Benefits of Life Insurance Coverage for Children

Benefits of Life Insurance Coverage for Children

We get it. No one likes to talk about life insurance. The reason for needing it is not an upbeat conversation starter. Top that with the thought of needing it for your child or grandchild, and you’ve got ick factor. But permanent life insurance coverage for children can be a valuable investment.

Five Reasons for Life Insurance Coverage for Children

Coverage for Children Will Never Be More Affordable

The younger a child is when coverage starts, the lower the rate. In fact, nearly half of those who purchase juvenile life insurance do so to lock in a low rate.

Life Insurance Protects Insurability

Buying whole life coverage for children protects them against an unexpected accident or illness. If they were to get an illness later on, life insurance would be more expensive, or even unavailable.

It Can Help Provide a Financial Safety Net

Permanent life insurance such as whole life accumulates cash value at a guaranteed rate as long as the policy is in effect. The policyholder can take out a loan against the cash value if needed for unexpected expenses, or even to pay the premiums.

“No one likes talking about the need for life insurance, especially when it’s about needing it for a child,” said Annise Henson, life insurance product manager at Unum. “But it’s an important coverage to have because it helps play a role in providing a financial safety net, now and in the future.”

It is Stable

Interest rates have been low for years, and that’s likely to continue. Whole life premiums and cash value don’t depend on current interest rates as much as universal life or variable life, so it offers more stability.

It Could Keep Your Family Out of Serious Debt

The average funeral costs $8,000-$10,000. At the same time, nearly half of American families say they don’t have even $400 on hand for an emergency. That may be one reason crowdfunding for funeral expenses has become one of the most common online fundraising causes, according to the website Nerdwallet. But as social media becomes more saturated with requests for help in funding funerals, the availability of donors could become more questionable.

Buying Life Insurance for Children Is Proactive

“Life insurance is protection nearly everyone is going to need at some point in his or her life,” Henson says. “Buying it as a gift for a child can be an affordable way to meet many needs.”

This originally ran on Unum

Seven Money Mistakes That Could Derail Your Retirement

Seven Money Mistakes That Could Derail Your Retirement

Planning ahead and saving can help ensure you’ll enjoy a comfortable life in retirement, with more than enough money to thrive. However, some decisions you must make can derail even the most meticulously planned retirement.

According to the National Institute on Retirement Security, a nonprofit research and education organization, around 45 percent, or 38 million working-age households, don’t have any retirement account assets.

One of the quickest ways to derail your retirement is lack of a plan. Do you find yourself in this circumstance? Then it’s time to create a retirement account (or two).

You also may want to consider life insurance and disability insurance. Both types can provide financial security should you or your spouse suffer death, or the inability to generate income.

Familiarize yourself with the following potential pitfalls. Avoiding them can help spare you a potential financial disaster as you travel down the path to retirement.

Money Mistakes That Threaten Retirement

Forgetting to Adjust Your Retirement Savings

It can be all too easy to set up and forget your 401(k) or IRA. However, markets change over time, as do your best investment choices, depending on your income level, expenses, and age. (Younger workers, for instance, may want to take more risk than those who are nearing retirement.) As such, it’s important to regularly update your retirement plan. Talk to a financial adviser if you’re not sure of the best route to take.

Cashing Out Ahead of Schedule

You may be tempted at some point in your pre-retirement life to use your retirement funds. Perhaps you want to buy a new house or pay off spiraling debt. While this may be a move you need to make, remember, it comes with a price. You’ll be taxed on those funds and will likely have to pay an early withdrawal penalty, which can seriously set back your nest egg.

Not Buying Enough Coverage

Those who qualify for disability insurance make the common mistake of not buying enough coverage. Many do not expect the additional expenses that come with an injury or disability, and even going a short time without complete income can quickly burn out your finances. Buying the maximum amount of disability insurance will help ensure coverage for expenses that may arise during your disability. If you buy less than maximum coverage,  you may find yourself dipping into your retirement savings.

Not Paying Down Debts

You might be focused on the money growing in your 401(k) or IRA accounts, but if you’re carrying  debt, it’s a good idea to pay that debt down before you  retire. For instance, interest on unsecured credit cards can pile up all too quickly and put a damper on your retirement budget. If you have high credit card balances, consider a zero-percent interest balance-transfer credit card, or debt consolidation loan, as a way to pay off debt. But do your homework first.

