Purchasing life insurance can be one of the most important things that you can do for those you love. Oftentimes, when the unexpected occurs, those who are left behind can be left without the financial resources to go on.
In many instances, there are debts to be repaid such as funeral costs and other final expenses. Today, the cost of the average funeral can run $10,000 or more – an amount that many families just simply do not have available.
There may also be other debts as well. A mortgage, auto loan, credit card balances, and unpaid personal loans – and, with the potential loss of a loved one’s income, the payments of such debts can be made even that much harder.
This is why the proceeds from a life insurance policy can be so important – regardless of a person’s age, income, or financial status. The bottom line is that if you have people in your life that you care about, then the chances are that you will need life insurance.
Types of Life Insurance
While most people need at least some amount of life insurance, the type of coverage that is needed can vary, based on specific situations. Today, there are two primary forms of life insurance coverage that are available in the marketplace. These are term and permanent.
Term life insurance is considered to be the most basic type of life insurance that is offered. This is because term life provides pure and simple death benefit protection, without any other cash value or investment component attached to it.
Because term life provides death benefit coverage only, it is typically not as costly as a comparable permanent policy that provides the same amount of coverage along with cash value builds up.
As its name suggests, term life insurance is offered for a set amount of time – or “term.” These time periods may be for 5 years, 10 years, 15 years, 20 years, or even 30 years, depending on the insurance carrier, as well as the age and the health condition of the applicant at the time of application. Some term insurance policies, however, are known as annual renewable term. With these policies, the plan must be renewed each year. Typically, the amount of premium will also increase each year with each renewal.
In some cases, the insured will be able to convert their term policy over to a permanent insurance policy at some point during the “term” of coverage. Otherwise, once the term of coverage – and thus, the policy – has expired, the insured will need to re-apply for coverage if he or she wishes to remain still covered. At that time, due to the insured’s increased age – and possibly worse health condition – the premium will typically be higher than it was on the original policy. In some instances, if the individual has contracted certain health issues, they may not be insurable at all for new coverage.
There are other specialized term life insurance policies that are available on the market. For example, a decreasing term policy has a death benefit that decreases every year – even though the premium amount will usually remain the same. These types of policies will end when the amount of the death benefit reaches zero. A good candidate for a decreasing term life insurance policy could be someone who wants to cover the amount of their unpaid mortgage balance so that loved ones will not have to worry about paying the mortgage should the breadwinner pass away unexpectedly. With this type of coverage, as the mortgage balance decreases every year, so too does the amount of the life insurance coverage.
There is also increasing term life insurance coverage. Here, too, the amount of the premium will stay the same. However, the amount of the life insurance death benefit will increase. Those who typically buy this type of coverage could be individuals who anticipate additional life insurance needs in the future.
Still another type of term life insurance product is reentry term. With reentry term, the insurer will charge a lower amount of premium in the first few years that the policy is in force. This is because the insurance carrier has screened their applicants and has selected only those who are in generally good health.
In most cases, an insured will usually remain in good health for the first few years that a life insurance policy is in force. Then, over time, there are some life insurance policyholders who will drop their policies while there are others that are in poor health who will keep theirs. Therefore, to help offset this trend, insurance companies will build additional renewal charges into the policy’s later years.
Another type of policy that is often issued as a term insurance plan is credit life insurance. This type of insurance is designed to pay off an individual’s debt if they should pass away while they still have a balance. For example, this type of coverage may be offered by a credit card company so that the balance on the card will be paid off if the owner of the card were to pass away. The face value of the insurance policy will decrease as the debt balance decreases, and vice versa.
This type of coverage can help to protect a person’s dependents so that they will not be faced with additional debt balances to pay off should the unexpected occur, as this could present a long-term financial hardship to them.
Permanent Life Insurance
Permanent life insurance differs from term insurance in that it provides both a death benefit and a cash value component. As its name implies, a permanent life insurance policy is usually purchased and maintained for the remainder of a person’s life – provided that the premium continues to be paid.
In most cases, the amount of the premium is guaranteed not to increase. So, even though the premium may start out higher on a permanent policy than for a comparable term life plan, over time, the amount of the permanent life insurance premium could end up being quite a bit less.
