Life insurance isn’t exactly the most exciting subject to talk about. Spending money towards something that may not pay out until your passing is a daunting concept. Nonetheless, Life Insurance is an important pillar in executing a holistic financial plan, but there tends to be some confusion and misconceptions regarding this topic. Here’s what you need to know about life insurance…
Life Insurance isn’t good to have. It’s a must have.
If there is anyone who depends on you financially, then life insurance is a necessity. Your family needs financial protection in the unfortunate event that something happens to you. Your dependents might also extend beyond your immediate family. If you have any dependents, such as siblings, friends, relatives, or business partners, who rely on you financially, then you’ll need life insurance. In addition to providing for survivor income needs, life insurance can also be a powerful tool in transferring wealth from one generation to the next.
There are different types of life insurance
Group Life Insurance
Group insurance is a type of life insurance that provides coverage to a group of people, usually consisting of company employees or members of an organization. The most important thing you should know about this form of insurance, is that in many instances, those plans are not portable. If you leave the company and/or become ill before securing your next job, you may not be able to secure coverage, potentially leaving your family exposed and vulnerable.
Permanent Life Insurance
Permanent life insurance refers to coverage that, unlike term insurance, has no expiration. The most common types of permanent insurance include; whole life, universal life, indexed universal life, and variable universal life. What all these policies have in common is that in addition to the insurance benefit, they also accrue a cash value. This means when you’re making payments, you’re not only paying for the insurance. Additional money is being invested in some form of cash value. The cash value can be used to help pay for education, supplement retirement, or meet other planning goals. These policies are designed to last an entire lifetime, when funded properly.
Term Life Insurance
Term Life Insurance, sometimes considered temporary insurance, provides coverage at a fixed rate for a specific period of time. This may consist of a 5, 10, 15 or even 30 year policy where the premium stays constant for the duration of your policy’s term. It’s important to be aware that once the term has expired, the premium can increase substantially. It’s also important to be mindful that unlike permanent insurance policies, term insurance policies don’t accumulate any cash value.
Life Insurance doesn’t have to be super expensive
Premium (Cost) for coverage is dependent on several factors which include, the amount of death benefit, Sex, age, and health profile.
Group life insurance tends to be the most inexpensive form of life insurance and often times won’t require any underwriting. Term insurance is also a low cost way of securing coverage. Permanent insurance tends to be more expensive than the other two types of life insurance, but is designed with the intention to at some point pay out a death benefit. Often times, a hybrid approach is necessary, where a combination of different types of policies can be used to meet an insurance need.
Life insurance is an important part of a secure financial plan
As mentioned earlier, having adequate protection is a key component in a holistic financial plan. A Financial Planner assists clients by first identifying the amount of protection necessary to meet your goals. He/she can then educate you on various types of insurance, and make recommendations taking into consideration your cash flow, other assets, and financial goals.
A life insurance policy will lapse when premium payments are missed and cash surrender value is exhausted on the life insurance policy. A policy may be reinstated within 30 days of lapse without additional paperwork and possible a reinstatement premium. An insurance policy may include nonforfeiture clause, in which if premiums stop the owner may receive some sort of benefit. Some life insurance policies provide loan options. Allowing the owner to borrow against the permanent or whole life insurance policy. The insurance carrier may add interest to the balance which accrues whether the loan is paid monthly or not. Lack of loan repayment may cause a policy lapse.