NOT AN EXCITING TOPIC, BUT AN IMPORTANT ONE!
I realize that this can be an uncomfortable topic for some people. Essentially you get life insurance for when the time comes that you pass away, and you want to make sure that your expenses are covered, and family is taken care. Who wants to talk about that?! Unfortunately, everyone’s time will come one day, and it is vital that we are as prepared as possible. One thing we can do to help with these preparations is to ensure we have life insurance, and the type of policy that will suit our wants and needs.
LET’S TALK ABOUT THE BASICS.
One of the most common, inexpensive, and basic forms of life insurance is called term-life. Just like the name implies, you literally purchase this insurance for a specific term, typically ranging from 1-30 years. So for example, if you purchase a 20 year term-life policy this year, you will be covered through 2040. Now, if you’re looking for something to last your whole life, there is whole life insurance that you can purchase. As you can imagine, this option is much more expensive than a term-life policy, but provides a permanent feature. No matter the length of your life, a whole life policy ensures that your beneficiaries receive a death benefit. Whereas if you live out the term-policy, you end up just spending the premiums for those years with no benefit. Another feature of the whole life insurance is that it offers a cash value option, which is a tax deferred savings account. The cash value accrues interest at a pre-determined fixed rate. Each month a certain portion of the premiums will go into the cash value of the policy, which offers a guaranteed rate of return. So, the cash value is growing over time and therefore there is not only a death benefit, but a savings account within your policy as well.
OTHER OPTIONS TO CONSIDER…
Another option is to buy a term-life policy, and invest the money that you would have spent on a whole life policy. Of course this comes with some risk. The term-life policy still has an expiration date, and there’s no guarantee that what you make in the stock market will be equivalent to what the death benefit would be with the whole life policy.
UNIVERSAL LIFE INSURANCE…
Like a whole life policy, the universal life insurance option also offers a cash value. However, your premiums go towards both the cash value and death benefit. Also, the universal life policy can change the premium and the death benefit amounts without you having to get a new policy. So essentially this option offers an extra layer of flexibility, as you can increase or decrease the death benefits within the limits of the policy.
VARIABLE LIFE INSURANCE…
Like the whole life option, variable life insurance has a cash value and it’s permanent. But instead of having a savings account within the policy, there is an investment account (kind of like a mutual fund). When you pay your monthly premium, part of it is going into the investment account. Over time, this is likely to grow because the money has been invested. However, just like with any other investment, there is possible risk. While the money may grow in your variable life insurance investment account, depending on the market, the value may go down as well. The draw to this option for many people is that you have the permanent feature while being able to invest your money at the same time. Keep in mind that your investment options with this insurance policy are limited.
VARIABLE UNIVERSAL LIFE INSURANCE…
The variable universal life insurance policy is sort of a combination of the universal and whole life options. With this option, you are able to adjust the premium and death benefit while also investing the cash value.
SIMPLIFIED ISSUE LIFE INSURANCE POLICY…
The simplified issue life insurance policy is typically an option for someone with a serious illness or who is elderly. This option does not require a medical exam, but rather entails you answering a series of health questions, and issuing the policy based off of your responses. This option can be quite costly.
GUARANTEED LIFE INSURANCE POLICY…
The guaranteed life insurance policy basically takes the concept of the simplified option where you don’t need a health exam, but also there is no need for the health questionnaire. This option is also quite expensive.
FINAL EXPENSE INSURANCE…
Final expense insurance is an option for those who never obtained life insurance, or purchased a term policy and it expired. This option provides coverage for final expenses such as medical costs, cremation, and funeral. This type of policy typically offers a range of $5000 – $25,000 in coverage.
SHOULD I BUY GROUP LIFE INSURANCE FROM MY EMPLOYER?
The short answer is: it depends. By selecting your employer’s group life insurance, a portion of it is automatically paid for by your employer. Generally speaking, an employer group life insurance will give you the option to purchase an additional amount, typically 1-2x your salary. However, this may not provide the amount of coverage that you’re looking for. Also, there’s often an issue with portability. If you end up getting another job, you typically are not able to bring your previous employer’s life insurance plan with you. There’s also the concern of job loss. We are currently experiencing a pandemic due to COVID-19, and there are millions of people out of work. These people have not only lost their jobs, but their employer group life insurance policies as well. So while enrolling in your employer’s group life insurance can be beneficial, you may want to consider it as only part of your insurance plan and seek out your own supplemental coverage.
WHERE TO GO FROM HERE?
Listen to the On My Way To Wealth Podcast for additional information, and specific examples to help you make the best choice for your life. Consult with a Certified Financial Planner™ professional as he/she can provide you with the knowledge and expertise critical to achieving your financial goals.
As always, thank you for checking out my podcast and blog post! If there are any topics you would like to learn more about, or if you would like to schedule a free financial consultation with me, please email me at Luis@onmywaytowealth.com! All of my podcast episodes can be found at www.onmywaytowealth.com and on all major podcasting platforms. For my business site, please be sure to check out www.buildabetterfinancialfuture.com. I look forward to helping you Build A Better Financial Future!