Have Life Insurance Questions? Check Out This Ultimate Guide

Half of Americans overestimate the cost of life insurance at more than 3 times the actual cost.

Did you know that life insurance can be affordable at any age? While it's true that it's better to buy young, it's never too late to get coverage.

If you have life insurance questions, we understand. Life insurance can be confusing and choosing the right policy can seem overwhelming. Keep reading for our ultimate guide to life insurance. 

What is Life Insurance?

Life insurance is a type of insurance that is designed to provide financial protection for your loved ones in the event of your death.

The biggest benefit of having a life insurance policy is that your loved ones will receive tax-free money when you die. There many different types of life insurance policies and they offer other benefits as well.

There are two main categories of life insurance policies - term and permanent. Let's take a look at each in more detail.

Term Life Insurance

With term life insurance, your policy will last for a set amount of time, called a term. When your term ends, you have the option to renew your policy. If you want, you can let it end without renewing.

Terms last for either a certain number of years or until you reach a certain age. This could be anywhere from one year to thirty years.

Term life insurance policies provide a tax-free payout to your loved ones after your death. This money can be used for things like final expenses, mortgage payoffs, and even to replace your income.

Term life policies are usually less expensive than permanent life insurance policies. In some cases, term life policies can be converted into permanent ones.

Permanent Life Insurance

Permanent life insurance is more customizable than term life insurance. As there is no fixed term, your coverage will continue until you die as long you continue to pay your premiums.

There are four types of permanent life insurance policies. 

Whole Life

With a whole life policy, you pay a set premium each month or year. The amount never changes.

The amount you get when you die is also fixed. This type of policy accumulates cash value and you can use that money during your lifetime.

Universal Life

Premiums and benefits with this type of policy are flexible. You can change the number of your premiums and the amount of your benefit. These policies usually accumulate cash value. 

Variable Universal Life

This type of policy offers options for flexible premiums and death benefits. However, it also makes use of investment accounts to determine cash value. Whether you accumulate more or less cash value is determined by the performance of investment accounts.

Indexed Universal Life

These policies are similar to a universal life policy but interest is based on the stock market index. This type of policy has the potential to accumulate more cash value. 

Benefits of Permanent Life Insurance Policies 

Most permanent life insurance policies build cash value. Part of your premium goes towards the cost of coverage. The remaining amount helps you build cash value over time.

You can usually use this money to reduce the amount you owe in future premiums or take out withdrawals or policy loans to use the money during your lifetime.

Permanent life insurance policies offer multiple tax advantages. The money your loved ones receive when you die is tax-free. In addition, the cash value is accumulated in a tax-deferred account, and withdrawals you make aren't taxed.

You can take out payments whenever you want. Taking withdrawals won't cost you anything in penalities or reduce your Social Security benefit. You can use this money for things like retirement, medical expenses, and college tuition for your kids. 

How to Choose the Right Policy

There is no right or wrong choice when it comes to life insurance policies. The best policy for you will depend on your personal circumstances and preferences.

The first thing to consider is how long you need life insurance. If you only need coverage for a limited time, term insurance might be a better choice for you. If you need coverage for the rest of your life, a permanent policy will meet that need and also provide the added benefit of accumulating cash value that you can use in the meantime.

You should also consider how much you want to spend on a policy. Term life policies are typically less expensive than permanent life insurance policies.

The cost of the policy is dependent on your age. The earlier you purchase a policy, the lower your premiums will be. You might consider purchasing a term policy with the intent to later convert it into a permanent policy.

When it comes to choosing between the different types of permanent policies, your personal risk tolerance is the biggest factor. Whether you want a policy that accumulates cash based on a fixed rate set in advance or by investments into separate accounts ultimately depends on how much risk you are willing to take. 

Have More Life Insurance Questions?

Even if your current employer offers a term life insurance policy, it won't be enough coverage to meet all of your needs.

It's better to shop for a life insurance policy sooner than later. The younger and healthier you are, the cheaper it will be to get coverage.

If you have life insurance questions, we are here for you. Check out our website to compare rates and get a life insurance quote today to learn more about your options.