When you hear the words ‘Life Insurance’ it can bring up feelings of confusion, anxiety, and maybe even a little bit of fear. We get it! Insurance is an essential part of our lives; we need it for our homes, our cars, our health coverage but have you considered how your beneficiaries will be compensated after your passing?
Understanding the importance of life insurance can help you make informed decisions for your financial future. You may think life insurance is only for those over a certain age, but preparing now will only help give you peace of mind knowing your loved ones will be taken care of financially, allowing you to focus on enjoying life without constant worry of what will happen to your family in the event of your passing.
Your family will have enough to worry about in the future, but your life insurance can take the burden off of them by helping replace the income that was lost, allowing them to maintain their standard of living and take care of their financial needs. This covers mortgage payments, education, monthly bills, and living expenses. Life insurance can also help pay off outstanding debts like car loans and credit card debt.
If you’ve decided life insurance is for you, there are different types to understand and choose from.
What is Term Life Insurance?
Let’s start with Term Life insurance, also called Level Term. This is typically the most affordable option. Term life is set up in terms usually for 10, 20, or 30 years, so instead of paying for a policy until you pass which could be decades, this sets you and your family up for a short period of time in the event that you pass within the term limit. This is ideal for temporary needs, such as covering a mortgage or providing for children until they become financially independent.
Unlike some other policies, term life will only pay benefits if you die during the term selected. Once your policy ends, you’re no longer covered.
What is Whole Life Insurance?
Another option is Whole Life insurance which as you may have guessed, is for your whole life. In other words, it’s permanent. Premiums are higher than term life insurance but it does come with a savings account known as the cash value, which will grow over time. You can access the savings through withdrawals or loans. The good part is you’re covered through your whole life. The bad part is, that if you don’t use the money in the savings account while you’re alive, it doesn’t go to your beneficiaries after you die.
What is Universal Life Insurance?
Universal Life insurance offers flexibility in premium payments and death benefits which can be adjusted over time or according to your needs. It also has a cash value component that can earn interest over time and potentially, you could use some of the cash value to pay for part of your premium payment. This can be a more expensive option because part of the premium payment goes to the death benefit while another part is invested as savings.
What is Variable Life Insurance?
Variable Life Insurance allows policyholders to invest the cash value in various investment options- both your investment choices and their value can vary. Investment options can include mutual funds, stocks, bonds or money markets. Depending on the death benefit you choose, your beneficiaries would receive the face amount you preselected for them as well as the cash value of your account or the total of your premium payments. While variable life offers the potential for higher returns, it also comes with greater risk.
Summary
There are more types of life insurance than we’ve covered here so one way to be sure you are deciding on the best option for you and your family would be to dig in and do a little research. If you’re still unsure, talking with a financial advisor who can provide personalized advice and help you navigate the complexities of life insurance, may be the quickest and easiest way to find a policy that fits you perfectly. Life insurance is a vital part of a comprehensive financial plan, providing security and peace of mind for you and your loved ones. Preparing for our future is something we do every day, but preparing for your family’s future is a gift you can give them now and ensure they have a financially secure tomorrow.