September is Life Insurance Awareness month. Unfortunately, in the financial planning business, I experience untimely deaths of client and client’s family members all too often. One thing is certain, if you have a spouse, children, or anyone in your life that you care about, life insurance is not optional, it’s mandatory. Whether it’s with me or a simple online policy that you take out, please, make sure that coverage is in place so that your loved one’s don’t have to sell the house in addition to dealing with the grief of losing a loved one. It’s exponentially worse when you also must turn your life upside down because there now isn’t enough to cover your daily expenses. In this blog I’m going to give you a brief overview of the different types of insurance available as well as some facts and statistics you might not know about.
Term Life – Term Insurance is the simplest form of life insurance. It will buy you the most amount of coverage for the least amount of premium, however, it’s a rental. For example, if you purchase a 20 year term policy and you live a long, happy and healthy life the coverage goes away. While some offer a return of premium feature, I typically find the extra money you pay for the feature can be better used elsewhere so you are liquid. Term life is perfect when the budget may be tight and provides the proper coverage for a spouse, ensuring you children’s education is still covered and that the mortgage can continue to be paid.
Whole Life – I have heard people say whole life is too expensive. I think that simply depends on how you define “expensive.” Premiums are much higher than Term Insurance, but in addition to the life insurance benefit, whole life builds cash value on a tax free or deferred basis inside the policy that can be accessed. I have had many clients utilize this feature when they were in a cash crunch. Others use it routinely to save for education. Whole Life (and some other types of insurance) also offer the ability to accelerate the life insurance benefit or add a long term care rider should you have a medical event.
Universal Life – Universal Life comes in so many forms that it would need its own blog. I will cover the two most popular I see today. Guaranteed Universal Life, or GUL, should be thought of as a permanent term policy. While some cash value builds inside the policy, the policy typically eats that cash as you get older, and the cost of insurance goes up. There is a fixed premium and as long as you pay that premium on the scheduled basis the death benefit is guaranteed for life. Indexed Universal Life, or IUL, is intended more as a cash value build up. IUL’s are tied to several different market indices, most commonly the S&P 500, and the cash value can fluctuate based on market performance. While good markets can make the premium unnecessary to pay at times, you need to be aware of what bad markets can do. However, there are many good IUL’s on the market today that provide caps and floors and make these safer than in the past.
Here are a few other things to think about:
Cost - Surprisingly, the cost of life insurance has come down over the years. As we continue to live longer, actuarial tables have changed which have bought premiums down from where they were 10 or 20 years ago. If you have an old policy, it may be worth exploring if there are better options on the market for you today.
Beneficiaries – Your will does not trump the beneficiary on a life insurance contract. It’s so important to review who you currently have listed as well as continue to adjust your beneficiaries if you have a growing family. In addition to having a primary, you always want to add contingent beneficiaries that will step into the contract should something happen to your primary beneficiary.
All too often we hear of someone passing away unexpectedly. As many of you know, I run a charity golf outing for a good friend of mine every year. We were coaching baseball practice on October 6th 2020. On October 7th he was gone. According to LIMRA’s 2021 “Facts about Life” study, only 52% of Americans have life insurance. That number is far too low. Without life insurance, your financial plan is not complete. I ask all of you, if you don’t have life insurance currently and you have someone that you care about, get life insurance. Whether it’s through me, online or through work, put the coverage in place that’s necessary for your loved ones. If this blog has generated more questions don’t hesitate to pick up the phone and call me. As always, please share this with anyone you think it may help.