“What is life insurance?”
More than 5 million people type that question into Google every day. If you don’t have an answer, you’re not alone!
The short answer is that life insurance is a financial product, a tool you can use as part of a retirement planning strategy. It’s unlike your health insurance or car insurance because it only pays a benefit after the death of the insured person.
That’s why many of us don’t like thinking about life insurance, let alone buying a policy. But when you understand the incredible benefits life insurance can provide for your family, it becomes much less scary. In fact, it’s easy to see what a smart financial move you’re making.
Let’s start with a few facts:
- 7 out of 10 American households own some form of life insurance
- 58 million (approximately half) of American households say they need more insurance
This means that 70% of American households are preparing for the future in a smart, manageable way. Are you one of them?
The first step in any smart purchase is to educate yourself. Below, we’ll go through the three main types of life insurance: term, whole, and universal.
Term Life Insurance
Term life insurance meets most buyers’ needs. As its name suggests, it provides coverage for a particular term, or length of time (5 years, 10 years, 20 years, etc.). In return for choosing a select period of time for your coverage, your payment stays the same throughout the term. At the end of the term, your policy will expire. It’s up to you to purchase another policy to keep your coverage active. Because it’s a limited-term policy, this is an affordable option that works for most families.
Option: A second kind of term life insurance is “return of premium” life insurance. As its name suggests, return of premium insurance actually pays you back. If you outlive your term, the insurance company will refund all of your payments. The net cost to you is, in effect, zero. The one caveat with this type of policy is that it costs more—often as much as three times more than term life insurance. Still, it’s a good option to price when you get your free quote.
Whole Life Insurance
Whole life differs from term life insurance because it isn’t limited by a particular time period of coverage. Like the name implies, it covers you for your whole life. Because of this, it’s more expensive than a term policy. Yes, there are benefits to this extra expense! This kind of policy is guaranteed to pay out. It’s guaranteed to earn interest at a fixed rate. It’s also guaranteed not to cost more as you age. Your payments, called the “premium,” will never increase, no matter how healthy or unhealthy you are. If you’re the sort who avoids risk, this might be the policy for you. To keep your policy in effect, all you have to do is keep making your payments.
There’s one added benefit to a policy that lasts for your entire life. It’s called cash value. That means part of your monthly payment funds a special cash value that accrues interest and grows as you pay into the policy. This is your money, and you can borrow against it or withdraw it from the account. Many of our clients use their cash value to supplement their retirement income, pay down bills, or make lifelong dreams come true.
Universal Life Insurance
Another kind of permanent insurance is called universal life. It’s similar to whole life insurance in many ways. It still guarantees a payout when you pass away. And you still pay the same guaranteed rate every month, no matter your health condition.
So what’s different?
This type of policy also offers cash value. But instead of a guaranteed interest rate at which your policy equity grows, you have the option to tie your account’s growth to a market index. Don’t worry–you won’t ever lose money. But if a market index does really well, you can earn more than a standard interest credit. If the market index you choose does poorly, the worst that might happen is you earn zero interest for awhile. If you’re the type who likes to manage your money yourself and can deal with a bit of risk in your financial portfolio, this might be a good option for you.
Universal life insurance also gives the freedom to set your own payment amount and schedule. If you don’t want to pay the same amount each month, for example, you can customize a payment plan. The power is in your hands—but you know what they say about power: it comes with a lot of responsibility. Universal life insurance is no different. Your insurance advisor will work with you to come up with a suggested payment plan, but making those payments is all up to you. Because of this flexibility, this type of policy costs more than term life insurance, but less than whole life insurance.
More Insurance Solutions
Because everyone’s financial situation is different, we offer a number of customized insurance solutions to fit your needs. The insurers we work with have designed specific policies to accommodate the kinds of risk presented by people who might be unhealthy, have dangerous jobs, or who might not live for the 20 or 30 years often selected in a term life policy. Click a link to learn more:
- Mortgage life insurance
- High risk life insurance
- Senior life insurance
- Guaranteed issue life insurance
- No exam life insurance
If you have questions or want to talk to a real, live person about your situation, we’re happy to help! Call 1-800-823-4852 to speak with an Insurance Advisor.