Cosigning on Loans

It can be very tempting to co-sign on that private student loan so your grandchild can attend their dream college. However, there are risks. According to a 2014 report from the Government Accountability Office (GAO), the outstanding federal student debt for households headed by people 65 years or older grew from about $2.8 billion in 2005 to about $18.2 billion in 2013.

Remember, co-signing on any loan makes you responsible for those payments. Even if your family member has agreed to pay, there’s no guarantee something won’t go wrong. As such, it’s a good idea to very carefully consider co-signing for a loan, lest it derail your retirement plans.

Ignoring Your Credit

Sure, you may not plan to take on any new credit once you retire, and for the debt-prone that is a good idea. However, that doesn’t mean you won’t need credit at some point in the future, and bad credit can wind up costing you in interest and fees. Each of the three major credit reporting agencies — Equifax, TransUnion and Experian — provide one free credit report every year. You can, and should, request these free reports at each and every year.

Getting Scammed

Sadly, seniors are a prime target for scammers. And whether it’s a request to send money to settle purported IRS debts, or to help a long-lost relative overseas, falling for one of these scams can easily cost you a big chunk of retirement savings. Remember to be on the lookout for scams at all times. Signs of a scam may include requests to wire-transfer money, offers that sound too good to be true, and scare tactics. Always verify a debt by calling the company direct and vetting them before agreeing to pay for anything.

Knowledge Is Retirement Power

Educating yourself about the most common risks to retirement can save you a lot of money. It can also ensure the preservation of your retirement plans. Even when you face a setback you can rest easy knowing you took steps to protect your finances.

Maximizing the Benefits of Life Insurance at a Young Age

Maximizing the Benefits of Life Insurance at a Young Age


No matter how old you are, there are many benefits of life insurance. It can be a key component in the financial safety net we all try to weave for ourselves and our loved ones.

If you’re keen on maximizing the benefits of life insurance, the earlier in life you can get it, the better. Here are a few reasons why:

The Younger You Are, the Less You Pay

Insurance companies use a bunch of different metrics to come up with prices for life insurance policies, but the most decisive factor is age. In this case, that means the younger you are, the less likely you are to die (woo hoo!)—hence, the lower your premiums. And just a few years can mean a huge difference in cost. Premiums for 35-year-olds are reported to cost 27 percent more than those for a 25-year-old.

The idea here is that you can lock in a sweet rate while you’re young, and still pay that same amount in perpetuity—regardless of what happens to your health. As opposed to someone who waits until they get sick and then scrambles to find coverage.

Keep in mind that some policies allow the purchase of additional insurance in the future based on the rate you originally paid, based on your health at the time.

The Earlier You Purchase It, the More It Accrues

If you opt for a permanent or whole life insurance plan (as opposed to term life insurance, which covers you for a certain period of time), your premiums incorporate a cash value component. This means that the money you pay each month accumulates over time, and you can withdraw it down the road if you have a sudden need for cash. Ergo the earlier you purchase it, the more you’ll accrue, and the more benefits of life insurance you can have access to.

Keep in mind any cash you withdraw from your permanent life insurance fund will cut into the original amount your policy was worth, but it’s nice to know that you can access the money and it will be there if you need it. It’s a safe way to protect yourself and your family and guarantee a return on your investment.

The ‘Living’ Benefits of Life Insurance

Most people think about life insurance in terms of payouts to beneficiaries after death, which is certainly a key aspect of life insurance, but there are benefits of life insurance you can enjoy while still here on earth. Not the least of which is the peace of mind that financial protection offers.

Not having to sit up at night, worrying what will happen to your loved ones is a good thing. It’s great to know they’ll have what they need, no matter what.

Of course it’s also nice to know that you’ll have what you need, no matter what. If you sign up for a permanent life insurance policy at a young age, down the road you’ll be able to withdraw money for retirement, a wedding, somebody’s education, a business venture, or whatever life brings your way.

Hopefully it’s a Corvette.

Whatever it is, take some time to figure out which life insurance policy is right for you.

Image Credit: Shutterstock

Finances, Insurance and Pregnancy: Questions to Ponder Before Baby

Finances, Insurance and Pregnancy: Questions to Ponder Before Baby

Bringing a baby into this world is one of the biggest decisions any of us will ever make. It cannot be overstated the amount of life-changing implications little ones bring upon us (quite forcibly for such tiny people). So it stands to reason that before making such a momentous decision, you take some time to think about issues regarding work, finances, insurance and pregnancy.

