Finding a good value in life insurance
What’s your plan for when tragedy strikes? Will your family be happy and taken care of with it? By protecting your current assets and your future income by providing (most times) a tax-free benefit to families, life insurance can prevent a tragedy from becoming a financial disaster for your loved ones.
Are you a business owner? How would your business be affected by the unexpected loss of a partner or a key employee? Would you be happy going into business with your former partner’s spouse? Life insurance offers protection for the business you’ve worked hard to build.
There are many kinds of life insurance, but in general they fall into two broad categories: term insurance and permanent insurance.
Term insurance is designed to meet temporary needs. It provides protection for a specific period of time (the “term”) and generally pays a benefit only if you die during the term. This type of insurance often makes sense when you have a need for coverage that will disappear at a specific point in time. For instance, you may decide that you only need coverage until your children graduate from college or a particular debt, such as a mortgage, is paid off.
In contrast, permanent insurance provides life-long protection. As long as you pay the premiums, and no loans, withdrawals, or surrenders are taken from the policy, the full face amount will be paid. Permanent life insurance accumulates cash value and is priced for you to keep over a long period of time. It can be used as an avenue for transferring wealth, tithing to a church or synagogue, business continuation, buy/sell agreements, helping a special needs child, or helping the family with final expenses.
As your personal situations change (i.e., marriage, birth of a child or job promotion), so will your life insurance needs. Care should be taken to ensure these strategies and products are suitable for your long-term life insurance needs. You should weigh your objectives, time horizon and risk tolerance as well as any associated costs before investing. Also, be aware that market volatility can lead to the possibility of the need for additional premium in your policy.
It’s hard to say which type of life insurance is best for you, because the kind of coverage that’s right depends on your unique circumstances and financial goals. The best way to figure out the amount and type of life insurance that makes sense for your situation is to meet with a qualified life insurance professional. We can help determine those circumstances and goals through a process called a Needs Analysis survey.
Call Gregg John at the Mike Arnold Agency today and schedule an appointment to talk further about the benefits of life insurance for your family.
How much life insurance do you need? Do you know?
How do you find out? Are you looking for a small burial policy or something that offers piece of mind for your family to stay in their home.
- Review your insurance needs. Choose a policy that offers benefits that most closely fit your needs.
- Consider the premium payments. Are they affordable for you? What if the premiums increase? Would you still be able to afford them?
- Buy life insurance only with the intention of sticking with it.
- Don’t buy a policy with the intention to drop another. Make sure you understand the repercussions of your decision; it could be costly to you and/or your heirs.
- Review your life insurance program at frequent intervals.
A simple comparison of premiums is not enough to show what policy will give you the best value for your money. Other things to consider are:
- Do premiums or benefits vary from year to year?
- How much do the benefits build up in the policy?
- What part of the premiums or benefits is not guaranteed?
- What is the effect of interest on money paid and received at different times on the policy?
Buying Life InsuranceWhen you buy life insurance, you want coverage that fits your needs. First, decide how much you need? For how long? What can you pay? Be mindful that a major reason to buy life insurance is to cover the financial effects of unexpected or untimely death. Life insurance can also be a way to plan for the future. Next, learn what kind of policies will meet your needs and pick one that best suits you. Finally, choose the combination of policy premium and benefits that emphasizes protection in case of early death, or benefits in case of long life, or a combination of the two. It makes sense to ask a life insurance agent for help with these decisions. An agent can help you review your current insurance program; any outstanding needs and give you information about available policies to fit your needs.
- If you decide to replace your policy, don’t cancel your old policy until you have received the new one. You then have a 10-day period to review the policy and decide if it is what you want.
- It may be costly to replace a policy. Much of what you paid in the early years of the policy you have now. You may have to pay this cost again if you buy a new policy.
- Ask your tax advisor if dropping your policy could affect your income taxes.
- As you age or if your health deteriorates a new policy will often be more expensive. Or, you may be uninsurable altogether.
- You may have valuable rights and benefits in the current policy that are unavailable in a new one.
- In the beginning a policy may not offer benefits for some causes of death covered later as the policy matures.
- How will my family pay final expenses and repay debts after my death?
- How much of the family income do I provide? If I were to die prematurely, how would my survivors, especially my children, get by? Does anyone else depend on me financially, such as a parent, grandparent, brother, sister, or special-needs relative?
- Do I have children for whom I’d like to set aside money to finish their education in the event of my death?
- Do I have family members or organizations to whom I would like to leave money?
- Will there be estate taxes to pay after my or my spouse’s death?
- How will inflation affect my future needs?
All policies are not the same. Some give coverage for your lifetime and others cover you for a specific number of years. Some build cash values and other s do not. Some policies combine different kinds of insurance, and others let you change from one kind of insurance to another. Some policies may offer other benefits while you are still living (ie. Long-Term Care). Your choice should be based on your needs and what you can afford.
There are two basic forms of life insurance: Term and Permanent insurance. Term insurance generally has lower premiums in the early years, but does not build up cash values that you can use in the future. You may combine permanent with term insurance for the period of your greatest need for life insurance to replace income.
Term Insurance covers you for a term of one or more years. It pays a death benefit only if you die in that term. Term insurance generally offers the largest insurance protection for your premium dollar. It generally does not build cash value.
You can renew most term policies for one or more terms even if your health has changed. Each time you renew your policy for a new term, premiums may be higher. Ask what the premiums will be if you continue to renew the policy. Also, ask if you will lose the right to renew the policy at some age. For a higher premium, some companies will give you the right to keep the policy in force for a guaranteed period at the same price each year. At the end of that time you may need to pass a physical examination to continue coverage, and premiums may increase. You may also, be able to convert many term insurance policies to a permanent insurance policy during a conversion period.
Permanent Insurance is a type of insurance where the premiums charges are higher at the beginning than they would be for the same amount of term insurance. The part of the premium not used to cover the cost of insurance is invested by the company and builds cash value that may be used in a variety of ways. You may borrow against a policy’s cash value by taking a policy loan. If you don’t pay back the loan and the subsequent interest owed, the amount you owe will be subtracted from the benefits when you die, or the cash value if you stop making premium payments and withdraw the remaining cash value. You can also use your cash value to keep insurance protection for a limited time or buy a reduced amount of coverage without having to pay more premiums. Cash value can be used to increase your income in retirement, or to help pay for needs such as a child’s tuition. All without cancelling the policy. To achieve these benefits you must pay higher premium in the earlier years of the policy. Permanent insurance may be one of the following types: Whole life, Universal life, and Variable Universal life insurance.
The Mike Arnold Agency does not provide tax or legal advice. Guarantees and protections are subject to the claims paying ability of the issuing insurance company.