Understanding a Life Insurance Policy Can Save You Money!
What is a Life Insurance Policy?
Life insurance is a contract that guarantees to provide money for your loved ones when you’re no longer here to provide for them.
In reality, it’s food and clothing, shelter, a college education, birthday parties, Christmas gifts, and all the things you wanted them to have.
When you buy life insurance, you assure your family, spouse, and or children, that if you’re not here to provide for them, they will still be taken care of financially.
So, what kind of a life insurance policy should you buy?
Because everyone’s situation is different, there are different life insurance options available. Below are brief explanations of each.
Whole Life Insurance Is life insurance you keep for your entire life. The rates remain level and the death benefit remains level for the rest of your life. This is permanent coverage that wll be there for your family.
Term Life Insurance
Let’s talk Term Life insurance. What’s it all about and what’s new? First of all, it’s called Term because it doesn’t go on forever. When you buy it, you decide how long you need it. Like a 20- or 30-year term. How do you decide? Most people want to carry coverage until their planned retirement age. They want to make sure that if they die, they can provide their family with an income that can be used to cover everything from groceries to college tuition. Think about it. If either you or your spouse dies, there won’t be two of you to earn the income you’re used to. This could make it difficult or nearly impossible to pay the mortgage, afford child care, pay off existing debts, or simply balance work and home.
Case in point: Meet Eric and Megan. They’re a couple in their early 30’s. Eric is the breadwinner and he and Megan have a $175,000 balance on a mortgage they took out three years ago. They have two young kids (munchkin giggles) a beagle (woof), and a goldfish named Spike (bloop!). Sound familiar? Megan has a part-time job right now while she’s in school working toward her graduate degree. They try hard to be smart about what they spend and save… building a college fund for their kids, paying off debts, and trying to stay on track to pay off the mortgage in 17 years. But if Eric or Megan should die unexpectedly those plans may never become reality. In fact, without Eric’s income, Megan wouldn’t have enough money to live on, much less save money.
And without Megan, Eric would be a single parent without a second income or time to work extra hours to support his family. So how can they protect the lifestyle they have today and their plans for tomorrow? One smart way could be Term life insurance. Typical term life insurance is available in set increments, such as 10, 20, or 30 years and the cost remains the same for the length of time you own the policy. A new kind of layered term life insurance can be personalized even further to fit each family’s unique needs. Right down to the year. The layers can be customized to each individual need, so you can make sure the things that are important to you are handled, such as paying off the mortgage or providing money for kids’ education or replacing income —and you only pay for what you need when you need it. For example, Eric earns an income of $65,000/year. If he dies any time before he plans to retire 30 years from now, he wants to be sure the household income can stay the same for at least 5 years, until Megan and the kids can get back on their feet.
He also wants to cover their mortgage of $175,000, and college for the kids—about $100,000 each. With traditional Term life insurance all these individual needs could be covered in a single $700,000 term policy for 30 years. Or, with layered term insurance, each separate need can be planned for in a single policy, for the exact amount and length of time it’s needed. This way, Eric & Megan’s family is protected for what they need, when they need it, nothing more and nothing less. And the payments decrease as the customized coverage layers drop off. Some term life policies require a medical exam as part of the application process, while others can be bought over the phone, without an exam.
With most term insurance, If you want more coverage later, you can convert your policy into permanent insurance that can last your whole life. Allstate offers two types of term life insurance, each designed around unique customer needs — from basic coverage to fully customized. Term Life Insurance? Find out if it’s right for you.
No Exam Term Insurance
No medical life insurance plans fall into 2 categories Guaranteed Issue Life Insurance – no medical tests and no health questions and Simplified Issue life insurance – no medical tests and generally 3 to 12 questions. As a rule of thumb the more health questions you can answer “no” to the higher the amount of coverage you qualify for and the better the deal. That’s where LSM Insurance can come in handy – we are no medical life insurance specialists with over 50 years of combined experience. We work with the largest most reputable no medical life insurance companies in Canada and can match you match you up with the best policy for your situation. A person who has a past history of heart disease or cancer should not be looking at same plans as a person with a perfectly clean bill of health.
Many people don’t realize that if they are declined for life insurance this can limit their options going forward. Don’t make a mistake that could cost you and your family thousands of dollars.
ROP Term Insurance
One of the biggest complaints I hear about term life insurance is that you pay into it over the course of 10-20-30 years and at the end of that period you have nothing to show for it other than the fact you were insured the whole way. What a lot of people don’t know is that there is a rider called a Return of Premium rider that allows you to get a return of your premium at the end of the period whether it be 10, 20, or 30 years. I wasn’t really quite familiar how this thing worked several years ago until I had a client ask me about it, so of course I had to do some homework. What I found was that if you’re going to get a Return of Premium life insurance rider on your life insurance policy, you have to pay more.
I have a post on the site that talks about the difference of the cost so you can see how much more you pay. The next obvious question would be is the Return of Premium rider on your life insurance policy worth it. From my standpoint, when I ran the numbers and figured if I just bought a basic term policy without the rider and took that difference and invested it, and as long as I averaged between 7% or 8% over the next 30 years, it was much more advantageous to do just that. Pay the cheaper term insurance without the rider, invest it, and you have more cash return to you at the end of the day.
Obviously there is no guarantee in that. The stock market has been doing a lot of this lately, so if guarantees are more suited for you then the Return of Premium rider might be worth it. If you do opt for the Return of Premium rider just know this: Number one, you’re going to be paying much more for it so you better be able to afford the out-of pocket expense. The second thing is that you have to keep it mostly the entire term of that policy, so if you have a 30-year policy, to get that 100% Return of Premium you have to have 30 years in it.
