Call 607-734-8799 To Discuss Life Insurance
Choosing a Policy
Here’s where it might get confusing. There are many types of life insurance policies you can choose from. Some are expensive, some are not. Some are designed for short term, other for long term.
I suggest you carefully look at your own situation and determine an amount you can afford to pay to a policy. You don’t want to regret a decision or find yourself in a position where you cannot afford to keep paying for a policy that is out of your price range.
To qualify for life insurance, you will need to prove how healthy you are. A fairly extensive application is used which asks all about your medical history (past illnesses or surgeries) and current medicines taken. If you are a healthy person you should qualify for a better rating (how much you will pay) than if you have some health issues. Family history (heart disease, cancer, blood pressure, diabetes, etc.) is also taken into consideration.
This is the least expensive and, in my opinion, the best option for most young people. When you buy term insurance you are basically buying protection for a limited period of time. Ten years, 20 years, etc. This is best used to protect a mortgage payment or other loan you may have. It is also wise to protect your income if you have dependents (children, spouse, parents) counting on you.
I compare term insurance to renting a car. You rent the car and pay for it as long as you need it. Once you no longer need the car you turn in the keys. You get nothing back (no refunds!). Term insurance is the least expensive option and you can get a sizeable death benefit. So my suggestion is to buy as much term as you need and make sure it can fit into your monthly budget. Don’t buy something you cannot afford.
Example - a $250,000 20-year term policy will cost:
- for a 30 year-old male about $14 a month
- for a 40-year-old male about $21 a month
- for a 50-year-old male about $44 a month
As you can see, the older you are, the more the insurance will cost. (female rates are usually a few dollars per month less than male because their life expectancies are longer).
Many employers may offer life insurance to their workforce. This is a nice benefit. But once you leave (retire, resign, disability, termination) you lose the life insurance, in most cases. I always suggest having control by having life insurance of your own.
+Permanent / Cash Value Life Insurance
Whole life is a type of policy that pays a death benefit and builds cash value for you. The death benefit remains for the lifetime of the policy, which often is age 100 (as long as you pay the premiums). The price never changes even as you get older.
The cash grows inside this policy at a fixed interest rate (and is usually tax deferred until you take it out). This growth is relatively slow for the first few years, but over time it can provide a nice nest egg that can be used during your retirement years. There may be a feature that allows you to borrow this money (hey, it’s your money so you are borrowing from yourself), which can be paid back over time.
Some policies also pay annual dividends. Dividends are basically a return of your premium. They can be used:
- to pay future premiums
- to increase the death benefit
- to build up inside the policy and earn interest
- to be returned to you in cash
Back in the mid-1980’s when interest rates were in the 15-20% range, insurance companies introduced this new type of policy. Similar to whole life, it is a combination of death benefit and a cash value account. With this type of policy the interest rates can change (usually on a quarterly basis). So, when inflation and interest rates are high, you can realize a nice rate on your money that is building up inside the policy. When rates are lower (our recent history) rates of return are not so good. Thankfully, there is a guaranteed minimum that protects you when rates are at rock bottom.
Universal life can be very flexible. While you continue to have a death benefit, you may be able to increase or decrease your premium payment based on your current financial situation. You could make minimum payments if you are in hard times. Or you could add large sums of money up to certain limits if you want to increase the cash buildup (up to certain limits for tax purposes)
This is similar to Universal life, but the cash value amount is invested among various investment options such as stocks and mutual funds. Depending on the amount of risk you are willing to assume you can realize significant returns or nothing at all.
Ok, which insurance should you buy?
Dave Ramsey, a financial guru and national radio talk show host, strongly suggests you buy term insurance and invest the rest of your money in stocks, real estate or mutual funds. While I agree with him for the most part, there are situations to consider when choosing your plan.
- Buy Term: When you are young and don’t have a lot of money saved yet, you need to protect your family if you die. It is crucial to think of life insurance as just that: a death benefit.
- Buy Term: When you need life insurance for a specific period of time, such as covering a mortgage or student loan.
- Buy Permanent Insurance: If you have a medical condition that may prevent you from qualifying for insurance in the future (This is where you might be able to convert an existing term policy to a permanent plan before the policy term expires.)
- Buy Permanent Insurance: If the majority of your financial obligations are taken care of and you want to leave a death benefit to your family for funeral expenses.
- Buy Permanent Insurance: If all of your financial obligations are met and you want to invest assets into a cash value plan that increases over time.
Money Saving Options
- The younger you are the better price you will get
- The healthier you are the better price you will get
- In term policies, you will pay less if the time period is less. For example, if you need to protect a 20-year mortgage, don’t buy a 30-year term policy. Twenty years is more appropriate.
- Don’t buy accidental insurance or travel accident insurance, even though it’s usually inexpensive. If you really need life insurance, buy life insurance that covers you for all circumstances accidental or natural.
- Shop the internet. It’s really easy to explore for yourself, but:
- Buy from an agent. Have a discussion with an experienced agent who can further describe all of these options and help select a company that is fiscally sound.
- Life insurance is an important part of your insurance plan. Don’t leave a financial burden to your family or business associates. And don’t procrastinate if you don’t currently have insurance or know you need more.
Call 607-734-8799 To Discuss Life Insurance