Ring buoy saves lives

In this article, we are going to give you the life insurance basics you really need to know before you make any buying decisions. We are going to clear the air as there is plenty of misinformation spread by financial entertainers, bloggers and inexperience agents.  The truth is, all life insurance policy types have a specific purpose.  Some are more complicated, more expensive, some are temporary and others are permanent.

A clear understanding of the differences is the point of this article. The nuts and bolts we are providing here should get you a good general understanding of what Life Insurance is and is not.

First and foremost, life insurance protects against financial loss associated with the death of an insured person whether that is your life or someone else.  Coverage insures the inherent financial value of the insured individual’s life to those around them (beneficiary(s)).  The financial value of the insured’s life is transferred to the beneficiary(s).

A policy will always contain a named insured, a policy owner (who can also be the named insured), a premium payor and at least one named beneficiary(s).  The beneficiary(s) or “financial recipient(s)” are named by the the policy owner. Any change of this is only at their discretion. The policy owner controls all the rights granted under the policy including beneficiary changes. The insured individual, unless also the policy owner, will not have any access to benefits under the policy. These are retained by the policy owner. Death benefits will always be paid to the current beneficiaries as named by the owner of the policy.

Life insurance pays out a sum of money either on the death of the “insured person” or after a set period of time.  In the event of death of the insured, a “death benefit” is paid to the defined beneficiary or beneficiaries in the policy who were named by the policy owner. Yes, the policy owner can be the insured or just the payor/owner.

Most Common Types of Life Insurance

There are 2 very distinct classes of insurance that makeup all of the different life insurance products on the market.  They are the basis of all life insurance products out there.  Those two classes are Temporary or Permanent Insurance.  You will need to know whether you are thinking temporary or permanent protection as you move forward. If the time table you need coverage for is unknown or beyond 30 years, you should be thinking permanent life insurance.  The first step is eliminating policies that don’t meet your goals.

Term Life Insurance

  • Term life insurance, is temporary insurance. As such, it only provides coverage for a limited period of time.  Typically 10, 15, 20, 25 or 30 years.  It is pure death protection.  The term of the policy is selected at application by the “policyholder” (owner of the coverage).  After that “term” or period expires,  the life insurance coverage at the previous term rate or cost is no longer guaranteed or the policy just expires.
  • Premiums will go up sharply at the end of the “term.” During the “term” while you are paying a premium to the insurance company and the insured dies, the death benefit will be paid to the beneficiary named by the policy owner.
  • Since it is not permanent insurance, the cost is much less. However, term insurance is harder to qualify for if it has level premiums. You will be required to answer health history questions at a minimum. There is no guaranteed acceptance for any term life insurance policy on the market.
  • Term insurance provides the greatest amount of pure death protection for the lowest premium when compared to any other type of life insurance policy.  However, there is a usually a maximum age which the insured will not be covered
  • Term insurance has no cash value though it may have some living benefits if their are changes in your health which allow access to you some of the death benefit amount. Loans are NOT available from a term life insurance policy.

Whole Life Insurance

  • Whole life insurance, is a permanent insurance policy that remains in force for the insured’s whole life, hence the name.  The policy may pay the policy owner dividends if it is a participating or “par” policy.
  • Straight forward, lifetime protection with cash value account accumulating in the policy and requires (in most cases) that premiums to be paid consistently into the policy to avoid lapse.
  • This type of policy is always more expensive due to the increased benefits and that coverage is permanent. t. You cannot outlive this type of policy.
  • Available in smaller policy amounts allowing those who need smaller policy amounts the ability to keep their budget in line with their family goals and still have lifetime protection.
  • Cash value accumulation that can be accessed as a loan, lifetime coverage, guaranteed performance and dependability over time regardless of change age and health make this the most expensive type of coverage.

Universal Life Insurance

  • Universal is the newest type of permanent life insurance.  Typically less expensive than whole life, but more complex under the hood.
  • In additional to the face amount (death benefit) there is often a cash value accumulation.
  • The difference with universal life coverage is that premiums are adjustable (flexible). However, this does create some complexity you will not see with traditional whole life insurance or term life insurance. 
  • Cash value accumulation credited to cash account is determined by the insurer, but has a contractual minimum rate of 2%. When an earnings rate is pegged to a financial index such as a stock, bond or other interest rate index, the policy is a “Equity Indexed Universal Life” contract.
  • There are many different kinds of universal life insurance beyond the scope of this article.  Our most recommended universal life product is called No-lapse or Guaranteed Universal Life. This offers the financial security of permanent protection with “term-like” insurance rates.
  • Policies starting at $50,000 and up

These are the key life insurance basics now under your belt.  Life insurance products do very greatly in cost but they all have their purpose. 

Before applying, understand that age, your overall health, lifestyle and amount of coverage will be the factors that influence your price at purchase time. As risk increases to an insurer, the cost of insurance will rise, period. 

A permanent form of life insurance will obviously cost more than a temporary one. The life insurance company is on the hook for as long as you own the policy. They will be paying for the loss of life. 

If you haven’t already, be sure to get an instant quote from the tool right here. Find out how much you might expect to pay for the type of life insurance you are considering. Becoming educated is part of the process, now it is time to start getting some numbers to see how it aligns with your needs and budget.

In the end, as you move forward with buying coverage, it is very important you speak with a seasoned and independent life insurance expert prior to applying.  He or she is going to be able to steer you in the right direction and ultimately help you secure the most affordable coverage you can obtain.

Our interest is in helping you sort out what is most important to you and how to obtain ideal protection for your family and/or business.  What follows is absolute peace of mind and added financial security.

We try to make our articles and tutorials as simple to understand as possible.  Let us know how we can improve the information if you feel so inclined.

​Contact us to learn more about the right insurance for you, 269-244-3420.  We’re here to help.