Here are a handful of important questions to consider before you decide to raise a little one.

Do you have health insurance?

If not, it would behoove you to find out when the next open enrollment period is. Otherwise you won’t be able to sign up until after your child is born.

If you need extra motivation to make sure you have health insurance, here’s a friendly reminder that medical expenses are the leading cause of bankruptcy in the U.S.


Do you have disability insurance?

There are two reasons why disability insurance is a critical component of parental responsibility in terms of finances, insurance, and pregnancy. One, because having a baby is considered a short-term disability – even if the delivery is routine. (Short-term disability plans often cover six weeks post-partum.)

Two, because if you experience a disability after you’ve returned to work and have to stop working, it will be even more difficult to earn income with a little one to take care of.


Do you have life insurance?

Ideally both parents should get life insurance, because that’s the best way to ensure your child will be taken care of–no matter what. That’s true even if only one parent works.

Say one parent stays home, and something happens to them. Now the working parent has to cover all the normal expenses, in addition to paying for child care, saving for college, etc.


Got any debt? Pay it off pronto.

Babies, while precious and delightful, are alarmingly expensive. If you have outstanding debt, you better pay it off now. Once little Sally or Bobby arrives (or Charlotte and Ezra, as is more likely nowadays), getting those expenses and spending down is going to be harder than getting a baby to sleep through the night. (Which many parents will affirm is akin to completing an Ironman Triathlon.)

As for your budget, where can you cut back? You’ll likely have a lower tax bill, but you will definitely have plenty more to think about (child care costs, diapers, Frozen-themed … everything, etc.).


Are both parents going to work after the baby is born?

Is it worth it to have both of you working? Should you try to work opposite shifts so you can get two incomes and reduce your child care costs?

This is definitely something to discuss as you try to navigate the complicated calculus of dealing with finances, insurance, and pregnancy.


Finances, Insurance and Pregnancy: It’s All about Preparation

If you’re already pregnant and you haven’t yet figured all of this out, don’t panic. You still have time. And you’re gonna do just fine. So much of parenting is trial by fire, learning on the job.

But the more you can plan and prepare regarding finances, insurance and pregnancy, the better. Making sure you have ample coverage—and taking steps to get your financial house in order—will go a long way toward keeping your actual house in order when baby finally arrives.

Image Credit: Shutterstock

Can Losing Weight Save You Money on Life Insurance Coverage?


Can Losing Weight Save You Money on Life Insurance Coverage?

Robert had an idea. He wanted to buy a life insurance coverage policy, but knew that being overweight would make him look bad during the application process, potentially raising his premiums.

The solution?

A Get Skinny Quick diet, one that would let him lose just enough to be considered “healthy.” After the application went through, Robert could go right back to bacon and Oreos. Robert wasn’t too overweight – he weighed 220 pounds and measured a flat six feet tall. But by cutting back on fatty foods, Robert was able to lose 15 pounds in three months.

But after his medical exam, Robert’s life insurance company didn’t offer him a lower rate. Instead, they told him that his weight had fluctuated too much in the last year for them to offer him a lower rate.

Robert was right about one thing – being overweight can knock you down into a worse classification, the same way any health risk lowers your classification. Classifications make it easy for insurance companies to quantify how healthy (and how risky) potential customers are. Every insurer has their own chart for how they judge weight, and depending on your gender and height, that number can be very different from person to person.

The Maximum Weight a person Can Be for Life Insurance Coverage

In order to qualify for the highest classification, Preferred Plus, at his chosen insurer, Robert needed to weigh less than 207 pounds. Below, you can find the full sample build chart for life insurance coverage underwriting, which shows the maximum weight a person of each gender can be according to their height.

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What Life Insurance Companies Take Into Account When it Comes to Weight

But when you’re looking for life insurance coverage, companies don’t just take into account your most recent weight. According to life insurance underwriter Mike Woods, you’re required to disclose if your weight has fluctuated more than 10 pounds in either direction within the last year. Life insurance companies “want to see at least twelve months of weight stability in order to get full credit for any intended weight loss,” Woods says. “For example, a loss of 60 pounds in the last twelve months would only count for 30 pounds until stable for twelve months or more.”

Our advice? Don’t let a potential life insurance coverage application get in the way of losing weight or getting fit. But if you’re planning on losing weight quick to get a cheaper life insurance premium, you’re out of luck.

