Life insurance. Who needs it? Anyone with a family that is dependent on your income should be insured.
If you had a money-making machine that was responsible for creating all your money, you’d keep it well-oiled and insured, right? Well you’re that money-making machine to your family so stay well-oiled by eating right and get your life insurance for a worst-case scenario.
If you owe money on the mortgage, you need life insurance. It’s a sad fact that many families lose their homes almost daily due to the unexpected death of a loved one and the inability to make ongoing home payments.
Now that you’re convinced of the necessity for life-insurance, you’re ready to tackle the next conundrum. Do you need Term Life or Permanent life insurance?
Term Life Insurance
Term life is insurance that you purchase for a specified amount of time only. It can be five years or 25 years or any number that you determine appropriate. It’s a far more affordable option and it comes without a lot of the “extras” (discussed below) that permanent life insurance offers. It’s simply a pure death benefit. If you die, the beneficiary gets a check. The price you pay (also known as the premium) stays the same every year. Some policies even give you the lump sum of your yearly premium back if you outlive the policy.
What’s the disadvantage to term life insurance? After it expires, you might be closer to meeting your maker with a greater desire to leave a bit of money to your loved ones and now the price for insurance will cost you far more.
Permanent Life Insurance
Permanent insurance is considered more of an investment. Like a 401k, it’s tax-deferred and the cash value grows every year. Unfortunately, the commissions and ongoing fees of permanent life insurance keep it from accumulating to the degree that a 401k or other retirement plan typically will.
Permanent life insurance is where confusion typically ensues as there are three common types and trying to make a snap decision on which is best can bring about a bit of stress. You’ll want to understand the differences before the day of purchasing insurance and spend some time dwelling on which type will best serve your needs.
3 Types of Permanent Life Insurance
1) Whole Life Insurance – This is the most expensive type of permanent life insurance. You are guaranteed a fixed premium every year, a guaranteed rate of return on your cash value investment and a guaranteed death benefit. Since this type of return isn’t dependent on what the market is doing and ensures a fixed return, you’re going to pay more for it. You can “rest” assured though as your loved ones will be in good hands after your departure.
2) Variable Life Insurance – Like a typical retirement account, you can pick and choose how your cash value is invested from market funds and securities that are appealing to you. Along with offering the most flexibility, this type of insurance also carries the most risk as there’s no guaranteed minimum rate of return. Like any high-risk investment though, you could also reap the greatest return by purchasing variable life insurance.
3) Universal Life Insurance – This insurance is similar to variable life but a minimum rate of return is determined and a maximum rate of return is established. There’s less risk since you can be certain your family will receive just compensation no matter how the market is performing and there’s every chance to create a lot of extra money with a maximum that is usually set high and allows for unexpected growth. Universal life insurance is said to offer low-cost protection with a potential high-value cash buildup.
Whatever plan you choose, just make sure that you’re covered and have peace of mind in knowing that your family will be able to handle any and all financial difficulties if you’re no longer around to assist. Your loved ones are priceless and life insurance is a small price to pay.