Life Insurance

Are you protecting what’s most important?

Life insurance can provide a financial payment to your family and loved ones upon your death. When you purchase a life insurance policy, you name a beneficiary who will receive the death benefit specified in the policy upon your death. You can name either a revocable or irrevocable beneficiary. Regardless of the type of beneficiary you name, your beneficiary will receive the death benefit tax-free.

You may also choose to leave the money to your estate or a trust. However, if you leave the death benefit to an estate or trust, it will be subject to taxes when the estate is settled. There are two main types of Life Insurance: Term or Permanent.

Term Life insurance provides coverage if you die within a specific period of time unless you do not pay your premium. Term life insurance premiums are generally less expensive than permanent life insurance premiums. Premiums are usually fixed for the length of the term, often at intervals of ten or twenty years. However, your premiums may increase when you renew the policy. Most life insurance policies will only cover you up to a maximum age – usually age 85.

The death benefit is paid if your death occurs during the term or duration of the policy. For example, your policy will pay the death benefit to your beneficiary if you die before the policy expires. However, once the term ends, the coverage ends, and you or your beneficiaries will not receive any payment. Most term insurance policies do not accumulate a cash value. This form of life insurance is worth considering because it is your most cost-effective way of owning life insurance and is primarily used for short-term or temporary needs such as covering a mortgage.

Permanent Life insurance provides coverage throughout your lifetime unless you fail to pay your premiums. At first, premiums are usually higher than for term life insurance policies, but will then be lower than term premiums in later years.

Permanent life insurance policies generally accumulate a cash value that is either added to the face value of your policy and paid out upon your death or returned to you if you cancel your policy. Most policies will also allow you to take a loan against the cash value of your policy. Loans that you have not repaid reduce both the death benefit and any cash value. The two most common types of permanent insurance are whole life and universal life policies.

- Whole life insurance is a type of permanent life insurance that guarantees the amount of your premiums. Your premiums will not change as you get older, and your policy will often have a guaranteed minimum cash value. As well, a portion of your cash surrender value (CSV) will be fully guaranteed, and in some cases, your entire CSV will be guaranteed contractually. The death benefit, or the amount paid out upon your death, is also guaranteed.

- Universal life insurance is a hybrid or “happy medium” between term life insurance and permanent life insurance. You still have a fully guaranteed death benefit and cost of insurance, but in this case, you have the ability to take advantage of investing your money inside a life insurance policy and earning tax-deferred interest at the same time. In other words, you control how much coverage you own, how much of your money you invest each month or year, and even how your money will be invested once inside this policy. This is great for those looking to protect their hard-earned money from having to pay more taxes on the interest you earn. A simple analogy is to consider Universal Life Insurance as a way of keeping “money under the mattress” while still earning tax-deferred interest at the same time.

Should I Buy Term or Permanent Life Insurance?

Term life insurance and permanent life insurance are two very different kinds of protection. Choosing between term or permanent insurance will depend primarily on your short and longer-term needs and preferences for flexibility and risk.

Term may be all the insurance you ever need, or it may be used as an interim step before purchasing permanent insurance. Possibly, a combination of term and permanent in the same policy may be the best solution for you. When examining permanent solutions, be aware that they can be in the form of participating or non-participating permanent coverage, or universal life insurance.

Your individual needs must be considered and prioritized before making any decisions. I can help! Contact me today to help you determine your needs and decide which product is best for you.