Making Life Insurance Choices Easier
I often hear things like “Buying insurance is betting against myself” or “With insurance, I sometimes feel like I’m flushing money down the toilet”. The truth of the matter is, when it comes to insurance, you’re either going to suffer a small loss or a big one. The small loss would be to pay premiums for something you never use, knowing you cannot get that money back. The big loss would be to pay no premiums because you choose not to have coverage and then suffer a claim that could leave you financially bankrupt.
There is one type of insurance you can be sure to use, however, and that’s life insurance. Each of us wears an expiration date. The challenge is that we have no idea when that date is. Therefore, we must be prepared in order to not leave our loved ones in a lurch when it comes to paying bills on our behalf. Choosing a policy that is right for you can seem overwhelming to say the least, but it doesn’t have to be.
There are two main types of life insurance: Term & Permanent. A term policy has a start and end date and does not generally gain any cash value. It is merely for the purpose of death benefit. For instance, in a 20 year term policy, the policy actually terminates at the end of 20 years if the insured is still living. With permanent insurance, cash value can be built and it lasts the length of a lifetime. Term insurance is significantly cheaper, but doesn’t always give the peace of mind that a permanent policy does. As a result, I find that a blend of these two is what I often recommend.
Our life insurance needs change over the course of our lives. When we are young, we may feel we have less need for life insurance since we are “indestructible”. However, once we are married and building a family, our loved ones are counting on us, our income, and our contribution. Once the kids are out of the house, and out of college, that need begins to change again. Where we once may have seen a need for a higher face amount to pay for a mortgage or college, we can suddenly find ourselves over-insured. In such a scenario, a blend is a beautiful thing. For instance, a person could buy a policy with a $250,000 face amount, and split that between $200,000 in term insurance ending in 30 years, and $50,000 in whole life that will still be there for them later in life. It can even be designed so that that person pays for 30 years (or less) and then no longer owes premiums for that $50,000 policy that remains. These “blended” policies can be written by taking one application, one paramedical exam, and paid for by one premium, for the sake of ease.
Another creative alternative to the blend may be a Return of Premium Term policy. Under such a policy, all premiums paid in are returnable to the insured at the end of a term provided the policy owner is still living. The policy can be turned into a “paid up” policy with a lower face amount. For instance, a 60 year old purchasing a $50,000 life insurance policy may cost $14,000, paid for over the course of 20 years. At the end of that 20 years, the policy owner can receive the $14,000 back in full or take a paid up policy worth half the value of the initial death benefit ($25,000), and never pay premium again. This is a great way to make sure you still have some benefit at the end of the term but to also reduce cost by taking a term policy rather than a permanent policy.
Many of these policies can also be written with an Accelerated Benefit Rider. Generally speaking, there is no extra charge for adding it and it can prove to be extremely valuable. This rider allows the policy owner to request up to 50% of the policy’s face amount if the insured is diagnosed by a physician with a terminal illness that is expected to result in death within 24 months or has been confined to a nursing home continuously for 90 days and is expected to remain there until death. You are then paying for a life insurance policy but are also receiving a long term care benefit as well! Although long term care premiums can be cheaper than life insurance premiums, you are sure to use a life insurance policy while you may not use the long term care policy.
While there are many other caveats to purchasing a life insurance policy, these are just a few tips to making that process easier. Finding a trusted agent to help you through this process is extremely important. Expressing to him/her the purpose of the coverage and what you are trying to achieve is super important to giving that person the tools he/she requires to assist you in meeting your needs.
Benefits Account Executive
J.L. Hubbard Insurance & Bonds