• Life Insurance 101:
    What everyone should know

What is Life Insurance?

Life insurance is a simple answer to a very difficult question: How will my family manage financially when I die?  It's a subject no one really wants to think about, but if someone depends on you financially, it's one you cannot avoid.

There are many types of life insurance, but for all of them the bottom line is the same: They pay cash to your family after you die, allowing loved ones to remain financially secure.  Life insurance payments can be used to cover daily living expenses, mortgage payments, outstanding loans, college tuition and other essential expenses.  Another important feature of life insurance is that the death benefit proceeds are almost never subject to federal income taxes.

If you've worked hard to establish a financial framework for your family, life insurance is the foundation upon which it all rests.  It can guard against the need for your loved ones to make drastic changes to future plans when you die.  Certain types of life insurance policies even have built-in cash accumulation features that can help you reach your savings goals.

Most Americans need life insurance, and many who already have it may need to update their coverage.

Why Do You Need Life Insurance?

Protect Your Family

Help maintain your family’s lifestyle by replacing your current income.  The death benefit proceeds can be used to keep up with everyday expenses.

Cover Your Mortgage

Help protect your family’s home by enabling them to pay off the mortgage.  This can help them stay where they’re comfortable.

Plan For Your Child's Future

Help safeguard your child’s future by keeping the college fund intact, helping to ensure that money for your child’s education will be there, even if you’re not.

Replace Retirement Income

Life insurance has a number of tax advantages that can be utilized while you’re living to help supplement retirement income.

Prepare For Estate Tax

Estate taxes can be an unexpected reality for many heirs when it comes to inheritance.  Life insurance can provide the liquidity needed to cover the remaining tax due.

Provide Final Expenses

Help provide funds for final expenses such as funeral costs and outstanding medical bills, to help ensure that financial difficulties won’t be among your family’s sorrows.

Term vs. Permanent Insurance - Which To Buy?

While everyone has heard the term “term life” or “whole life” insurance, many don’t understand the difference between the two. 

Scroll below to learn more and to determine which type of policy would be the best fit for you.

Term Life Insurance

Provides A Tax Free Death Benefit

Underwriting Required To Obtain Coverage

Additional Riders Available

Premium Locked In Indefinitely

Ability To Build Tax Advantaged Cash Value

Permanent Life Insurance

Provides a Tax Free Death Benefit

Underwriting Required To Obtain Coverage

Additional Riders Available

Premium Locked In Indefinitely

Ability To Build Tax Advantaged Cash Value

Frequently Asked Questions:

Which Type of Life Insurance Is Best

While there is no cut and dry answer to this question, you can determine which product would be the best fit by determining your exact needs.  If life insurance coverage is really only needed for a set number of years (ie. the kids graduate college, the house is paid off, etc.) then a term life insurance policy would likely be your best option.  If your need is more permanent in nature or you'd prefer to have a guarantee that the policy will pay a benefit at some point in time, a permanent life insurance policy would likely be best.  Permanent life policies also can be utilized to supplement retirement income or protect against other expenses down the road such as long-term care.  If you'd like your policy to also help in those areas a permanent plan would be a great fit.

Do I Need To Complete A Medical Exam?

While the majority of life insurance companies still require a blood test and urinalysis for the vast majority of life insurance sold, there is a growing number of products and companies available that do not require a paramedical exam.  Most of these companies limit the maximum age to 60-65 for “non fluid” underwriting and only allow for smaller amounts of coverage.  However, the industry is definitely moving in the direction of trying to abbreviate the underwriting process.

Is My Premium Guaranteed?

For a term policy, the premium is guaranteed for the duration of the level term period.  For instance, if you purchase a 20 year level term policy, your premium will be guaranteed for 20 years.  At the end of the level term period the premium will likely significantly increase.  Permanent life insurance policies have more flexibility when it comes to guarantees.  Some policies will allow you to determine how long the guarantees will last, while others just simply offer guarantees to age 95 or 100.  Group life insurance policies typically work different than this by increasing your premium at certain ages or every 5 years. 

Am I Too Unhealthy To Buy Life Insurance?

There truly isn’t a “one size fits all” carrier when it comes to life insurance.  Every company has different underwriting niches that they’ve developed to corner a certain part of the market.  It’s important to work with a broker who has access to every company available and has the resources and knowledge to make sure that the optimal carrier is chosen for you, specifically.  Our clients are often amazed at what conditions are considered insurable by an insurance company.  Feel free to ask if you have any specific concerns!

Can I Stop My Policy At Any Time?

Yes, you are not locked in for the full duration of the term policy that you choose.  Life often changes quickly, which can increase or decrease the need for life insurance.  If you ever need to stop the policy for any reason, you can do so.

How Does Life Insurance Build Cash Value?

Every type of permanent life insurance builds cash value a different way.  Typically, the premium that you pay for the policy less the fee to maintain the protection will earn interest that can be used to purchase more insurance, offset your premium costs, or supplement your retirement.  Dividends, index funds, individual stocks and declared interest rates from the insurance company can all be triggers to allow your life insurance policy to build cash value.  It is important to talk with a licensed professional who understands all of the options that are available and then leverages those options with your risk tolerance and desire for cash accumulation. 

Term life insurance does not typically build cash value.  There are policies that include a “return of premium” rider, which allows the policyholder to get a refund of all premium at the end of the level term period.  However, if you’re looking to build cash value within your policy, you’ll want to look at a permanent life insurance plan.

Should I Just Buy Term and Invest the Difference?

In this scenario, the difference between the permanent life insurance premium and the traditional term life insurance premium is invested in a mutual fund, annuity, stocks, bonds, or other investment vehicle.  The idea is that investing the difference would replace or exceed the cash value accumulation of permanent life insurance.  If you are deciding if this strategy is right for you, you need to consider what best suits your personal objectives and circumstances.  For example:

  • You may not have the discipline to actually invest the difference.
  • You need the discipline not only to invest the difference, but also to invest early while the difference between the amount of your term insurance premium and the amount of the premium for your permanent insurance is the greatest. You need to make up early for the dramatic increase in the cost of term insurance at later ages.
  • If you need to renew or reapply for your term policy, the cost may become prohibitive as you get older or if you develop health problems.
  • If health problems occur, you could become uninsurable and not even be able to purchase term insurance when it comes time to renew.
  • The investment you choose may not perform as hoped for.

Carefully weigh knowledge about your habits and self discipline along with the benefits, risks, product features, and any current or future charges associated with any insurance and/or investment product before making a decision about how to address your particular needs.

Should I Purchase Term and Permanent Life Insurance Together?

A common strategy that many people utilize is called "laddering" your life insurance.  The laddering method is a great way to diversify your portfolio while still keeping your costs as low as possible.  Laddering simply means that you are going to purchase both a term life and permanent life insurance policy at the same time.  Term life is quite a bit cheaper than permanent life, so the idea is that you purchase the bulk of your life insurance portfolio with a term policy while needs are at their highest, and then supplement the term insurance with a permanent plan.  As an example: you could purchase a $750,000 - 20 year term life insurance policy and then a $250,000 - guaranteed universal life plan.  The total amount of coverage would then be $1,000,000, but $750,000 would expire after 20 years, leaving the insured with a $250,000 policy guaranteed for the rest of their lives.  This allows them to receive a guaranteed positive return on their investment while keeping costs as low as possible.