Life Insurance

There are many reasons to get life insurance. A general rule of thumb is to ask yourself this question: does anyone depend on your income to live? If the answer is yes, then you should consider life insurance.

If you have children, a spouse, or someone else you take care of financially, life insurance is a means of protecting those individuals and their financial needs if you were to die. It would ensure their mortgage is still getting paid, your child’s college tuition is taken care of, funeral expenses are covered, and more.

There are many varieties of life insurance that you can choose based on your needs. There are four types that are most common:

1. Term Life Insurance
2. Whole Life Insurance
3. Universal Life Insurance
4. Disability Insurance

Let’s dive into each one.

1. Term Life Insurance

Term life insurance lasts for a specific period of time- hence the word term. This type may be the right choice for anyone who wants affordable coverage with the option to transition to a permanent policy in the future. Term policies can last anywhere from 10 to 30 years before expiring. If you were to pass away before the term is up, your beneficiary receives a death benefit as a tax-free lump sum of money that can be used for funeral costs, paying bills, or something else.

2. Whole Life Insurance

It may be self-explanatory but just in case it’s not, whole life insurance is a permanent policy that lasts your whole life. There are four primary parts to a whole life policy:

1. The death benefit is a tax-free chunk of cash paid out by the life insurance company if you die. For example, let’s say you buy a whole life insurance policy with $700,000 in coverage. That $700,000 is called the death benefit.
2. A beneficiary is the person (or people) that you decide upon who will receive the death benefit.
3. You pay a fixed premium for the entire length of your policy, meaning your required premium payments will never go up.
4. The cash value is one of the main reasons people choose a whole life insurance policy because it accrues interest over time and can be accessed while you’re alive.

3. Universal Life Insurance

This is another type of permanent life insurance – like whole life – with coverage that lasts a lifetime and builds actual cash value. This means policyholders may be allowed to use the policy’s cash value to pay for premiums. With universal life, the interest rate earned on the cash value is subject to change over time. A benefit of a universal life policy is the flexibility to raise or lower premium payments within certain limits, so it may end up costing you less than whole life coverage.

4. Disability Insurance

If you cannot work, it’s hard to produce income. Disability insurance steps in to protect your paycheck so that you can pay your bills in the event of sickness, injury, or a major health event that causes you not to be able to work.

The difference between short-term and long-term disability insurance:

• Short-term: This will last for a shorter period, usually starting at a few months and no longer than a year.
• Long-term: This type can last up until your retirement. Note that your long-term disability insurance will not begin until any short-term disability benefits have been exhausted.