The Benefits of Losing Weight

You can potentially use your weight loss to get cheaper premiums down the line. Some life insurance companies will let you take a new medical exam one or two years after the policy goes into effect. This depends entirely on the insurance company and your specific situation, but an independent broker can help you navigate this.

Losing weight can have huge health benefits. It can lead to lower cholesterol levels, lower blood pressure, and a reduced risk of heart attacks, dementia, sleep apnea, and a host of other diseases. Check out our article on the 9 best health podcasts for more advice on staying fit.

If you’ve lost over ten pounds in the last year, your broker can help you shop around for the best policy. Since every insurance company will treat your weight loss different, your broker can run quotes and help you comparison shop.

If you lost weight because of a gastric bypass surgery, some smaller life insurers may take a more lenient stance. Otherwise, the same rules apply: show twelve months of stable weight and undergo a medical exam to catch health issues.

Image Source: Pixabay

A version of this article originally appeared on Policy Genius.

What to Do If You’ve Been Declined for Life Insurance

What to do If You’ve Been Declined for Life InsuranceIf your loved ones will suffer financially when you die, chances are you need a life insurance policy to help support your family after your death.

Having a life insurance policy can help protect your family when they may need it most, but what happens if you are declined for life insurance?

Even though its not common, life insurance companies have been known to deny coverage to certain applicants.

Remember, it’s not the end of the world if you are denied life insurance. There are still ways you can get a life insurance policy.

Here, we offer three steps you can take if you’ve been declined for life insurance.

Find Out Specific Reasons You Were Declined for Life Insurance

The first step is to find out why you were declined for life insurance. Make sure to get this information in writing, as it may be very specific or there might be more than one reason for denial.

There are many reasons people get declined for life insurance such as:

  • Obesity
  • Income limitations
  • Alcoholism
  • Elevated liver function
  • Elevated cholesterol, lipids and triglycerides
  • Blood or protein in the urine
  • Hazardous occupation such as steel workers or flight engineers
  • Hazardous extra-curricular activities such as flying or scuba diving
  • Drug use
  • Questionable driving record
  • History of cancer
  • Previous declines on life insurance applications
  • AIDS or HIV
  • Hepatitis
  • High Levels of glucose or blood sugar

Once you know why you were declined you can determine your next course of action.

You may need to begin some sort of treatment which could make you eligible for life insurance approval at a later time.

You could apply to another life insurance company but you shouldn’t do that until you know exactly why you were denied. This can help avoid a repeat denial.

Obtain Copies of Your Medical Records

Get copies of any medical records used by the life insurance company that declined your application. Check these records carefully to make sure that they do not contain false or outdated information. If you find any errors, you’ll need to correct and update the relevant information as it may appear in a database accessible to most insurance companies.

Work With an Insurance Agent

If you’ve been declined for life insurance, your most important strategy is probably to work with an insurance agent.

There are hundreds of life insurance companies, and each takes a somewhat different view of various health conditions. Where one company may deny you, another may approve your application. For example, some life insurance companies take a more favorable view of smokers than others.

An insurance agent can be a valuable resource in helping you get a life insurance policy. They can help you understand the language in life insurance policies, explain the specific terms and conditions, and guide your decision around which coverage is right for you.

Taking these three steps can help you get a life insurance policy when your application has been declined.

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Life Insurance Policies Round Up: What You Need To Know

Life Insurance Policies Round Up: What You Need To KnowAccording to the 2015 Insurance Barometer Study by Life Happens and LIMRA, many Americans don’t life insurance policies—more than 40 percent.

Why is this the case? 

Cost is the most frequent reason given for not having life insurance policies.

However, 80 percent of consumers misjudge the cost of term life insurance policies.

The Real Cost of Life Insurance Policies

Marvin Feldman, President and CEO of Life Happens, explains “we’ve consistently seen over the last five years that consumers think life insurance is more expensive than it really is.”

And although close to half of all Americans are without life insurance policies, more than 43 percent say they would feel a financial impact within six months if the primary wage-earner died.

However, 54 percent of Americans say it is unlikely they will purchase life insurance policies within the next 12 months.

Like many type of insurance—including disability insurance—it seems many American’s are confused about the cost, need, and facts when it comes to life insurance policies.

Today we celebrate Life Insurance Awareness Month with a round-up of six relevant posts on life insurance policies.

