What Is Life Insurance?
In basic terms, a life insurance policy is an agreement between you and the insurer. You agree to pay monthly premiums in exchange for a payout of benefits to be made to your selected beneficiary or beneficiaries. Not all life insurance policies are the same, however, and it’s important to choose the right policy to suit your needs now and your beneficiaries needs in the future. Reasons for having life insurance include:
- Providing for your family, spouse or other loved-one after your death, so they can live comfortably.
- Paying for final expenses such as your funeral, unpaid debts, and other obligations so your family doesn’t have to.
- Donating money to a charity or other organization, so they can continue their work.
- Paying estate taxes so your beneficiaries won’t incur any debt.
- Securing a mortgage or other loan if required by the lender.
What Types of Life Insurance Policies Are Available?
Basically, there are two types of life insurance policies that you can purchase, term life insurance and permanent life insurance. There are pros and cons to each type and it’s important to understand the differences before you decide.
Term Life Insurance
As the name implies, a term life insurance policy is only good for a specific length of time, generally this is between 10 and 30 years. The policy has no cash value, and expires at the end of term. The advantage of this type of policy is that it’s usually less expensive than other types. The disadvantage of most term life insurance policies, however, is that if the death benefit isn’t paid out before the term ends, your premiums are lost and you won’t have life insurance coverage. There are three main types of term life insurance:
- Annual Renewable Term Policies – If you choose this type of policy, be aware that your premiums will go up every year throughout the term you’ve chosen. This is a good choice for people who need to cover a gap in their life insurance coverage.
- Decreasing Term Policies – With this type of policy, your premiums stay the same, however, the death benefit decreases over time. This is generally used for mortgage life insurance and the lender, not a loved-one, is the named beneficiary.
- Return of Premium Term Policies – This is the most expensive type of term life insurance because of a special feature. The premiums you pay during the term are returned to you if you outlive the policy so you get all of your money back.
Permanent Life Insurance
Another type of life insurance policy to consider is a permanent life insurance policy. The advantages to this type of policy, include fixed premiums and a fixed payout upon your death. Another advantage is that whole life policies also build cash value that you can borrow against should the need arise. There are two main types of permanent life insurance to choose from:
- Whole Life Insurance – This type of policy features a set monthly premium, which is great for anyone who likes to maintain a steady budget. As long as you continue to pay your premiums, your policy will not expire. If you do decide to cancel the policy, however, the built-up cash value will be returned to you.
- Universal Life Insurance – If you want options, this is a good policy to consider. Universal life insurance allows you to choose investments, while you may not receive the highest returns, as well as building cash value and allowing you to borrow from the policy’s cash value reserves.
Which Type of Life Insurance Is Best?
The short answer is, that depends on a few things. Your current age, ability to pay the premiums, the needs of your dependents after you’re gone, and your financial goals will all contribute to your choice. Making this decision on your own isn’t easy and you should discuss your life insurance needs with a licensed insurance agent to determine your best route.
How Much Life Insurance Should I have?
The amount of life insurance coverage that you should have depends on several factors. Some of the things you’ll want to keep in mind as you consider the amount of your policy include:
- Your Current and Potential Annual Salary – If you’re the sole provider for your family, you’ll want to take into consideration the amount of money your family will need to maintain the lifestyle you provide and the number of years they may need that type of financial support.
- Your Children’s Future College Tuition – Should you pass away before your children reach college age could leave them to fend for themselves for tuition. Consider the current cost of a degree and account for increased prices over the years to calculate the amount of coverage you need.
- Funeral and Burial Expenses – The last thing you want is to leave your family to have to figure out how to pay for your funeral and burial expenses. Although this figure can be hard to pinpoint accurately, choosing a policy that can cover these and your other final expenses is advisable.
- Your Mortgage Balance – Whether you choose a term life insurance policy or a whole life policy, you want to make sure the benefit will cover the remaining balance of your mortgage. That way, your family won’t have to worry about how they’ll make the payments once you’re gone.
Request a Life Insurance Quote Today
You work hard to provide for your family and you want to make sure that they’re well cared for when you die as well. The best way to do that is with a life insurance policy. But, choosing one isn’t as easy as it sounds. If you’re confused about what type of policy you should get, the amount, or you have any other questions about life insurance, Amerus Financial Group is here to help. Call us at 1-800-596-1474 or complete our online form to get a free, no-obligation quote or to be connected to an experienced insurance agent that can help you make this important decision.