Life insurance is sometimes a hard topic to discuss as it tends to elicit sad emotions. But, once you understand how much life insurance helps those that depend on you financially in the event that something happens to you, you can approach it with a different mindset. Let’s first look at the basic types of life insurance and then how life insurance works.
TYPES OF LIFE INSURANCE
Term Life: Term life insurance is the most common type of life insurance and the most affordable. It covers those insured for a specific time frame—a term. You can purchase term life often in increments of 10, 20, or 30 years. This type of insurance is typically purchased to protect you when you have a specific length of time in mind—maybe until your child graduates or until your mortgage is paid off. It is intended to help pay the debts you leave behind.
Permanent Life: As the name suggests, this type of insurance covers you, not for a specific time period like term life does, but instead for your whole life. It also has a benefit in that the money that is paid in is invested by the insurance company and this becomes the “cash value” of the policy. Within this type of insurance, there are several sub-types that differ based on how the cash value is handled.
Whole Life: Whole life insurance pays a fixed amount upon death. Your premiums are constant throughout the life of the policy. You are able to withdraw or borrow your tax-deferred cash value of your policy. If you do not repay this amount, the death benefit is reduced.
Variable Life: Typically, variable life insurance premiums are constant throughout the life of the policy. Variable life insurance allows you to allocate these premiums among investment options so that your death benefit is tied to the risk or reward of those investment decisions. This means that you do not have a guaranteed cash value of your death benefit—whether that means the benefit is higher or lower depends on the success of the investment.
Universal Life: Universal life insurance’s premiums are more flexible so that if your current financial situation is good, you can pay higher premiums and if it is not so good, you can pay lower premiums. This type also allows you to withdraw or borrow money from the cash value of the policy and it has a guaranteed return.
Voluntary Life: Many times, companies will provide life insurance as part of their benefits package. Voluntary life insurance is additional life insurance that you purchase through your company in addition to your company’s policy. Because these policies are purchased through your employer, the premiums for them are considerably less than if you purchased a policy on your own. Additionally, they do not require a medical exam prior to purchase so you cannot be denied based on a medical condition you may have. Within the category of voluntary life insurance are two sub-categories: voluntary term and voluntary whole life. The major benefits of voluntary life insurance are that there is no medical questionnaire or exam and the premiums are quite low. The drawbacks of voluntary life are that you are limited to the death benefit levels offered by your company and the fact that the policy may not move with you if you leave the company. If allowed, and if you choose to continue your policy post-employment, the premiums could be substantially higher and you may have to switch to a totally different policy.
Regardless of your initial feelings about the subject, we hope that with some simple education on life insurance, you are able to understand the need for this product and can see the benefits to both yourself and your dependents. Should you have any questions in general about life insurance, costs, specific policies, or benefits, call your Alltrust team at 888-563-7278. Preparing for your family’s financial future is never something to wait on and with the current financial condition of the world, the time to act is now.