Life Insurance Policies: What You Need to Know

Six Reasons Why You Should Buy Life Insurance: Life insurance helps protect your family financially. Read about six ways life insurance policies can give you peace of mind knowing your loved ones will have enough money when you die.

How Much Life Insurance Do I Need: Find out what questions you should ask yourself when determining how much life coverage is right for you. Follow a step-by-step example which explains how to calculate how much life insurance you would need.

Life Insurance Policy-Which Plan Is Right For You: There are several types of life insurance policies but which one is right for you and your family’s needs? Life insurance policies aren’t always easy to understand as it can be hard to make sense of the different plans and terms. Explore the pros and cons of four types of life coverage plans to determine which one might be suitable for you.

The True Cost Of Life Insurance: One of the most common reasons people say they don’t have life insurance is cost. However, life insurance policies may be less expensive than you think. Understand more about the true cost of life insurance policies.

Why Life Insurance is No Substitute for Disability Insurance: Life insurance and disability insurance are both important but offer different coverages. Learn why one is not a substitute for another as well as how you can reduce costs for both types of coverage.

Anthony Anderson, the 2015 spokesperson for Life Insurance Awareness Month: Anthony Anderson is well know for his hit TV show Blackish, as well as the host of Eating America. He is also the 2015 national spokesperson for Life Insurance Awareness Month. Hear Anthony’s personal story of how he and his family were directly affected by life insurance.

Do You Need Life Insurance

It’s important to educate yourself and ask questions before buying life insurance policies. This is where an insurance agent can be a valuable resource. They can help you understand the language in life insurance policies, explain the specific terms and conditions, and guide your decision around which coverage is right for you.

Accidental Death and Dismemberment vs. Term Life Insurance

Accidental Death and Dismemberment vs. Term Life InsuranceUnfortunately, all of us have to die one day but when you do, will your loved ones suffer financially? If you answered yes, you need an insurance policy to support your family after your death.

If you already have insurance do you have the right policy?

For example, If you think your life insurance needs are covered with an accidental death and dismemberment policy, you’re wrong.

Today, we explain the difference between accidental death and dismemberment insurance and term life insurance to help you choose the right policy for your needs.

What is Accidental Death and Dismemberment Insurance?

Accidental death and dismemberment (ADD) insurance provides a payment to your beneficiary if you die or get injured in a covered accident. For example, if you die from a heart attack or cancer, there’s no payout. To qualify for a payout for injury, you must lose a body part or the ability to hear, see, or speak. Generally, an ADD policy would cover:

  • Death
  • Quadriplegia
  • Loss of sight in at least one eye
  • Loss of speech
  • Loss of hearing
  • Loss of limb
  • Loss of thumb or index finger

If you die in an accident covered by accidental death and dismemberment, your beneficiaries receive the full payout. If you suffer an injury, the policy generally pays out only part of the benefit.

The exact payouts will be listed in your policy.

Accidental death and dismemberment insurance can be purchased as a standalone product or as a rider on a term life insurance policy.

What is Term Life Insurance?

Term life Insurance is basic coverage for a set amount of time which pays a cash amount if you die within the specific time period, regardless of cause of death . You pay premiums for the entire length of the term and once the term is up, your death benefit is gone.

Term life does not have a cash value component so your entire premium is simply used to keep the policy active. Once the term is up, you stop paying premiums and the policy expires. This is what makes term life one of the most inexpensive life insurance policies.

This type of life insurance has a specific coverage period such as 10, 15, 20, 25, and 30 years which allows you to buy coverage based on your needs.

However, term life offers you no cash value component. Your premiums only go towards the policy and don’t earn interest or accumulate.

Do I Need Accidental Death and Dismemberment if I Already Have Term Life Insurance?

Being prepared for the unexpected is crucial but before you purchase an accidental death and dismemberment policy consider if you really need this type of policy.

You’re much less likely to die from an accident than from cancer or heart disease. According to the Centers for Disease Control and Prevention, just 130,557 of the 2.5 million deaths reported in 2013 were accidental. Comparatively, almost 589,430 people died of cancer and 610,000 died of heart disease in 2015, both covered by term life insurance.

If you die because of an accident but not right away, your beneficiaries might not see any benefits. To collect on an accidental death and dismemberment policy, your beneficiaries must be able to prove your death or injury was directly caused by a qualifying accident or within a certain time frame after it occurred.

