Life insurance is for those of us who want the peace of mind knowing that when we die, our loved ones won’t need to worry about paying the bills. Life insurance is for the benefit of others, not ourselves and purchasing it is the most unselfish thing that anyone will ever do for their family. Understanding life insurance can be complicated and sometimes overwhelming to figure out. Simply stated, term types of policies have a specific time frame for temporary needs such as meeting a mortgage or your children’s education. Whole of life or universal life insurance is for the person wanting to cover more permanent insurance needs and additional benefits, like long term care, critical illness, permanent total disability, estate taxes or leaving a legacy for their family for example.
We work with people and companies every day who struggle with these issues and fret over which type of coverage is best for them. We often come across people and corporates who say they do not believe in life insurance unfortunately they leave dependants who wished they did. Protection planning makes things so much easier for the people we leave behind. The extra worry and stress of selling assets and consolidating other financial matters so soon after a death can be agonizing for our loved ones this is one of the main reasons why we should consider life & protection insurance.
If you have ever priced life insurance policies, then you have discovered that permanent insurance (Whole of life) costs more than term and much depends on the age of the person and their health. Since they both result in paying a death benefit that you select, why is there such a difference in cost? There are several reasons.
1) Term is less expensive but it is designed to last only for a specific period in your life. No cash value builds up within the policy. No extra money going toward a “slush fund” means the premiums are lower. You may ask, “Why pay more than I have to?” Unfortunately, you may find out why when you’re short on money at a time when you need it the most and the premium is due. A permanent policy may have enough cash value to allow you to retain coverage without making a premium payment right now. Permanent policies are often called universal life insurance and whole life insurance, although there are also variations of each.
2) Term insurance policies don’t pay out death claims at the same percentage as permanent policies because coverage may end prior to death. A permanent policy is just that, permanent. A term policy may end at age 60, but the insured dies at age 65…with no ability to file a claim. A permanent policy would have paid a death claim to the beneficiaries of the 65-year-old. In fact, many newer policies don’t endow (jargon for when the insured gets paid the death benefit, even if alive) until age 120 – talk about high hopes for our life expectancy! Not to confuse you any further, but a permanent policy can lapse, resulting in no coverage. We’ll leave that topic for another day.
So how do you choose an insurance policy? It depends on your needs, circumstances and budget. Having an Insurance coverage audit on any existing plans will help you determine if it is cost effective to purchase a replacement policy. Getting insurance quotes is just the start. Obtaining competitive life insurance quotes online is easy enough, but the key is to find someone you trust, who is also a licensed insurance agent. They will take the time to educate you on your choices and help you make a well-informed decision that is just right for you. Buy a life insurance policy that fits.
Calculating Life Insurance Needs
How much life and/or protection insurance do you need?
Think about Your Goals
The first step to finding out how much insurance you need is to think about your goals for life/protection insurance. Think about what would happen if you were to die or become ill unexpectedly.
- Do you have a mortgage or other debts that you would like paid off?
- Would you like to make sure that someone who is financially dependent on you (i.e., a spouse or child) has enough income if you die or fall permanently ill?
- Would you like to make sure that a child has enough money to go to college?
- Do you have enough in assets set aside to cover your final expenses, such as funeral and final medical expenses? If not, would you like to provide some money to cover these expenses for your family?
- Do you have any other goals for friends or family or charitable organizations for which you would like life insurance to provide a benefit?
- Is your net worth large enough that there may be substantial estate taxes when you die? Do you have cash to cover these taxes or are your assets mostly in property such as a farm or small business that you would prefer that your heirs not have to sell?
If you find that you answer “yes” to any or all of these questions, then you may want to think about buying an insurance policy. The next step is to apply a dollar amount to each of these goals.
Paying Off Debts
To ensure that your family has enough money to pay off your debts, the easiest way may be to buy a insurance policy that will pay a benefit equal to the amount of your current debts. If, after you buy an insurance policy for this amount, you find that your debts have decreased, then you may want to periodically lower the amount of your life insurance or keep the policy and use it to cover funeral and other final expenses as well.
Want to contact a member of our team?
Our aim is to provide you, our customer with good honest and ethical advice. Our team will do its utmost to ensure you have a professional and swift experience with consistent ongoing service.