Life Insurance, What Plan is Right for You?

Which Life Plan  is Best for Me?

Most people have insurance coverage on their home or car to help cover losses from unexpected events, but they often neglect to provide the same protection for their lives. The purpose of life insurance is to help surviving family members maintain the standard of living they are accustomed to if a family member dies, as well as provide funds to help pay funeral costs and out-of-pocket medical expenses associated with a death.

To maintain a standard of living for the surviving family, people may not realize that they must replace a large percentage of the primary wage earner’s salary. In addition,  when a stay-at-home or unemployed spouse dies, life insurance is needed to help the family adjust to costs that may not have been necessary previously, such as child care, housekeeping, lawn care, and meal preparation. Insuring an unemployed spouse is equally as important as insuring a primary wage earner. In order to determine the need for life insurance, individuals need to ask themselves these types of questions:

1. How would their loved ones make it financially if they were no longer with them?

2. Would there be enough money for everyday living expenses, such as mortgage
payments, food, and outstanding debts?

3. Would there be enough money to pay for final expenses, such as funeral costs or
outstanding medical bills?

4. What about their dreams for the future? Would a child be able to attend college, or a spouse retire comfortably?

Life insurance helps provide financial protection to surviving family members when a death occurs. The death benefit may provide enough money to pay off outstanding obligations and help fulfill future financial dreams.  Surviving families may be able to use some of their remaining assets as a source of income, although time can play an important role. It takes time to liquidate many types of assets, such as real estate and business interests. But families often need immediate cash.

The availability and amount of other funds, such as Social Security benefits, depend on the ages of the children and spouse at the time of a wage earner’s death. Social Security benefits are not available during certain periods referred to as “blackout periods.” During a blackout period, if there are no dependent children present in the home and the spouse has not yet reached age 60, there will be no Social Security income payments.

In comparison to these other sources of income for a surviving family, life insurance guarantees an immediate, dependable benefit following the death of a wage earner. It helps ensure that an individual’s loved ones are not saddled with debt or forced to sell assets to pay outstanding bills or taxes upon his or her death.

Term vs Permanent Insurance:

Term is life insurance that is for a specific amount of time, usually 10, 15, 20 or 30 years.  When the term is up, the insurance ends.  Some allow renewals and some allow conversion to permanent insurance.

Permanent Life insurance covers an entire life.  As long as the premiums are paid properly, then the insurance will pay a death benefit when the insured dies.

Term Life Insurance:

life insurance which provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments and/or conditions. If the insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is the most inexpensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis.

Whole Life Insurance:

A permanent insurance policy that lasts for the “Whole” life of the insured.  Like term insurance, the premiums are guaranteed to remain the same for the life of the policy.  Unlike term insurance, Whole Life policies also gain a guaranteed cash value as the policy ages.

Universal Life Insurance

Universal life insurance is a flexible-premium, adjustable death benefit life insurance policy that accumulates cash value. The flexibility of this policy allows policyowners to change the amount of insurance as their needs change. (Some changes require underwriting approval.)

Universal life insurance offers the best of two worlds: a set amount of coverage with flexible premium/adjustable death benefit options, and a tax-deferred, cash accumulation account based on current interest rates.  A universal life policy’s projected cash value may change over time due to fluctuations in interest rates, changes in the cost of insurance, non-payment of premiums, or certain policy changes. These changes may cause the policyowner to pay additional premiums to keep the policy in force. Policyowners should be encouraged to maintain consistent premium payments and repay any outstanding loans in a timely fashion to help avoid an early termination of coverage.

Universal Life has a cash-value that fluctuates with the equities markets, which means the value of the cash-value is at risk.

Indexed Universal Life:

Indexed universal life insurance policies are cash value life insurance products that are tied to a specific stock index — such as the S&P 500 — and provide returns based upon a formula that is tied to market performance. These policies often come with both an earnings cap and an earnings floor, so that, for example, the policy might earn no more than 10 percent, but no less than two percent, meaning that the policy can continue to grow even in an economic downturn.

Some of the key IUL benefits are:

  • Cash value grows when market goes up, but does not participate when the market goes down.  Money is safe.
  • Cash grows tax-deferred.  Distributions are tax-free.
  • Premiums are flexible.  Can send less or more premium.
  • Has living benefits such as critical care, chronic care, and terminal benefits.
  • This is the basic vehicle of the FLA(Flexible Lifetime Account).   Check it out here.