A recent study by the Life Insurance and Market Research Association reveals to us that nearly 56% of Americans do not have an individual life insurance policy and 30% have no life insurance coverage at all. That number appears to be on the rise, as navigating the choices and weighing all your options can seem a bit daunting.
Of course, there are many reasons that people have not yet purchased a life insurance plan. It can be difficult to contemplate the very subject of why we need life insurance. Many of us simply consider it a "one day" need and with busy lives we often relegate it to the back of our to do list. And many people believe that their employee policy will be adequate coverage. Unfortunately, these policies rarely offer meaningful coverage that provide you with the benefits you and your family need.
Ultimately, while the reasons all vary, it is important that we refocus our efforts on ensuring our families are provided for and taken care of, in the event life throws us a curve ball. You do want to ensure that money for final expenses is there should it become needed. The good news in all of this is that unlike health insurance today, life insurance premiums have actually been lowered over the past 10 years, as people are living longer and longer.
Term Vs Whole Life Insurance
Although the word “term” is a common phrase among insurance professionals, many people are confused about the concepts of Term versus Whole Life insurance. Simply put, a Term policy provides coverage for a set number of years; some companies offer 30 year terms if you are under age 50. When you reach the end of that year, the policy terminates, but is renewable on an annual basis with an annually increasing premium. Many policyholders share that the increasing premium can become difficult to continue paying at the higher rate. However, the upside is that for the time period of the original policy, the premium and benefit will remain “level,” meaning it won’t change.
A Term policy will state that it is renewable to a certain age, which might be 85 or even 95, depending on the company. Building on our thought above – it means that you can keep renewing it, paying the new premium, each year to that age. The other alternative is to “convert” the policy, which means you can exchange it for any other type of policy offered by that same company, and you will not have to answer any health questions. If your health has changed by the end of the initial term, conversion may be your only option.
Term insurance tends to be a popular choice because it’s less expensive; however, keep in mind that the “renewal” period should be not be confused with the actual life of the policy. Other points to consider: You are only paying the cost of insurance which is averaged over the intended period. Typically, the policy holder will outlive their Term insurance, so the company counts on getting years of premium without having to pay the benefit. Most of the time, it does work in their favor. However, for those who do have an untimely death, the term insurance is indispensable in providing for the surviving family. You can look at Term insurance in the same way that you regard car insurance. You know you are paying for something that you hope you won’t have to use. However, if you have an accident; you certainly want the company to help you replace the car. You willingly bear the expense for that peace of mind. The same applies to Term life insurance.
If you want the assurance that eventually the premium you are paying will provide a benefit to someone, then you may wish to consider Whole Life, also called “permanent life” insurance. It lasts your entire life and in the event that you live to be 120; it will pay the face value to you even though you are still living. The term for that is “endowment.” It is more expensive than that of Term insurance because the company knows that sooner or later —they hope it will be MUCH later— they will have to pay the face value of the policy. They hope to earn enough on the investment of your money to be able to pay the claim and still make a profit. However, the benefits to you, the client, make whole life worthy of consideration.
Start by considering your reasons for purchasing life insurance. If you are simply in need of a large amount of money to pay off a mortgage in the event of your death, or to help provide for the college education of your children, a term policy may be the right selection for you. Thirty years from now, the house will be paid for and the kids will be grown; then you won’t need a large policy unless you have a very large estate involving inheritance taxes (over $2 million in assets). If, however, you want to leave a legacy for your beneficiaries, a favorite charity, or have an estate or retirement funds on which your beneficiaries would have to pay taxes after your death; you want insurance that will last until the day you die. That would be permanent or Whole Life insurance.
Although Whole Life is definitely more costly than Term insurance, it is very affordable if purchased at a younger age. Premiums vary by company, but for many, it seems that policies purchased under age 50 are significantly less expensive than over age 50, and the spread from one year to the next for those under age 50 seems to be less.
Whole Life has some advantages not available on Term policies. It builds cash value, which means you can borrow against Whole Life insurance or even cash it in if at some point you feel you no longer need the insurance. And unlike Term, the premium will never change as long as you live. So there is much to consider and both serve a valuable purpose!
Riders and Modifications
Both Term and Whole Life insurance are available with a variety of riders such as additional accident insurance, spouse term insurance, children’s term riders, and disability waivers. In some cases, if you have a policy with a disability waiver, the insurance company will continue to pay the premium if you become disabled even when the policy is in its annually renewing phase. If you have riders for your spouse or children, they are automatically eligible to convert their riders, without health underwriting, into any form of life insurance the company offers.
Both Term and Whole Life are sold with “level” premiums. However, be alert for “modified” policies. These are usually sold only by mail and often offer a one or two month premium as low as $1.00 just to get you to sign up. If they are “modified,” you can usually count on the premium increasing every time you enter a new five year age band at the very least. Pay attention to the fine print, work with an agent, and make sure you get a “level” premium whether you decide on a Term or Whole Life policy.