renowned insurance company that will still be around decades from now when the time comes that the payout is required. Your insurance provider should offer good customer service and take the time to answer all your questions about their products. Checking reviews and reports published by consumers’ associations will also help you choose a provider.
Comparing life insurance products, learning more about insurance providers, and requesting quotes will save you money and help you find a policy that’s right for you. This process takes time, but you’ll have greater peace of mind that you have come to a good decision once you’ve made your purchase.
Choosing The Best Type Of Life Insurance For You
Life insurance is one of those things that most of us know we need, but we don’t really know what kind to get, how much we should get, when we should get it, or how long we should keep it. Fortunately, it’s not really that complicated. If you understand the options and your needs, the best solution for your situation should become obvious.
As outlined above, there are two principal types of life insurance:
- Term Life Insurance Provides A Death Benefit Only Within A Predetermined Number Of Years. Term life insurance can expire before you do. The term varies but is usually between 5 and 30 years. The premiums are fixed over the lifetime of the agreement. The premiums are calculated based on a variety of factors, but age and current health have the biggest influence. It all comes down to what the actuaries have determined to be life expectancy.
- Obviously, a 10-year term policy for a 70-year old will be more expensive than the same policy for a 30-year old, all other things being equal. Similarly, two people of the same age and gender will pay different rates if one is obese and smokes.
- Term life insurance at least initially can be the least expensive type of life insurance.
- Whole (Permanent) Life Insurance Has A Death Benefit And May Combine It With An Investment Or Savings Amount. But as long as the policy is paid up and current, a whole life insurance policy covers you until your death as there is no set expiration date. The premiums are fixed or can vary, depending on the details of the policy.
- The premiums are dependent on your age, gender, health, medical history, and more, similar to a term-policy.
- Whole life may not be the optimum choice for all of your insurance needs. While it does accumulate a cash value through the investing/savings aspect, the premiums are more expensive than comparable term life insurance coverage. It is not the tool that should be used for saving.
- Whole life insurance does allow the policyholder to borrow against the current cash value. But this diminishes the value of the policy until the money is paid back. As an investment vehicle, many financial experts consider whole life insurance to be a poor choice.
- It is important to keep in mind that if you need some life insurance coverage to be paid regardless of when you die, whole life life insurance may be the only reasonable option available for this purpose.
In between term and whole life insurance, there are several different types of policies that are available, including universal life insurance, last-to-die and first-to-die policies that cover both spouses, and there are more. However, if you understand the concepts of term and whole life insurance, it will be easy to understand any other type of life insurance your insurance professional might recommend.
Consider Your Life Situation And Circumstances:
- Single with no dependents. Most people in this category do not need life insurance. One of the few exceptions might be if you’re parents are not financially well off; you might want to get a policy to pay for your funeral / burial costs so not to burden them and you may also want to provide them with funds so that they can continue living debt free. As well, as has been already mentioned, your insurance premiums since the cost is directly tied to your age, will probably never be cheaper than right now.
- Recently married. Consider how your spouse would fare without you. If you don’t have children, you probably don’t have a big need for life insurance, yet. However, if your spouse is not well employed and likely to struggle in the long-term without your salary, it is a consideration that you need to make.
- Expecting a baby or you already have kids. Now is the time most responsible future parents will purchase life insurance if they are able to do so. Consider how much coverage it will take to cover your take home pay until your children are at least 18 years old. You might want to consider the cost of college as well.
- Good to remember that life insurance payouts are not normally taxed. You don’t necessarily need to cover your entire salary, just the take home portion. This will allow your family to maintain the same standard of living. If you already have life insurance, you should revisit your amount of coverage anytime a new child is on the way.
- When You Are Retired. Your term insurance has probably run out by now. Ideally, you would also have a healthy nest egg, your house paid off, and all your kids out of your hair, possibly reducing your need for life insurance. Life insurance premiums at retirement age get very expensive, too.
- One reason why you may have had whole life insurance is to cover your final expenses or for estate planning.
- Another reason to consider some whole life insurance in your insurance portfolio is that the proceeds are usually paid out within a reasonably quick time. Even if other assets are available to the estate getting the money out of those assets can take time if they need to be sold, and there can be fees or penalties for accessing the value of the assets that would need to be liquidated.
