Life Insurance 101: What You Need to Know

Family Care And Protection

Now more than ever, more and more families are considering life insurance policies in their household. With Covid-19 not following its exit cue like expected, life insurance coverage comes up a lot in conversations with my clients. How necessary is it? Is it going to be too costly? Is it wrong to apply a monetary value to my (or my spouse’s) life?  This week I wanted to help with your decision-making process by talking about Life Insurance.

Life Insurance 101 – What You Need To Know

How many different types of life insurance are out there? There are two broad types of life insurance you should be aware of when decision-making — Term Life and Permanent Life.

Term Life Insurance is the simplest, most cost effective and widely applicable form of coverage. When you choose a term life policy, the policy premium is based on the probability the insured will die within a stated term — typically 10, 20, or 30 years. The premiums are guaranteed for the length of the term, after which the policy may lapse. Yes, this could mean you paid a life insurance premium for 20 years and “got nothing out of it”. But that’s great news — you’re winning at the game of life!

Permanent life insurance includes of the term life probability-of-death calculations but also includes a savings mechanism. In the industry, we refer to this as “cash value”. Cash value is designed to help the policy exist in perpetuity. 

Within permanent life insurance, there are also other policy types within the vein of permanent life. Whole life includes an investment component (much like bonds or CDs), but backed by the insurance company. Variable life offers investment options more like mutual funds. Universal life is a less expensive permanent life option with added flexibility, however it comes with an increased interest rate risk for the owner.

When should I get life insurance? Is it really necessary? Here’s the bottom line: if anyone relies on you financially, you should have a life insurance policy. It’s vital for those who have a spouse or the parent of dependent children. You may also need a policy if you are a child of dependent parents, for example, basically if anyone is dependent upon you.

Is it costly? Can I afford this? Absolutely. Most premiums are relatively low. Term life policies and permanent life policies aren’t apples-to-apples, but the good news is by reaching out to any one of our agents, we can comparison shop for you and find you the right policy for your budget.

With the flu season starting and the covid cases rising, it’s important to have the conversation about life insurance, to make sure your loved ones are covered. Questions? Give us a call. We’re here to help make your decision as easy and stress free as possible.