Life insurance is a key component of your family’s estate plan. Whether your dependents include your spouse, children, aging parents, business associates, or all of the above, investing in life insurance is a way to make certain that when you pass away, the people you love will have a reliable source of financial support to count on.
Purchasing life insurance may seem fairly straightforward, but it can actually be quite complex, especially given all of the different types of coverage available. Because insurance agents often earn hefty commissions on the policies they sell, it can really be challenging to determine exactly how much coverage you actually need.
With this in mind, we’ll break down the common types of life insurance coverage and explain how each of the different types work. Here are a few of the most important factors to consider when shopping for a life insurance policy.
Depending on the type and purpose of your coverage, a life insurance policy pays benefits to whomever you choose as the beneficiary in the event of your death. Although you don’t need it until you die, the earlier in life you purchase your policy, the less expensive your monthly or annual premiums will be.
Life insurance comes in two main forms, which you can think of as permanent and non-permanent. With permanent coverage, as long as you pay the premiums, your insurance cannot be canceled. With non-permanent coverage, known as term life insurance, you pay premiums over a certain number of years—usually 10, 20, or 30—and if you have not died during that period, the insurance ends, your premiums are gone, and no benefits are paid out when you die.
Permanent vs Term Life Insurance: Which Do You Need?
To determine which type of life insurance policy you should purchase for your family—permanent or term—you’ll need to consider a number of factors. When it comes to buying life insurance for your family, you will need to die with life insurance coverage in place.
Term Life Insurance
The coverage periods of term life policies can vary. Because your coverage expires after a certain number of years, term life insurance is much cheaper than permanent. Term policies are typically used by people who expect that they’ll only need the insurance for a certain period of time. For example, you might purchase term life coverage in order to pay off your home mortgage in the event you die before it’s paid off. Or if you have minor children, who rely on your income for their basic needs, you need a term policy to ensure they have enough money to live on until they become financially independent.
Permanent Life Insurance
Permanent life insurance comes in several different forms, such as whole life, universal life, and variable universal life. As mentioned earlier, the various forms of permanent life insurance pay a death benefit whenever you die, no matter how long you live.
Permanent life insurance policies typically have two components: the amount that goes toward paying for the life insurance, and the amount that builds up as an investment, called the “cash value” component.
How Much Life Insurance is the Right Amount?
When purchasing life insurance, you’ll want to make sure you have enough term life insurance to cover the expenses that your dependents will require until they are no longer dependents. If you have children with special needs or a non-working spouse, they will require a longer period of care after your death. To determine the right amount of term life insurance, consult with us, at Truest Law where we can personally assess your needs and put in place a plan that’s right for you.
