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This month, in honor of Life Insurance Awareness Month, we’ve been talking about all things life insurance. We’ve covered some of the most common myths and misconceptions about life insurance, and the reasons why it’s so important to talk about it. Today, I wanted to address some of the basics about the different types of life insurance, and choosing the coverage that’s right for you and your family.
First, there are two main types of coverage for you to consider: group or employer-sponsored life insurance, which is coverage that you sign up for with your employer’s human resources office, along with other employee benefits. Some employers offer basic plans at low or no cost to you, as well as options for more coverage at a higher cost. We can help you sort through what your employer offers if you’re not sure what you’re looking at. The second main type of life insurance is individual coverage that you purchase through an insurance company for yourself or a loved one.
The most basic policy you can buy is term coverage, meaning that you lock in a certain premium rate for a certain period of time, typically 5, 15 or 20 years, or until it’s needed. Many people, after maintaining this type of policy for a number of years, opt to convert a portion to whole or permanent life insurance, which is guaranteed coverage for the rest of your life. It comes with higher premiums because of that guarantee, but it also provides the benefit to your estate and your loved ones without picking a death date, as you essentially do with term coverage.
Additionally, whole or permanent coverage allows the policyholder to borrow from the policy, as it builds cash value over time. [Keep in mind: If tax-free loans are taken and the policy lapses, a taxable event may occur. Loans and withdrawals from life insurance policies that are classified as modified endowment contracts may be subject to tax at the time that the loan or withdrawal is taken and, if taken prior to age 59½, a 10 percent federal tax penalty may apply. Withdrawals and loans reduce the death benefit and cash surrender value. Guarantees subject to the claims paying ability of the underlying issuer.]
Life insurance can be confusing, I know – and we see many people who forgo coverage simply because they don’t take the time to understand the process and options that are available. Many people also think life insurance is too expensive, but, as I noted in my last newsletter, statistics show that most people believe coverage costs much more than it actually does.
If you have any questions at all about life insurance, need to apply for coverage, or would like to sit down with our team and review any current policies you have, please, don’t hesitate to pick up the phone. A 10 or 15 minute consultation could mean peace of mind for your family.