Sue was 20 years younger than her husband. She and Ed had two wonderful boys, ages eight and 10, owned two successful businesses and life was good ... until Sue suddenly, literally overnight, found herself a 46-year-old widow. It was too late to figure out they had messed up when they decided the year earlier not to get life insurance because it was just one more expense they didn't really need ... besides, talking about it made Ed uncomfortable and Sue was young enough to work and support herself in case the unthinkable happened.
Only the unthinkable was now reality and Sue was stuck trying to figure out how to pay the mortgage on half the income.
Talking about life insurance can be uncomfortable, because it makes you think of your own mortality. Nevertheless, it's an important discussion that can mean the difference between comfort and poverty for your loved ones.
Life insurance is one of those "we can do without" expenses that, when you really need it, you really need it. One of the things hindering people from actually buying life insurance has little to do with the expense and more with the problem of wading through all the different types offered, especially when the people trying to sell you insurance are the ones confusing you. So, here's an objective look at different types of life insurance to help you in making the decision on which type fits best, with the help of Insurance Finder. It's impossible to cover everything in a few articles, and things change all the time; if you have more questions, you contact your insurance agent, now armed with objective information. Today, a look at basics.
First of all, exactly what is life insurance? It's not about you, that's for sure. At its base level, it's insurance benefiting those you leave behind when you die, nothing more. Life insurance companies have added some investment-grade products that allow you, to use your insurance as a savings plan as well as providing coverage for your beneficiaries.
There are three basic types of life insurance: term, whole and universal.
Term insurance is the most basic; Jack, a retired school teacher from Albany, NY, calls it "old time-y life insurance." It's straightforward insurance, as well as being the least expensive. You pay only for what you need, for a specific period of time. There's no savings involved and if you die during the term of insurance (10, 20 years, until the mortgage is paid off, until the kids are out of school, etc.), your beneficiaries will receive the face value; a $50,000 policy will pay out $50,000.
Typically, term insurance is the least expensive; most of those "50 and older" life insurance commercials you see are term policies. Your term policy should be enough to cover any debt you might leave behind, education for dependents, funeral costs, the cost of your home, if you're leaving behind a spouse who hasn't worked in a long time. You choose the end of the term; some choose a term policy that ends near their retirement date, with the idea they've saved enough to cover all the responsibilities they'll leave behind. Others purchase a term policy with the idea of keeping it until they're gone, providing not only for their expenses and some additional for their loved ones, but also some for their favorite charities.
The main issue with term insurance is that if you purchase a term policy without a renewal, you might have to prove you're healthy and insurable, that the likelihood of your dying in the next year is slim.
The best option for a term policy is called a "guaranteed level premium term life insurance." Premiums are guaranteed to remain the same for a set period of time, up to 30 years. Premiums are paid each year (or month-to-month with automatic withdrawals from your bank account) and don't expire unless you stop paying or the term ends. These premiums are higher than a base term policy because the risk the insurance company will have to pay out grows as you age. The price increases that would have happened when you're older are added with the lower cost in your younger years and then averaged over the length of the policy.
Most term policies allow you to change over to a universal life or whole life policy at the same rates as the term policy. Why would you want to do that? If you're younger and are diagnosed with an incurable disease, the change has the potential for a higher payout in a shorter period of time.
Think Sue's situation can't happen to you? Unforeseen circumstances happen every day and life can change in the blink of an eye. Today's the day to talk to your insurance agent about whether you have adequate life insurance coverage and what your options are.
Tomorrow, we'll look at whole and variable life insurance.
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