How to pick the right coverage amount for your needs
For some Americans, life insurance (LI) is an unapproachable subject. Either it’s too grim to think about or there’s a commonly held opinion that a policy will just be too expensive. Of the roughly 37% of us who don’t have a LI policy in place, over half of those cite expense as an issue. Further figures in the Insurance Barometer Study support this general concern. It shows 67% of those polled list price as a factor for life insurance reluctance, while high percentages without a policy would consider one if there were an easier application process or simplified underwriting (no need for a medical exam).
The amount you’ll pay for policies will of course vary from provider to provider, and some forms of LI are more expensive than others. If you’ve been considering this insurance, here’s our advice on finding the policy that could suit you best.
The different types of life insurance
It’s commonly thought that there is a single kind of life insurance available, and for a single purpose. There are actually quite a few options. Here are some principle types:
• Whole life: This is the coverage that first comes to mind when many hear the words “life insurance.” Whole life is designed to be pay out a certain amount in the event of the policy holder’s death. Typically, in this type of insurance, the premiums paid will go into a savings account and remain the same throughout.
• Variable life: VL insurance is an interesting (and riskier) hybrid of traditional insurance and financial investment. It also comes along with a savings account; savings that can be used to invest in shares, stocks, bonds etc. (usually pre-selected by your insurance provider). Using your VL to take a chance on these potential investments can be worthwhile but it can also be costly and even detrimental to your ultimate pay out, so the financial experts recommend professional advice.
• Universal life: UL blends aspects of both whole life and variable life into its coverage. It builds funds that can be saved, cashed out, or moved between premiums and investments as your circumstances require. UL also has the potential benefit of a higher death payment if you pass a medical exam. Naturally, moving funds around can be risky, so always have a qualified financial advisor or insurance specialist on your side.
• Term life: TL is a cheaper form of insurance than other options for two reasons. It has a time limit factor and has no cash value unless the policy holder passes away prematurely. There are usually no options for savings or cashing out previously paid premiums. Some typical times for a person to put term life in place is during the mortgage years of a home or the raising of children. Some TL policies are capable of being changed to permanent ones at higher premiums.
In terms of immediate advantages and disadvantages, the more permanent forms of insurance do have higher premiums than term options, but remember those higher premium rates remain constant throughout. Term options tend to demand higher premiums if a renewal is required.
Variable and Universal insurance options provide the opportunity for profit but also the dangers of relying on market trends and stability to make that gain.
How to apply the different policies to your circumstances
If you find yourself in the position where you have dependents who are relying on your income, it would be wise to have some form of life insurance in place. If a significant breadwinner passes away the resultant funeral expenses, possible debts, and ongoing cost of living can be a serious financial demand. Life insurance helps ease the immediate burden of burial/cremation as well as provide some monetary comfort in the days to follow.
If you’re a single person or have no dependents, then it’s still a good idea. Some policies allow you to cash out partially or wholly in the event of disability, where others may allow you to take out a loan with the insurance company using your LI value as collateral. It will accrue interest of course, but has the advantage of not requiring a credit check.
Insurance as a whole is always dependent on the individual circumstances of the policy holder, and the amount you will pay for life insurance is perhaps the most financially dependent upon your status. It can be a lifeline for you or those who rely on you. The fine print of any policy can often be a nasty surprise for anyone who doesn’t care to analyze the coverage they’ve signed up for.
If you want transparency in your life insurance, speak to a qualified insurance provider. We can listen to your needs and provide the best coverage advice based on what you may need now or in the future.
Avante Insurance is a South Florida family owned and operated insurance agency providing an array of insurance services to meet customer’s individual needs. For advice on coverage, you can call us at 305-648-7070, request an insurance quote, or contact us with any questions or comments.