Today’s edition of Insurance Straight Talk is for those who want to learn a little about life insurance. For example, what kind is right for me and how much do I need.
What kinds of life insurance are there and what kind is right for me?
Well, life insurance typically falls into three categories: Term, ROP Term, and Permanent Life Insurance.
Term Life Insurance
If you have a temporary need, and want to set aside the least amount of premium, term will suit you well. Just know that when the term is up, the deal is done and you walk away. There’s no more coverage and you get none of your premium back. In that sense, it’s similar to leasing a car.
Most term policies will allow you to keep a policy after the term ends and continue to renew it annually. However, the rates will often go through the roof once the initial term ends, so unless you were on your death bed near the end of the term, you likely would not continue with the policy.
One downside: if you need coverage when the term ends, it might be difficult, costly, or impossible to obtain (you’ll be 10, 20, or 30 years older – and who knows what your health will be like).
ROP or Return of Premium Term Life Insurance
ROP is return of premium term. It’s the same as above but if you outlive the policy, you get all your premium back. The caveat, you pay a good amount more for this (essentially, the carrier charges what they need to cover the life insurance plus an amount that they will invest and because the power of investing and compound interest, make enough to earn a profit and give you all your premium back).
One other downside: if you cancel before the term is over, you won’t get all of your premium back.
Permanent Life Insurance
Lastly, you’ve got permanent insurance. It’s got cash value, which you can borrow from, cash out, or use to pay your premiums for the remainder of the policy! Under the umbrella of permanent insurance, the three most common types are: Whole Life, Universal Life, and Variable Universal Life. Proponents of Whole Life like its guarantees that other permanent policies don’t always have.
If you’re interested in the cash value aspect or in a guarantee that your beneficiary will get a death benefit when you die – that you won’t outlive the policy – permanent is really the only way to go.
Some will argue to buy term and invest the rest. However, if you outlive the term and didn’t achieve the investment success that you had anticipated, where does that leave your loved ones?
One other consideration: very few people die during term policies’ coverage, but all Whole Life policies, unless surrendered or lapsed, will pay out eventually.
I like the concept of permanent insurance but the premiums are prohibitive for the amount of coverage I need. Your thoughts on that?
You can have a plan that covers part of your need with permanent insurance and part with term. That way, you’ve got enough coverage without breaking the bank while the kids are young and there’s a mortgage, and still have some coverage once you outlive the term.
Another option is to start with term and then convert some to permanent when your finances allow it. Just remember, the longer you wait, the older you are, and the more they’ll charge.
How much coverage do I need?
There are different schools of thought here too. Some say 10 times your annual salary. Others advocate the use of a needs analysis.
The needs analysis looks at a number of reasons why many people get life insurance, e.g., final expenses, a mortgage, outstanding debt, daycare, education, emergency, and income replacement. It’s a snapshot that looks at where you are right now and says: if something were to happen to me, what would my loved ones need, financially.
What if I don’t qualify?
If you’re between the ages of 50 and 80, there are guaranteed issue policies available.
Contact Olde Liberty Insurance today to discuss your life insurance needs. We can sit down and discuss your needs and tailor a no-obligation, customized quote for those specific needs. And with 55+ of the most reputable carriers in the business, we’ll find you the best option for your situation.