It’s time for your life insurance checkup…
September is National Life Insurance Awareness Month, so it’s a great time to review your coverage.1 However, for many, life insurance can be a complicated subject to understand.
Let's start with the basics…
What is life insurance?
Life insurance is an agreement between you and an insurance company that the company will pay your beneficiaries a tax-free benefit if you die within the conditions of the policy.2 Life insurance is intended to help your loved ones financially after you die. The proceeds from a life insurance policy may help your spouse, partner, or family members manage finances if they have to adjust to life without your income. The death benefit may also be used to meet funeral costs and other final expenses, which may run into the tens of thousands of dollars.
There are two main types of life insurance: term and permanent.2*
In addition to the two main types of life insurance, permanent life insurance can be broken down into a few additional categories. See more details in the chart below3*:
- Term Life Insurance: Term life insurance provides long-term, but temporary coverage, most commonly 10, 20, or even 30 years. If you die during the covered period, the policy will pay your beneficiaries the amount stated in the policy. However, if you should outlive your contract, your policy will no longer have any value.
- Permanent Life Insurance: Permanent life insurance policies cover you until you die and build cash value as they age. You can use the cash value of your life insurance while you’re still alive: you can borrow from it, make withdrawals, or even surrender the policy and take the value currently in the account.
- Whole Life Insurance: Whole life insurance policies offer guaranteed payouts, potential cash value, and fixed premiums. However, whole life premiums are generally much higher than other life insurance premiums.
- Universal Life Insurance: Universal life insurance also provides permanent coverage but provides more flexibility than other policies. Universal life policies allow you to choose your payment amount, depending on your finances or how the investment account performs.
- Indexed Life Insurance: Indexed life insurance, also known as indexed universal life insurance or IUL, is a type of universal life insurance that puts investments into index funds. IUL policies are more complicated than plain universal life policies, often including caps on returns and complex fee structures.
- Variable Life Insurance: Variable life policies are even more flexible and complex than IUL. These policies allow policyholders to invest in many other channels to try to increase their returns. However, those investments come with a lot more risk.
Are you still unsure about buying life insurance, or do you suspect that your current insurance coverage needs to be updated?
CONTACT US and we will be happy to assist you in evaluating all the factors and help you choose an appropriate policy.
1. Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
*Note: A permanent policy's cash value can be used to pay premiums, or may be accessed via loans or withdrawals. Policy loans and withdrawals will reduce cash values and death benefits, and may cause the policy to lapse. Additional premium payments may be required to keep the policy in force. Withdrawals may be subject to a surrender charge. Withdrawals and any unpaid loans are subject to ordinary income tax and, if taken prior to 59 1/2, a 10% federal additional tax.
**This rider comes at an additional cost.
***As long as your premiums are paid on time.