There is a peace of mind that only Life Insurance can offer
Let’s face it. There are so many reasons why you avoid this discussion. Some people think “I really don’t need it” and consider it something they don’t want to spend money on, or can’t afford. Others assume that they don’t need any, because they have coverage through their work. Some assume they are going to live forever, so why bother. Like I said, there are plenty of reasons that the conversation about life insurance simply never takes place.
So let us look at the reality. You have people that are important in your life. You know how things are going day to day as they are now, and that is with all you are currently doing to help make ends meet. You may or may not have a savings plan, or money tucked away for a rainy day. But, what would happen to your family, financially, if you weren’t there anymore? Besides dealing with the loss of you, there is the debt, a loss of your income, and added costs of handling your final expenses. Still think you don’t need to have the conversation? Ready for a little peace of mind?
You see, your life insurance policy is to be there to take care of the important people and things you lived for, when you are no longer around to do so yourself. Worried about it costing too much? Well, let’s talk about a few types of Life Insurance
TERM LIFE: Term life insurance typically provides insurance coverage and level premiums for a limited period of time, typically a 10 to 30 year term. So think of it as coverage for short term needs.
- What are short term needs? One example would be paying for your kid’s college tuition. You may have that worked out while you are alive, but wouldn’t you have peace of mind if you had something in place, just in case? Fortunately, it is a temporary need for a given period in your life.
- The key benefits of term life policies are affordability and simplicity. However, when the initial term is over, to maintain the same level of protection, premiums will most likely increase substantially.
WHOLE LIFE: Whole life insurance, as the name implies, is designed to provide protection over the insured’s entire lifetime.
- It is there for needs that are not temporary, such as paying off debts, or to provide income for dependent family members after the head of household dies, until they become self-supporting.
- There are many types of whole life policies, but the oldest and still the most common type of whole life policy is ordinary level premium whole life insurance, or simply ordinary life.
- What does that mean?
- Level Premium: You pay the same amount, year after year for your policy
- Level Death Benefit: The amount you pay stays the same, as long as you keep your policy.
INDEXED UNIVERSAL LIFE: Universal Life Insurance policy is a flexible premium permanent life insurance policy that contains both an insurance component and an investment component.
- How it works is: Premiums are deposited in the policy’s cash account, which is reduced by policy charges (cost of the insurance policy) and increased by a crediting methodology set forth under the terms of the policy.
- What differentiates an Indexed UL policy from other types of permanent life insurance used for cash accumulation is that the growth of the policy’s cash value is based on the performance of an equity index (such as the S&P 500). These policies typically have protections against losses to the cash value crediting (meaning a floor) in cases where the idex drops. They also generally have caps (limits) to how much they are credited, in the event that the index does too well.
- While it may be exciting to talk about the growth of one’s cash value in an insurance policy, it is important to remember these policies have costs or charges associated with them.
- There are typically four different charges deducted from the cash value of an Indexed UL policy. Two of those charges (a Premium Load Charge and a Monthly Charge per $1,000 of Death Benefit) are, essentially, sales charges – somewhat analogous to the transaction fees or management fees that one might pay to money managers, brokers, or investment advisers.
- The Premium Load Charge is assessed each time a premium is paid, while the Monthly Charge per $1,000 of Death Benefit is only assessed for the first 10 years after the policy is issued. The third charge is a (generally nominal) Annual Expense charge. The fourth charge, the Monthly Cost of Insurance per $1,000 of Death Benefit, is the mortality charge associated with providing the policy’s death benefit – and this is the only charge that is scheduled to increase each year.
Insurance through your work:
- While I thoroughly enjoyed the group Life insurance rates offered by my employers in the past, I think it only fair to share a few things.
- The first, and most obvious, is that I said “employers”. Fortunately, most of the various employers I have had in my lifetime offered some basic Life Insurance. Most, but not all. And what happens to that policy when you change jobs, or retire? For most people, that means having to then find a policy on their own. Any guesses on the rates for individual Life Insurance on a Healthy 21 year old, vs being 60 with a few ailments?
- Secondly, while having coverage from an employer is a great starting place. It’s still just a starting place. You should know what YOUR number is, so that should anything happen, you know that what is important to you will have the support you want.