An accidental death and dismemberment policy can also be limiting. ADD policies often exclude deaths due to high-risk activities such as:

  • Skydiving or car racing.
  • Most likely, deaths caused by certain circumstances including the following won’t be covered:
  • A drug overdose
  • Drunken driving (by the insured person)
  • War
  • Complications from surgery
  • Mental illness
  • Suicide

Term life insurance provides more coverage and often the chance for a higher payout for your loved ones. Although you’ll pay higher premiums for term life, you’ll rest assured your family will be provided for should the unexpected happen regardless of cause of death. 

This is where an insurance agent can be extremely useful. They can help you understand the language in your policy, alleviate your concerns and fears, and guide your decision around which insurance policy is right for you.

Mortgage Protection Life Insurance: Do You Really Need It?

Mortgage Protection Life Insurance: Do You Really Need It?One of the biggest investments you might ever make in your lifetime is the purchase of your home.

With the purchase of a home comes the responsibility of making regular mortgage payments. And if you’re the primary breadwinner, your family depends on your income to help make these mortgage payments.

Unfortunately, this also means if for some reason you are no longer providing an income to your family (due to job upheaval, disability, or even death), your loved ones might struggle to manage the mortgage payments for your home.

None of us like to think about the unfortunate events in life, but the truth is tragedy can strike any of us at any time. Although we can’t control the unexpected we can certainly be prepared for it.

One way to protect your home and your family in the event of your death is through mortgage protection life insurance.

What is Mortgage Protection Life Insurance?

Mortgage protection life insurance is a term life insurance policy  specifically designed to protect your mortgage should you die during the term of the policy.

If you were to die while your mortgage protection life insurance was still in effect, your policy would pay out a capital sum that would be just sufficient to repay your outstanding mortgage.

For example, if you have a 30-year mortgage you can purchase a 30-year term mortgage protection life insurance policy that covers the amount owed on your mortgage. This ensures your family will be able to pay off your home and continue to live there after your lifetime.

Generally, there are two types of mortgage protection life insurance policies:

  • Decreasing term insurance: The size of the policy decreases with the outstanding balance of the mortgage until both reach zero.
  • Level term insurance: The size of the policy does not decrease.

The Difference Between Mortgage Protection Life Insurance and Private Mortgage insurance

Although they sound similar, mortgage protection life insurance is not the same as private mortgage insurance.

Private mortgage insurance is a policy issued by an insurance company that benefits your lender. If you are unable to make your mortgage payments your home might go into foreclosure. If your home goes into foreclosure and your lender is not able to recoup the outstanding balance by selling the home, the insurance company that issued the private mortgage insurance will pay your lender the difference.

Private mortgage insurance goes to the lender if you default on your mortgage.  It doesn’t have a specific benefit for you as a borrower while a mortgage protection life insurance policy protects you as a borrower by paying you a cash amount to repay your outstanding mortgage.

Do You Really Need Mortgage Protection Life Insurance if You Already Have Life Insurance?

If you already have a life insurance policy when you buy your first home, it’s important to take a look at what type and how much coverage you have as well as how much the home purchase increases your coverage needs.

In a traditional life insurance policy, your family would receive a death benefit if you die, however, in a mortgage protection life insurance policy, your family only receives a death benefit if you die while the mortgage is still in existence.

If you already have a whole life or universal life policy, you may want to add a mortgage protection life insurance policy. You can carry both policies at the same time, and while your mortgage protection policy will expire, your whole or universal life policy will protect you for the duration of your life.

Adding a mortgage protection life insurance policy to your existing whole or variable life insurance policy adds an extra level of coverage. This ensures your family has the necessary money to pay off the mortgage in addition to the death benefit from the other policy to help with other financial needs.

When your home is paid off and you no longer need a policy to protect it, you can let the term policy expire and retain the other coverage as a death benefit for your family.

Before buying a mortgage protection life insurance policy you should carefully consider all factors of the policy. This is where an insurance agent can be a valuable resource. They can help you understand the language in your policy, explain the specific terms and conditions, and guide your decision around which mortgage protection life insurance policy is right for you.

photo credit: The High House circa 1830 via photopin (license)

Life Insurance Policy: Which Plan Is Right For You?

Life Insurance Policy: Which Plan Is Right For You?Having a life insurance policy is often viewed as something negative, something we don’t want to think about it. But instead, it’s a way to help protect your loved when they might need it most.

It is inevitable that each of us will die one day. If someone will suffer financially when you die, chances are you need a life insurance policy to help support your family after your death.

