Life insurance can be difficult to understand. Not only can it be complicated to figure out, but it’s also an uncomfortable subject. In between understanding premiums and calculating your income, you also need to prepare for someone’s loss of life.
Despite these concerns, it’s never a bad time to think about getting a life insurance policy. With the right policy, you can ensure that your loved ones are financially protected in the event of your untimely death. It’s financial protection for your family’s future.
If you need help understanding life insurance policies, this blog is made for you. We’ll break down the three most common life insurance policies. We’ll educate you so you can determine which one is right for you.
For those of you in the Millennial or Gen Z crowd, this is a common question. You still plan on having a long life. There’s still time to settle down and start a family.
No matter your situation in life, how old you are, or how healthy you are a life insurance policy is a great way to plan for the unexpected. Life insurance is designed to provide financial security for your loved ones after you pass.
If you have individuals who depend on you for support, they’ll still need your support if you should suddenly pass. This is where life insurance helps the most. It can help your loved ones maintain their standard of living while they recover from your loss. Early in life, when just starting a marriage and family, is generally when most first experience debt.
These can include:
Because all these expenses must be accounted for after your passing, it’s important to understand how life insurance protects your family’s standard of living. Your goal is to ensure your family can continue their standard of living. Life insurance is one of the financial building blocks you will use to reach this goal.
There are 3 main types of insurance policies. While there are many variations on these policies, most will fall under one of these three umbrellas:
These 3 policies are designed for different financial and life situations. By understanding what they offer, you can make an informed choice on which is right for you.
Term life insurance is the most economical of the three. This policy is designed to last for a specific period or a term of your life. Usually, these policies provide coverage for any amount of time you may request, and it’s usually measured in years. Each month you make payments towards your premium which is set at a fixed rate.
With this policy, you’re paying for the full-face value. This is the amount of money your family receives in the case of your death. The big advantage of this type of policy is you can purchase a large amount of insurance (face value) for an economical premium. As with all of these policies the full-face value is payable beginning with the first day the policy is in force.
As the name suggests, a whole life insurance policy covers an insured person for the rest of their life. Rather than having a time limit, the premium is paid until you pass away.
This policy will build cash value which will continue to grow throughout the life of the policy. This cash value, although similar to a savings account, has different conditions that must be met when any or all of the cash value is accessed.
Whole life insurance is more expensive than term insurance. The main reason for this increase is the insurance industry knows as long as the premiums are paid it will be paying a face value in the 100’s of thousands or millions of dollars when the insured passes.
While at the same time it will only be getting 10’s of thousands of dollars in premium. The balance of this face value is made up of the returns the insurance carrier gets from its investments.
Similar to whole life insurance, universal life insurance includes cash value and death benefit payouts. The main difference is you have more control over how the money from your premium is invested. Also, the conditions on the ways you can access the cash value is more flexible.
The key to a universal life policy is the investment account. Part of your premium is placed in this investment account, which then is used to invest in a variety of ways. Your investment account is usually made up of stocks, bonds, trusts or other investment instruments. Any return on investment or accrued interest is added to this account and can be used in a variety of ways.
While there is more freedom with a universal life policy, there is also more risk. Things can get complicated once you bring in investment instruments.
It’s important to consider all your options and make informed decisions before you decide if this policy meets your insurance needs. Since all insurance policies should be part of your retirement portfolio, an individual should discuss their individual needs with a qualified advisor.
Now that you know the basics of what each policy offers, it’s time to look at your own situation. A variety of factors determine which policy is the best fit. These include age, physical health, financial resources and your family’s standard of living.
If you’re just starting a family with a high debt load, then a term life policy may be best for you. The premium will be manageable, and you will be able to purchase a much higher face value. The odds are much better that your younger age and good health will give you a low premium when you need it most.
As the years pass and the children grow and leave home and the family debt burden to income becomes more manageable it may be time to consider a whole or universal life policy. The term policy will expire but the need for life insurance is still a concern. Your health is still good, but it most likely won’t stay that way for the rest of your life.
A permanent life policy that has a smaller face value, but gives you some return on investment, maybe something to consider. The longer this decision is delayed, the higher the possibility of an unexpected health event will make the decision to purchase insurance more expensive or even impossible to obtain.
It should be noted that during these decisions you are not restricted to just one type of policy. The decision to buy just a little smaller term policy and add a small whole life policy may be a good idea. Or any combination of policies that work for your situation.
Why speak with a life insurance agent when I can purchase life insurance online? The more obvious question is “why not speak with a life insurance agent personally”? It doesn’t cost extra to use your local agent and they should have a much better understanding of your situation than an online form.
Whether you know the exact policy you need, or you need help figuring it out, they can help you make this important decision. Life insurance can be complicated and stressful. But you can alleviate that stress by working with a trusted expert.
If you live in the Chesterfield, Richmond or tri-city VA area, Cardinal Insurance is your life insurance expert. For over 15 years we’ve been providing affordable and flexible life insurance options for local families. With a dedication to relationships and empathy, we work with your situation to find the best solutions.
If you would like to discuss your life insurance needs, schedule a consultation or request a quote with us to start saving for your family’s future.