Also, the permanent life insurance policy allows for the tax-deferred buildup of cash value. This means that there is no tax due on the funds in the cash-value component of the policy unless or until the policyholder withdraws this money. Therefore, these funds can essentially grow and compound exponentially over time.
The cash in a permanent life insurance policy is allowed to be borrowed and / or withdrawn for any reason – such as supplementing income, paying for a child or a grandchild’s education, paying off debts, or even for taking a nice vacation. And, these funds are not required to be paid back.
If, however, there is an unpaid balance in the policy’s cash value component at the time of the insured’s death, it is important to note that the amount of the death benefit that is paid out to the policy’s beneficiary will be subtracted by this amount. Therefore, if the beneficiary is counting on a certain amount of funds for paying final expenses, estate taxes, or any other type of debt with the life insurance proceeds, it is essential that either the loan or withdrawal be paid back, or the beneficiary be made aware of the unpaid balance.
There are several types of permanent life insurance policies that are available on the market today. These include the following:
- Whole Life Insurance – Whole life insurance is the most basic type of permanent life insurance that is available. With this type of coverage, the death benefit will typically remain the same throughout the entire life of the policy, and the cash value will be guaranteed a certain rate of growth. Some whole life insurance policies are allowed to share in the insurance company’s excess profits and are provided with dividends. The policyholder is not taxed on these dividends, as they are considered to be a return of a portion of the whole life insurance policy’s premium. A whole life insurance policies are considered to be “straight life” policies. This means that the premium payments will continue to be due until the insured reaches the age of 100, or they pass away – whichever occurs first.
- Universal Life Insurance – Universal life insurance is also a form of permanent life insurance coverage. With this type of coverage, the policyholder is afforded more flexibility than they have with whole life coverage. This is because they are allowed to change, within certain guidelines, the death benefit, as well as the timing and the amount of the premium payments. The policyholder is able to move funds between the two different sections of the universal life insurance policy.
- Variable Universal Life Insurance – Variable universal life insurance is somewhat similar to regular universal life insurance, except that in this type of insurance product, the policyholder can invest the cash value portion of the policy into various types of investments. There is also no guaranteed minimum cash value with this type of life insurance policy.
- Variable Life Insurance – Yet another type of permanent life insurance is variable life. These policies provide a death benefit, as well as an investment component. The death benefit on a variable life insurance policy can increase or decrease. However, the amount of the death benefit cannot fall below a certain guaranteed minimum amount of coverage. This is usually the original amount of death benefit that was purchased. The cash / investment value portion of the variable life insurance policy will allow the policyholder to take part in a variety of different investment options such as mutual funds. While this provides the opportunity for growth, it can also be quite risky during a market downturn.
How and Where to Obtain the Best Term Life Insurance Quotes
When seeking quotes for term life insurance coverage, one of the best ways that you can go about doing so is to work closely with an insurance agency or company that has access to more than one carrier. This is because when you do so, you will be able to make directly a comparison of multiple insurers in terms of their policies, their benefits, and their premium quotes, and then to determine which one will work the best for you – and for your budget.
If you are in the process of looking for the right term life insurance coverage for your specific situation, we can help. We work with many of the top life insurance carriers in the marketplace today, and we can assist you in obtaining all of the information that you require to make a more informed purchasing decision. We can do this all from your computer, and without having to meet with an insurance agent. When you are ready to move forward, use the form on this page to get a set of custom quotes.
Should you find that you have any more questions about term life insurance – or questions regarding life insurance in general – please feel free to contact us for any information that you require. Our experts are here to assist you in making the best decision possible for your specific coverage and protection requirements. We can be reached directly via phone, toll-free, by calling 877-235-9299.
We understand that purchasing of term life insurance can require a good understanding of what your protection needs are, as well as a knowledge of the type of coverage that you need. If you aren’t sure of all the answers, you have an ally on your side. We will assist you in coming up with the answers that you need prior to moving forward, so that you are more assured that your loved ones will have the protection that they need when they need it. So, contact us today – we’re here to help.