Perhaps you already have a life insurance policy, but is it enough?

When was the last time you examined your life coverage needs?

Do you have the right type of life insurance policy?

Understanding life insurance policies isn’t always easy and it can be hard to make sense of the different plans and terms.

Today we are going to review the reasons why people might buy a life insurance policy and discuss the pros and cons of four types of life coverage plans:

  • Term life
  • Universal life
  • Variable life
  • Whole life

Reasons Why People Buy a Life Insurance Policy

According to the LIMRA 2013 Insurance Barometer Study, nearly one third of consumers don’t believe they have enough life insurance coverage and that nearly three out of 10 consumers wish their spouse or partner had more coverage

The study notes the top six reasons why people buy life insurance:

  • Cover burial and final expenses (89 percent)
  • Replace lost wages or income (61 percent)
  • Transfer wealth or leave inheritance (59 percent)
  • Help pay off mortgage (51 percent)
  • Estate taxes or estate liquidity (45 percent)
  • Pay for home expenses (43 percent)

Types of Life Insurance Policies

When you are shopping for a life insurance policy you’ll likely encounter the following types of life insurance coverage plans.

Term Life Insurance Policy

Term life Insurance is exactly what it sounds like. You purchase life insurance for a specific term, or set amount of time. You pay premiums for the entire length of the term and once the term is up, your death benefit is gone.

Term life does not have a cash value component so your entire premium is simply used to keep the policy active. Once the term is up, you stop paying premiums and the policy expires. This is what makes term life one of the most inexpensive life insurance policies.

Term life policies are usually far less expensive than other policies such as whole, universal, or variable life insurance. They have a specific coverage period such as 10, 15, 20, 25, and 30 years, allowing you to buy coverage based on your needs.

However, term life offers you no cash value component. Your premiums only go towards the policy and don’t earn interest or accumulate.

Having a specific term can also be a disadvantage. If you purchase a 20 year term policy but decide that you’d like to extend your coverage after the 20 year term you may need to undergo proof of insurability and could be denied additional coverage or renewals could be at significantly high premiums.

Universal Life Insurance Policy

Universal life coverage adds to term life by including a cash component. With this policy, instead of only selecting a specific term and putting it all toward the policy, part of the premium actually goes into a cash account in the policy. This cash account earns interest and the accumulations are tax-deferred.

Universal life coverage provides additional flexibility because of its cash component. You can actually temporarily stop making your premium payments as long as the cash value can cover the cost of the insurance.

Universal life coverage allows you to increase or decrease the death benefit over time. Usually, you can also borrow against the policy in the form of a loan.

Because of these additional advantages and flexibility, universal life policies are more expensive than term life policies. While some of the additional cost goes into building cash value in your account, the rates you earn on this money may not always be the best available rates.

Variable Life Insurance Policy

Variable life insurance is very similar to universal life with one major difference.

With a variable life policy you don’t earn a specific rate of interest in a cash value fund, but instead you can invest this portion in investments such as  mutual funds. This allows you much more control and you can choose where to invest the cash value portion. You’re also still guaranteed the minimum death benefit as long as you keep up with the minimum premiums.

However, putting part of your policy in investments such as mutual funds can be risky. If the market crashes you risk the loss of a significant amount of money and put your policy in jeopardy as a result.

A substantial drop in your account value could result in you paying additional premiums to maintain your contract.

Additionally, expenses associated with the investments in this policy may be higher than you might pay elsewhere.

Whole Life Insurance Policy

A whole life coverage plan insures you for your whole life. Like universal life coverage, whole life has a cash value component. Generally, whole life policy premiums and death benefit are fixed.

One advantage of this policy is that cash value also grows tax-deferred and typically allows for withdrawals and loans against the policy.

Since you have a guaranteed premium, interest rate, and death benefit for the life of the policy, there are no surprises. However, these guarantees make whole life coverage usually more expensive than both term life and universal life policies.

The interest earned on the cash value account may be less than you could get if you invested elsewhere.

A whole life policy is not flexible. If you determine that you need more coverage or would like to increase or decreases your premium, chances are you probably can’t with this policy.

Which Life Insurance Policy is Right For Me?

As you can see, there are several options to consider when it comes to life insurance policies.

Take the time to consider all your coverage needs, and how they fit in with your overall financial plan. Then, work with your insurance company, ask them all your questions regarding life coverage, so you can make sure to get the policy that’s right for you.

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