What Type of Life Insurance is Right for Me?
Life insurance. You probably know that it protects your loved ones in the event of your death, but you may not know if you need it or not, what the different policy options are, and which policy is best suited to your situation. The Accel Group has put together this quick guide to help you understand life insurance and determine what path is best for you.
First things first: do you need life insurance or not? In order to answer this question, ask yourself another: If I died, would my loved ones be significantly affected financially? In the majority of cases, the answer is “yes” for those with dependents, and “no” for those with grown, independent children and the single population (although in some cases a single person may wish to take out a life insurance policy to protect his/her parents if the parents have been affected by illness or some other mitigating circumstance).
It can be a difficult question to answer, but if you have worked through it and decided what type of life insurance is right for you, there are now two major options to choose between term life insurance or permanent life insurance.
Term life insurance lasts for a specified length of time, usually 10, 20, or 30 years – enough time to raise children into independent adults. Term life insurance is advantageous because you pay a set premium for a set pay-off – there are no market rates or other variables to worry about – and those premiums are usually quite low. After all, the insurance company isn’t betting on your death, they’re betting against it, and because people are usually young and healthy when they hold a term life insurance policy, the odds of that bet are even better. Most people find that term life insurance is both the cheapest and makes the most sense strategically.
There are many types of term life insurance available. One type – offered by The Accel Group – is mortgage life insurance. With this type of term life insurance, the remaining balance of your mortgage is paid off in the event of your death.
Term Life Insurance with Return of Premium
Term Life Insurance with return of premium is a choice in between regular term and more permanent options. With this option when you outlive the level term period you get all of your premium back. The premium is higher than regular term insurance but less than the more permanent options. This option can work well if someone is considering a life policy with a duration of 30 years.
Permanent Life Insurance
Permanent life insurance is exactly what the name implies – life insurance that lasts right up to the policyholder’s death. Because it guarantees a death benefit, it is far more expensive than term life insurance, but the pay-off can be enormous and can be a key factor in legacy-building for the next generation. There are three major types of permanent life insurance available on the market today.
Whole life insurance is a bit like term life insurance – you pay a set premium for a set pay-off. The pay-off increases according to a schedule; at each policy anniversary you’ll know the exact cash value of your policy.
The advantage with whole life insurance policies is that you’ll always know exactly how much you will pay and exactly how much your beneficiaries will receive. The disadvantage to this is the inflexibility (you can’t adjust your premiums down if, for instance, you experience a period of financial hardship) and the fact that you pay a premium for the guarantee – whole life insurance policies can be very expensive.
Universal Life Insurance
Universal life insurance policies build value on interest (interest rates may change over time, but there is always a guaranteed minimum pay-off). Because universal life insurance policies aren’t set to a schedule, you have the freedom to adjust your premiums up or down depending on need. Most people find that among the permanent life insurance options, universal life insurance policies provide the best blend of security and financial flexibility. This does not necessarily mean, that you should choose this option – often universal life insurance policies are not competitive with other investment vehicles.
Variable Life Insurance
Variable life insurance policies invest your money in stock market options. Like universal life insurance policies, they offer flexibility, but unlike those policies, they remain competitive with market rates and can bring maximum return for minimum investment. But remember that the potential for bigger pay-off always means higher risk. Although insurance companies guarantee a minimum pay-off for variable life insurance as they do with universal life insurance, the chances that you will have to fall back on that minimum guarantee are higher. In the end, variable life insurance could mean maximum investment for minimum return.
Hopefully now you can better answer the question “What type of life insurance is right for me?”
Most people opt to buy term life insurance for the duration of their children’s upbringing or to get to retirement age, and then choose other investment vehicles to build their family legacy. Others like the convenience of “bundling” life insurance with legacy through permanent insurance options. Whatever option you go with, if you answered “yes” to the original question – do I need life insurance? – it’s best to get started now. Not only does getting started at an earlier age mean lower premiums, but you want your loves ones to be protected. Life insurance proceeds can solve many needs at death. It can replace all or part of the insured’s lost income, pay off outstanding debt, fund college expenses for children, provide for funeral and burial costs, and provide liquidity for estate taxes. Families can be thrown into poverty by unexpected deaths, and you don’t want that to happen to yours! At The Accel Group, we will work with you to help you determine what life insurance product is most beneficial to you at a price that suits your financial situation.
Contact The Accel Group for more information – 800-765-8611