For financial security, you’ll most likely need some life insurance at different stages in your life. However, for many of us, the amount that you may need when you get older may go down but the need for some insurance coverage will more than likely always be there regardless of how long you may live..
The easiest way to determine if you need insurance is to consider the financial impact that your family would have endure if you were gone. You simply want to be able to eliminate that impact to the best of your ability.
Answering The Question Of Term Or Whole Life Insurance?
Q: We have been unable to make a decision between term and whole life insurance. What are the differences? What criteria should we use to make a decision?
A: If you ask the insurance companies, just about all of them will suggest that whole life insurance is the way to go. Considering they are the ones selling the policies, you should wonder whether their advice is in your best interest. As in all industries, the product that insurance companies would like you to buy is the one that makes them the most money. However, the one that makes the best sense for you depends on your needs. And you need to know what your needs are.
Whole life insurance develops a residual or cash value. This money can be utilized for nearly any purpose at any time. But the most important benefit and reason to consider whole life insurance is that it is intended to last until death. There will eventually be a payout assuming the premiums are paid.
Term insurance only covers the individual during the period of the term. The truth to be told here is that the insurance company is betting that death will not occur during this time. In a way, with term insurance, you are betting against yourself!
Consider these differences between whole and term life insurance:
Term life insurance on the surface and in the short-run is considerably less expensive. Term life insurance is only in effect for a limited period of time, the term.
There are some experts that suggest purchasing term insurance and investing the difference between the cost of a whole life policy and a term life policy. If you live past the duration of the term and your investments grow considerably, this is the ideal possible scenario. On paper this sounds like a great idea, but this solution does have it’s drawbacks.
- For the “buy term and invest the difference” solution to work, you must be disciplined with the savings side of the solution. Using any amount of the money from the investing portion of the plan can drastically affect the benefits that could be had on growth of the investment portion of this plan.
- You would have to have made good investments. There may not be any guarantees with the investment vehicle that you choose.
- Consider that getting the funds out of the investment portion of your plan, at the time that it may be needed can be costly with fees and penalties this reducing the benefit and getting the money out of the asset can take time for it to be sold if necessary.
It Really Depends On Your Time Horizon That Coverage Is Required For.
This is probably the most important criteria when choosing life insurance – How long do you need it for?
Here are some loose guidelines regarding the time frames of coverage that you may have:
- Do you need insurance coverage for an amount that is only for 10 years or less? Then Term life is nearly always the best solution.
- For 10-20 years of coverage, the solution can really be a toss-up. There are calculators available online to help make the best decision. But having some portion of your coverage as whole life insurance can start to strongly factor into the equation.
- Do you need the insurance for longer than 20 years? Whole life is usually the better solution long-term.
- Chances are that the ideal solution is a mix of the two basic types of insurance with a smaller base of whole life insurance and the higher amount covered with term insurance.
Whole Life Insurance Can Serve As A Great Estate Planning Tool.
This type of policy is commonly used by anyone with some accumulated assets and wants to minimize the effect on their estate that estate taxes would have on the estate. Estate taxes would need to be paid to the government soon after the owner dies. If funds are not available to be able to pay the estate taxes that are due at the death of the owner, then it may be possible for the government to force the sale of the asset.
Using life insurance to cover estate taxes due at the time of death is a good solution because in most cases, the proceeds of an insurance policy go to the beneficiary tax-free.
Conclusion
There are many things to consider when figuring out your life insurance needs. Be sure to make the time to make the best decision for you, your family or any other dependents that you may have and your financial situation.
If there is a need to have life insurance, having a policy in place is much better than having no coverage at all. Even if your needs are for more than just having a term insurance policy, get the coverage that you need now. Then work on meeting your overall possible lifetime insurance requirements.
There are many reputable insurance salespeople and providers. Ask for references, research the companies and policy types and get the professional assistance you need.
If there are people in your life that count on you financially, it is your responsibility to make sure that they will be financially “okay” if heaven forbid, something happened to you yesterday. That is all that life insurance is designed for. Life insurance allows you to look after people that you care about even if you are no longer around to directly do so.
Life insurance is not about making anyone rich when you die.
Life insurance is about making sure that the people or the things that you care about are able to continue on without you.
BAM! Be A Man. Do The Right Thing. Take Care Of Yourself And Your Money And Your Dependents
BAM! Be A Man. Do The Right Thing.
Be The DtRTy Guy!
