We can’t tell you the meaning of life, but we CAN offer you some really good insight as to what kind of life insurance will work best for you—Term or Permanent? Whole Life or Universal? It’s a confusing landscape if you don’t know the terrain, and this post will help you navigate your way to the best coverage for you and your family.
Term or Permanent
There are two basic categories of life insurance: term and permanent. Term, as the name implies, in temporary insurance guaranteed for a specified number of years, typically 10, 15, 20, 30 years. It has the advantage of a low initial cost, but it builds no cash value and it does expire, maybe even before you do. Premiums will increase at pre-determined intervals. Some also have provisions for extending coverage (usually at a higher premium), or converting to permanent insurance regardless of your health at the time. Permanent insurance plans on the other hand, don’t have an expiration and do build cash value over time. Because the guarantee a payout for a lifetime, and because they do accumulate savings along the way, they tend to cost more than term insurance. Premiums will not increase. They are guaranteed for the life of the policy.
Universal life is a type of flexible permanent life insurance that offers the low-cost protection of term life insurance plus a savings element much like whole life insurance. The savings is invested to provide an increased cash value buildup. Unlike whole life insurance, the universal life policy allows the insured to use the interest from the accumulated savings to help pay premiums.
Which One Do I need?
Term insurance is often the product of choice when the cost of more expensive permanent insurance is an issue, or when coverage is need for a specific period of time. In the latter case, it is often purchased in addition to permanent insurance, for example when family needs or other responsibilities are outpacing spendable income. This is often the case during the early years of raising a family, the need for income replacement is high but the budget is tight.
Permanent, or whole life insurance, was designed to provide a lifetime of insurance coverage, plus other additional benefits during the lifetime of the insured. These may include guaranteed cash value accumulation as long as premiums are paid, eligibility to earn dividends in some cases, and loan/withdrawal privileges. The cash value amount can be used in the future, via a policy loan, for things like paying for your children’s education, a down payment on a home, or to provide retirement income. Universal life can greatly speed up the savings accumulation of the policy if you do plan to use the cash value in the future.
In addition to policies insuring a single life, there are policies that insure two lives, usually a husband and wife, with the death benefit payable at the second death. Called joint life second-to-die plans, these are ideal for paying estate taxes or guaranteeing an inheritance to children, charities or special bequests.
Freedom Insurance can help you make good choices to protect the future of your loved ones. Just call or email us. We are always happy to hear from you!
