There are many different types of life insurance policies for various needs and depending on the company selected the life insurance product offerings may be different as well. Life insurance investments can be a poorly decided investment especially if one has chosen an unsuitable life insurance product for his/her financial situation, which may result in policy cancellation later creating a possible financial loss in the long run.
So today, let’s review different types of insurance policies and pinpoint which policies are more appropriate for different situations. There are two central types of life insurance – permanent and term life insurances. Permanent life insurance means that the death benefit would be provided for a lifetime or until the specified age later in life, usually the age of 90 onward. Term life insurance means that the death benefit would be given if the insured passes away during the designated period of time. Because the chances of someone dying within a specific period of time at a younger age is much less than at an older age in life, the cost of term life insurance is significantly less than its counterpart and for the same cost, the term can provide much higher death benefit compared to permanent policies.
Fast Fact: The small differences between permanent- and term-life insurance should be discussed with an advisor so that the most suitable choice is surfaced.
For young parents, with young children, and a tight budget, term policies may be a preferable option as they provide a wide range of protection with minimal cost. However, purchasing a life insurance policy when you’re older in age comes at a higher price, therefore, incorporating term and permanent policies or converting term policies as soon as possible may be more economical and beneficial in the long run.
Often times, the cost of term policies increases significantly after the term is over especially for insureds that are older in age. Therefore, term policies may not be economical for those older than 65-years as a majority of term policies provide coverage until age 80-85. However, if the choice is between having a term policy coverage vs. not having coverage at all, it would be best to have at least some coverage even if it is a term policy. When choosing a term policy, it is important to choose the period of coverage based on protection needs to make the term life insurance policy a meaningful protection policy that can payout at the time of need.
In today’s day and age, where life expectancy reaches up to 100-years and beyond, it is also important to consider life insurance needs for various reasons other than just passing away from an accident. Life insurance policies may provide protection for the income from the income-earning spouse especially when the children are young and need educational and other support, and upon passing at an older age to supplement the income that may be lost (i.e. social security or pension or other business income) and also provide a way to leave a gift to the beneficiary or to fund funeral expenses to help reduce financial burdens on the family.
On the other hand, there is a common misconception that permanent life insurance is expensive and does not benefit the insured during his/her lifetime. However, there have been a number of changes within the life insurance industry and benefit is not only limited to beneficiaries to reap but also for the insured while they are alive. Majority of carriers now provide living benefits such as the use of death benefit towards chronic, critical illnesses, or even as supplemental income during retirement. Some individuals prefer having chronic illness coverage inside their life insurance policy rather than having a separate long-term care policy with the fear that they may pass away from a sudden death without utilizing the long term care benefit. In case of life insurance policies with chronic illnesses, a death benefit will be provided either as a form of chronic illness benefit while alive or as a death benefit to beneficiaries if it was not used so there is no chance of losing the life insurance value over time. For this reason, many have begun looking at the use of life insurance for insured’s benefit rather than just protection and gift for the beneficiaries.
There are also other benefits added to the ones mentioned, in some cases, cash value depending on the performance result of the different types of investments. In summation, when purchasing a life insurance policy, it is important to discuss your current financial situation and future outlook hand in hand with insurance needs based on what stands as a priority versus preference. Careful life insurance planning with a life insurance agent or a financial planner will drastically reduce chances of canceling a life insurance policy as time passes and hopefully create a better chance at protecting and growing your assets through life insurance policies.
Disclosure: Profectus Financial does not provide legal or tax advise. Please consult your own legal or tax advisor for the qualification of any investment or tax strategies. This is for educational purposes only. This is not a solicitation of a particular investment product or company.