For many people, life insurance can seem complicated, so let’s break it down. Life insurance can be used to cover your expenses and replace your income in case of death. Two important reasons to purchase life insurance policies are to cover debt, including student loans or a mortgage, or to help you secure your family’s financial future without you. The typical recommendation is to cover seven to 10 times your annual income; however, that may vary based on your circumstances.
There are two main kinds of life insurance: permanent and term. Permanent insurance is designed to protect you for your entire life. The types of permanent policies include whole life and universal life.
A whole life policy accumulates cash value, which you can access during your life to help purchase a home or pay for emergency expenses.
Universal life insurance is similar to a whole life policy in that it provides lifetime coverage and can accumulate cash value, but it offers more flexibility with premium payments and plan design.
Term insurance, as long as you pay the premium, remains in effect for a period of time that you select — 10, 15, 20 or 30 years — and pays a death benefit if you die during that term period. Term insurance allows you to buy a lot of coverage for a smaller amount. The drawback is that, more than likely, you’ll live longer than the term. Term insurance is temporary coverage. Also, unlike permanent life insurance, term insurance does not accumulate cash value.
What’s most important to remember about life insurance is that in the event of your death, you have enough coverage to support your family’s lifestyle. There are ways you can achieve that within your budget and your goals.
For example, if you determine you should have $1 million in life insurance coverage, you might want permanent insurance in place to accumulate cash value and establish some lifetime protection, but purchasing $1 million in permanent insurance could be expensive. Maybe you can afford a $250,000 permanent policy and then fill in the remaining gap with term insurance, which has a lower premium. In the future, your financial situation may be different, and you could then afford more permanent coverage. Another way to protect your family is to opt for a term policy that is guaranteed to be convertible to permanent coverage. Additionally, you could investigate options with universal life for more affordable lifetime protection.
It can take some time to figure out what’s right for you and how to protect yourself and your family. MTA members may reach out for guidance to Tom Colbert of Vista Financial at 888-646-1972, ext. 104, or email [email protected].
