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Life doesn’t stand still. Neither do your life insurance needs. If you already have a policy now is a great time to review your current coverage. And, if you don’t have life insurance it’s a great time to access your needs and look at the options. Life insurance is one of those “someday” things for many people – but the cheapest time to buy it is probably today.
Insurance Basics
First let’s review things you may not know about life insurance, such as:
Policies differ widely. Term life insurance pays out a death benefit if you die within the specified period, often 20 or 30 years. Because it only pays for untimely deaths, it is less expensive. Permanent policies, whole or universal, cost more than term insurance because they cover the insured during their entire life (as long as premiums are paid) and include a savings component.
Whole life offers a guaranteed cash value and fixed premiums. A universal policy allows you to change the death benefit and to increase, decrease, or stop premiums (provided you maintain a sufficient cash balance to cover the insurance cost). You can take a loan or a withdrawal from the cash portion of both permanent policies.
People overestimate costs. Most people think life insurance costs much more than it does. Particularly if you purchase a policy when you’re young, term insurance can be surprisingly affordable. On average, a 30-year-old male can get a $500,000, 20-year term life policy for around $225 a year. Even if he waits until turning 50, the average policy is only $828 a year. Costs are even lower for women.
You may qualify with health conditions. Many people assume they can’t get life insurance if they have a pre-existing condition. This is often not the case. Although extra screening might be required, and you may pay higher premiums, we still may be able to get you the coverage you need. However, providing proof that a condition – such as high blood pressure, high cholesterol, or anxiety – is being managed effectively can improve your risk assessment.
Riders can add options. Riders are additional benefits that can be added to a basic policy. Many people don’t recognize how versatile a tool insurance can be within a typical financial plan.
Some commonly available riders are:
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- Conversion Options: Allows you to convert to a permanent policy during a specified period without proof of insurability
- Long Term or Chronic Care Rider: This allows you to access a portion of the policy’s death benefit every month to pay for long-term care expenses.
- Accelerated Death Benefit. If you’re diagnosed with a terminal illness, you can get part of the life insurance proceeds while you’re still living to help with healthcare expenses. And if you leave the policy in place, your loved ones would still get something when you eventually pass on.
- Additional Purchase Option. This allows you to permanently add more insurance later without having to prove your continued insurability.
- Waiver of Premium. If you become temporarily unable to work and can’t afford your premiums, this allows you to stop paying premiums until you’re back up and running.
- Return of Premium. This policy allows for a sort of refund if it goes unused. If, by a certain pre-determined point in the future, the policy hasn’t paid a death benefit, it can be cancelled and the payments returned to the owner.
- Term Insurance. If you have a permanent cash value policy, and have a temporary need for a fixed amount of additional coverage, this allows you to add more term coverage to your existing policy for a specified period, potentially saving you the time and additional costs associated with purchasing a separate policy.
You Don’t Currently Have a Policy – how do you find out if you need insurance and which type of coverage is right for you?
The way to find out is to look at where you are in life, so that you can assess your current insurance needs. Consider the following potential factors that may make it a good idea:
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- You have a spouse or partner
- You have children
- You are a parent of a special needs child who may need additional support into adulthood.
- You have an aging parent or disabled relative who depends on you for support
- Your household depends heavily on your income
- Your retirement savings or pension won’t be enough for your spouse or partner to live on should you pass away
- You own a business, either solely or with partners
- Your Estate will have an estate taxes due upon your death.
- You have a substantial joint financial obligation, such as a personal loan for which another person could be legally responsible after your death
In any of these circumstances, you may require life insurance.
Life insurance is intended to help your loved ones financially after you die. The proceeds from a life insurance policy may help your spouse, partner, or family members manage finances if they have to adjust to life without your income. The death benefit may also be used to meet funeral costs and other final expenses, which may run into the tens of thousands of dollars
You Have a Policy – Let’s Look at Your Current Coverage
If you have a policy and haven’t reviewed it lately, you may be surprised to discover that what worked for you then may not meet your needs now.
Here is how to do a quick review to know what you need:
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- Determine the Appropriate amount of coverage: There are two approaches, my preferred method is to calculate the amount of income that needs to be replaced and for how long. Contact me for a quick calculation. Another method is called the DIME method – add Debt, ten years of Income, Mortgage payoff amount, and the cost of your children’s college Education if it applies to you.
- Type of Life Insurance – Do you need term life insurance (life for a fixed amount of time), or whole life insurance, a policy that lasts your whole life?
- Cost of Life Insurance – The price of a policy depends on your age, health, and the amount of coverage in the policy. There are many online calculators that can help.
These methods will give you a rough idea of what you need. But nothing can replace speaking with your insurance agent to get your life where it needs to go.
If you are still unsure about buying life insurance, or you suspect that your current insurance coverage needs to be updated, please contact me. I will be happy to assist you in evaluating all the factors and help you choose an appropriate policy. As always, I am here to help!
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