Ready to save on your Life Insurance policy?
Being prepared means everything.
The most important benefit is that you won’t be leaving your loved ones with a giant pile of debt and expenses. Think about it. Not only would they have to grieve your death, they’d also have to figure out how they’re going to pay for everything (past, present and future).
There are three types of life insurance, with a number of differences between them, but boiled down term, whole and universal plans do the same thing — they payout a set amount of money to someone when you die.
Term Life Insurance: This option is geared toward younger people because it’s more of a temporary plan that only covers you for a period of time, usually 10, 20 or 30 years. If you were to stop living within that timeframe, a set amount of money would go to the people/person you choose.
Whole Life Insurance: It has the same concept as term, but this policy is forever (or until you die).
- It has a savings account that accrues money. Eventually (if you continue to not die), it will hit the policy’s coverage amount. At that point, the insurer will say something like:
“Hey, so you have the same amount of cash in your savings as what we would pay out, so, you don’t need us anymore. Here’s your money. Good luck not dying and stuff.”
- Whatever cash you accrue, you can borrow, but to no surprise, you’ll eventually have to pay it back to continue coverage.
Don’t freak out if you’re not totally clear on the differences between term and whole, give us a call.
Universal Life Insurance: It’s a lot like the whole plan but with a few key differences:
- Instead of a standard savings account, this also accrues interest.
- You can kick in more money than your payment to take advantage of the interest.
- Not only can you borrow from this account, but you can also skip payments without a penalty (as long as the account has money in it).
How much does Life Insurance cost?
It depends on the coverage and a number of other factors like age, occupation and even hobbies. So, a 5K-running fitness blogger might only pay $15 a month, whereas a chain-smoking couch potato could pay well over $1,000 a month. Basically, the younger and healthier you are the cheaper it is.
What happens when a Term Life policy ends?
Within the last two years of your term life policy, you will receive correspondence from the insurance company on your options. The insurance company will let you know that your policy expiration is approaching and the three choices you have.
- Renewal: Add a new term to your policy that will give you the same benefit amount. This option will take into account your new age, and your rates will be much higher.
- Convert to a permanent policy: This option allows you to transition your term life policy into a permanent policy with the same benefit that will last as long as you are alive. Again, premiums would be much higher and the cost may or may not make sense. It is best to discuss this with your independent insurance agent.
- Terminate: A term life insurance policy is meant to only last a certain period of time assuming that you will no longer need the death benefit due to having saved your funds in preparation once it expires. In this case, you can terminate your policy and purchase a new type of insurance or a new benefit limit that fits your needs.
If you outlive your term life policy, there are a number of alternatives that you have. A term life policy is a great option still and should be seriously considered when talking with your independent insurance agent.
Is Universal Life right for you?
Universal life insurance is a good insurance plan to consider if you are interested in covering any of the following:
- Income replacement – To provide financial security for your children and/or spouse
- Funeral Expenses – To cover funeral costs and outstanding medical expenses
- Debts – To pay for outstanding business or personal expenses such as business loans or your mortgage, personal loans and credit cards
- Estate – To provide cash liquidity to cover federal, state inheritance or unpaid taxes
- Retirement Plan – If you have need for an income tax shelter or want to maximize your pension
- Charitable Gift – If you want to donate the policy proceeds directly to a charity or place them in a charitable trust
- Business Reasons – If you have an existing buy/sell agreement with business partners, or want to use the benefits for an executive bonus incentive