Permanent Life Insurance Policy
Universal Life Insurance is guaranteed to age 120 providing life long protection. As long as you pay the premiums, the death benefit will be paid. These policies are designed and priced for you to keep your entire life.
Premiums and the death benefit are guaranteed not to change over the life of the policy.
Of all of the different policies we deal with daily we do not know of any other policy that will guarantee coverage to the age of 120 for less.
Permanent insurance offers lifelong protection — as long as premiums are paid, coverage lasts as long as you live. If you pass away, the death benefit from a life insurance policy may help replace your income. In this way, life insurance can serve as a financial safety net for your family. There’s a customer who I’ve been working with for 19 years now.
When she first came to me, she was single and renting. Over time, she purchased her own place, got married, and had kids, so her insurance needs kept evolving. Over the years we helped her arrange life insurance for her and her husband. She started out with a term policy, which she later converted to a permanent policy. Her husband purchased his own permanent life insurance. Neither expected to have to rely on their life insurance, particularly while they were raising their family. But then, her husband passed away very suddenly. He was just 48 years old. Even during such a difficult time, the wife had to deal with immediate concerns, such as the funeral and its expenses. But she also had to think long-term about supporting their two children and paying the mortgage on her income alone. The proceeds from her husband’s life insurance policy helped. Having those funds meant she didn’t have to make any rushed financial decisions. She didn’t have to sell assets or go back to work before she was ready. She could spend some time with her kids, and take some time to grieve.
Do you want to get Life Insurance Policy Quotes? Here On InsuranceOnly.net you can get instant quotes online. We are here to help you get the best life insurance policy for you and your family.
Universal Life Insurance Policy
Let’s say you want to provide financial security for your spouse or family when you die—whenever that might be. Not your favorite topic I know, but hopefully, we can make an uneasy subject a little easier. If you know you want lifelong coverage, but still want some flexibility down the road, universal life insurance may be a good option. Universal life insurance offers a universe of options. It’s permanent life insurance designed to provide protection for the rest of your life while offering flexible payments and building cash value. Like equity in a home, cash value can be borrowed or withdrawn if you ever need it. Different types of Universal Life policies offer a variety of choice in how much you pay and how aggressive you want your cash value growth to be. Some policies offer greater potential cash value growth while others offer predictable returns. Universal life typically costs more than term life insurance in the early years of the policy. But as cash value grows, the amount you pay can be even lower than term insurance.
That’s because you can eventually use the cash value you’ve built to pay the policy premiums. For example, meet Ryan and Michelle. They’re in their mid-40s and have two kids in high school who are college bound. Ryan wants to make sure his family is taken care of if he dies. In considering permanent insurance, Ryan is more aggressive—he likes to see faster cash accumulation and doesn’t mind a measure of risk. Michelle, on the other hand, is more conservative—she prefers a slower, steady approach to growth and places the highest value on protection. If Universal Life sounds like it might be for you, there are several important factors you should consider: First, do you want your death benefit guaranteed for life? Some Universal Life policies guarantee the amount of life insurance coverage you buy at the start of the policy will remain the same throughout your lifetime—as long as the planned premiums are paid. This means that you’ll have coverage regardless of how your cash value performs.
Next, you’ll want to decide if you want predictable cash value returns or higher potential cash value returns that may involve more risk. If you want to be more aggressive, like Ryan, there are different types of Universal Life that offer greater cash value growth potential, but they also involve more risk. And finally, there are options called riders that can provide extra benefits for you and your family, allowing you to customize your plan to include unique things like “living benefits”—in case you get a chronic or critical illness and need your benefits sooner.
These days, it seems we use our phones for everything but phone calls. Today’s phones are our text messengers, calculators, books, planners, navigators, our cameras, music players, internet browser, stock traders, even our flashlights. Phones evolved to include so many other useful features because we needed them to, yet we still just call them phones. This same evolution by necessity has happened with other products over the years, and life insurance is no exception. When life insurance was invented way back in the 1600s, it was also designed to do one thing, to financially protect your loved ones when your life is over, and like phones, life insurance evolved because we needed it to.
With modern advancements in medicine, suffering a critical illness like a heart attack, stroke, or cancer diagnosis no longer necessarily means death, in fact 90% of people who suffer a heart attack these days survive that event. That’s where the new evolved kind of life insurance policy comes in, one that adds living benefits. Living benefits policies are essentially the smart phones of life insurance. They allow your life insurance policy to not just be a parting gift, but also provide the ability to accelerate the death benefit if you suffer a critical, chronic, or terminal illness. This ability can help save your financial life by unlocking a whole new list of ways to use your policy while you’re still living, and oftentimes it does all of this at the same price as the old kind of life insurance. Living benefits protect you, your loved ones, and your wallet, not only in case you die, but also in case you don’t. Two things always happen when you suffer a critical or chronic illness, your expenses go up and your income goes down.
When your expenses get higher than your income, that’s when debt begins to pile up. This is the exact trap that so many Americans are falling into every single day. In fact, 60% of all bankruptcies that occur in the US are the direct result of a critical illness and the medical expenses that follow. With living benefits, the policy holder has the option to accelerate a portion of their death benefit, to replace their income, and help with those added expenses. These benefits are the difference between just surviving the illness and having a life afterwards. And the best part is, they come at no extra cost to the consumer.
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