It’s a subject no one wants to think about– which leads to procrastination. But if you have people who depend on you, it’s a discussion you should have sooner rather than later. If tragedy strikes, life insurance proceeds can:
- Pay for funeral costs
- Help pay the bills and meet ongoing living expenses
- Pay off outstanding debt, including credit cards and the mortgage
- Continue a family business
- Finance future needs like your children’s education
- Protect a spouse’s retirement plans
Life insurance comes in many shapes and sizes… there is no one size fits all approach to finding the right policy for you, your family or your employees. The two basic types of life insurance most commonly recognized are:
- Term Life: Most affordable option because it provides coverage only for a set number of years (i.e. 10, 20 or 30 years) and it does not build any cash value. Some examples of scenarios where a term life policy might be the most appropriate include a father who wants to ensure his family’s mortgage can be paid off in the event of his death or a recent college graduate who wants to protect her co-signors by ensuring her student loans can be paid off in the event of her death. Since both of these have set time periods (i.e. 30 years for a mortgage or 10 years for student loans), a 30 year term or a 10 year term life policy would be most fitting.
- Whole Life: Typically more expensive than term life because these policies build cash value tax deferred with interest rates typically earning more than the average savings account. Whole life is permanent life insurance that will cover the insured well into old age if not for the rest of their life.
A few lesser known types of policies that also make wise investment sense include:
- Juvenile Life: Life policies that are purchased for minor children, normally can be purchased by parents or grandparents. These can be term or whole and many will convert or double face value upon the child’s 18th or 25th birthday. Depending on the type of policy purchased, these can be used for college savings or a first home down payment.
- Annuities: Annuities are purchased with the purpose of providing not only a death benefit, but of building interest tax deferred in order to provide a steady stream of income upon the insured reaching retirement age.
- Final Expense: Life policies that are typically purchased by those nearing retirement age that are intended to cover the costs of burial and extraneous expenses to alleviate the financial burden on loved ones. Since these are intended for older Americans, many are guaranteed issue with no medical underwriting, but may have a waiting period to satisfy in order for death benefits to be payable.