Life insurance is a contract that financially protects your family in the event the insured passes away. The insured selects one or more beneficiaries who collect the death benefit (money) when the insured is deceased. This check arrives when it is truly needed and is most often used to help pay for funerals, medical bills, mortgages, or toward college tuition. Term life insurance is the most common type of life insurance sold today. It is the most affordable life insurance sold.
What is Life Insurance?
Life insurance is a contract that pays a set death benefit when the insured dies. A life insurance policy is designed to give financial aid to the beneficiaries (spouse, children, etc) of the insured person.
Example: A husband may purchase life insurance so he knows his wife and children will have money available if he suddenly died.
While the life insurance market is flooded with options, choosing the right policy to fit your needs is easier than it seems. This process is simplified by breaking down life insurance into two basic types.
The two most basic types of life insurance are (1) term life insurance and (2) permanent life insurance.
What is Term Life Insurance?
Term life insurance is the most affordable coverage. Your life insurance pays the death benefit for the insured only if they die during that policy term. Your term policy is set for a predetermined amount of time. Typically these policies range from one to 30 years. Twenty years is the most common of the policy terms.
Perhaps the best advantage of having term life insurance is that the initial cost is substantially lower when compared with permanent life insurance. Your monthly premiums on term insurance are strictly to cover your death benefit. The premiums are not inflated to fund the life insurance with a cash value such as permanent insurance does. This death benefit is the lump sum amount paid to the beneficiary if the insured died during the course of the policy term. For example, a husband and wife may each buy a $250,000 term life insurance policy. This would give them each their own premium to pay, and they would each have a death benefit of $250,000.
Term insurance does not have the features found in permanent policies. A permanent life policy may include policy loan provisions and cash value accounts.
If you are on a restricted budget, then term life insurance might be the choice for you. It’s a great choice for young families and newlyweds. Individuals can buy very high levels of coverage during a time when protection is needed the most.
Term life insurance also offers a great benefit when covering family needs that will fade away over time. It depends mostly on the financial needs and goals of the insured.
Example: The applicant may wants to make sure their child’s education will be covered in the event the insured passes away. The insured would know if they were alive and working they would have an income to pay for college, but if they passed away, they know the extra money would secure the education. In this case, the applicant would want to buy a term life policy to cover an expected amount of time. A new parent might purchase a thirty year term life policy to cover a newborn’s college education as well as their future sibling’s education.
Permanent Life Insurance
Permanent life insurance is designed mostly for people with a large budget for life insurance as many permanent products are far more costly than term products. Whole Life and Universal Life policies are one type of insurance product that we sell for individuals looking for tax shelters or definitive ways to handle estate planning. While these products are substantially higher prices than term, some permanent products are moderately priced such as Final Expense products. For example, someone who is mostly concerned with having around $10,000 insurance available to assure a proper burial may want to shop a permanent policy.
Another permanent policy is Child Whole Life. For a few dollars a month parents or grandparents can get a small amount of insurance on their children. Besides the death benefit, you also provide the child with permanent life insurance. Provided the policy is always paid, the insured will always have life insurance. With the rise in diabetes and childhood obesity in our country, and all the other unforeseen conditions, it is a good idea to have at least a small amount of life insurance on on your children. Child Whole Life lets you lock in the premium on that healthy baby.