Life Insurance
Term Life Insurance
Term life is simple. Think of it like your Netflix subscription. You buy a certain amount of coverage for a set period of time. (Your Term) and pay the insurance company a flat amount every month. It does not guaranteed you a certain amount of movies but it will guarantee that your beneficiaries would received a lump-sum payout (called a death benefit) if you pass away during your Term.
Your beneficiaries get a lump sum payment that they can use for a number of things. Most people use these to help cover:
- Loss of Income and to help get rid of debt.
- Home Mortgage
- Children’s College tuition
- Living expenses
- Funeral Cost
- A vacation to celebrate your life
How much does term life insurance cost?
Term life insurance cost vary depending on your individual situation. Some of the largest factors that effect cost are:
- Your coverage amount and length of your term: Less coverage equals less cost. Shorter Term Length Less Cost
- Your Age: Younger people have lower rates
- Your health status right now: Healthier people have lower rates.
- If you smoke: Non-smokers have a lot lower rates
What does it cost for someone in good health?
For a 30 year old male :
- $500,000 for 10, 20, 30 Years (expect to pay from $13/month to $65 mnth) Female (expect to pay from $11/month to $40 mnth)
- $1 million for 10, 20, 30 Years (expect to pay from $18/month to $ 95 mnth
- Female (expect to pay from $14/month to $45 mnth)
For a 40 year old male:
- $500,000 for 10, 20, 30 Years (expect to pay from $17/month to $85 mnth)
- Female (expect to pay from $15/month to $50 mnth)
- $1million for 10, 20, 30 Years (expect to pay from $23/month to $140 mnth)
- Female (expect to pay from $25/month to $90 mnth)
For a 50 year old male:
- $500,000 for 10, 20, 30 Years (expect to pay from $33/month to $115mnth)
- Female (expect to pay from $33/month to $110 mnth)
- $1million for 10, 20, 30 Years (expect to pay from $71/month to $285 mnth)
- Female (expect to pay from $59/month to $235 mnth)
How much LIfe insurance do I need? Lifehappens.org is an organization that we work with that gives extremely valuable information on life insurance. Click on the link below for a needs based calculator
Permanent Life Insurance
Whole or ordinary life
This is the most common type of permanent insurance policy. It offers a death benefit along with a savings account. If you pick this type of life insurance policy, you are agreeing to pay a certain amount in premiums on a regular basis for a specific death benefit. The savings element would grow based on dividends the company pays to you.
Universal or adjustable life
This type of policy offers you more flexibility than whole life insurance. You may be able to increase the death benefit, if you pass a medical examination. The savings vehicle (called a cash value account) generally earns a money market rate of interest. After money has accumulated in your account, you will also have the option of altering your premium payments – providing there is enough money in your account to cover the costs. This can be a useful feature if your economic situation has suddenly changed. However, you would need to keep in mind that if you stop or reduce your premiums and the saving accumulation gets used up, the policy might lapse and your life insurance coverage will end. You should check with your agent before deciding not to make premium payments for extended periods because you might not have enough cash value to pay the monthly charges to prevent a policy lapse.
Variable life
This policy combines death protection with a savings account that you can invest in stocks, bonds and money market mutual funds. The value of your policy may grow more quickly, but you also have more risk. If your investments do not perform well, your cash value and death benefit may decrease. Some policies, however, guarantee that your death benefit will not fall below a minimum level.
Variable-universal life
If you purchase this type of policy, you get the features of variable and universal life policies. You have the investment risks and rewards characteristic of variable life insurance, coupled with the ability to adjust your premiums and death benefit that is characteristic of universal life insurance.
Top Reason People Buy Permanent Insurance
Why would someone need coverage for an extended period of time? Because contrary to what a lot of people think, the need for life insurance often persists long after the kids have graduated college or the mortgage has been paid off. If you died the day after your youngest child graduated from college, your spouse would still be faced with daily living expenses. And what if your spouse outlives you by 10, 20 or even 30 years, which is certainly possible today. Would your financial plan, without life insurance, enable your spouse to maintain the lifestyle you worked so hard to achieve? And would you be able to pass on something to your children or grandchildren?
Cash Value—A Key Feature
Another key characteristic of permanent insurance is a feature known as cash value or cash-surrender value. In fact, permanent insurance is often referred to as cash-value insurance because these types of policies can build cash value over time, as well as provide a death benefit to your beneficiaries.
Cash values, which accumulate on a tax-deferred basis just like assets in most retirement and tuition savings plans, can be used in the future for any purpose you wish. If you like, you can borrow cash value for a down payment on a home, to help pay for your children’s education or to provide income for your retirement. When you borrow money from a permanent insurance policy, you’re using the policy’s cash value as collateral and the borrowing rates tend to be relatively low. And unlike loans from most financial institutions, the loan is not dependent on credit checks or other restrictions. You ultimately must repay any loan with interest or your beneficiaries will receive a reduced death benefit and cash-surrender value.
If you need or want to stop paying premiums, you can use the cash value to continue your current insurance protection for a specified time or to provide a lesser amount of death benefit protection covering you for your lifetime. If you decide to stop paying premiums and surrender your policy, the guaranteed policy values are yours. Just know that if you surrender your policy in the early years, there may be little or no cash value.
Cash Value vs. Face Amount
With all types of permanent policies, the cash value of a policy is different from the policy’s face amount. The face amount is the money that will be paid at death or policy maturity (most permanent policies typically “mature” around age 100). Cash value is the amount available if you surrender a policy before its maturity or your death. Moreover, the cash value may be affected by your insurance company’s financial results or experience, which can be influenced by mortality rates, expenses, and investment earnings.
“Permanent insurance” is really a catchall phrase for a wide variety of life insurance products that contain the cash-value feature. Within this class of life insurance, there are a multitude of different products. Here we list the most common ones.