Life Insurance: What’s Your Spidey-Sense Telling You?
Life insurance: something no one wants to talk about. While life insurance is not for everyone, it is for those that have loved ones depending on them. In this blog, we’re going to discuss the two options of life insurance that most have heard of, which are term and whole. Most people would suffice with just term, but insurance agents and companies make more selling whole life. You need to understand them for yourself instead of depending on a salesperson to tell you.
Term life insurance is a set term of coverage that is agreed upon by the insurer and client for X number of years. For example, it could be 10, 15, or even a 30-year term. When this term expires, so does your life insurance coverage. For most, they are providing for their family during their working years and/or until kids leave the nest. Term is less expensive when compared to whole life. Term policies typically guarantee the payments stay the same for the term.
When it comes to whole life insurance, most can already tell what that covers. Whole life is also sometimes referred to as permanent life insurance because it stays with the individual until an old age (as long as it is paid for). Whole life can get very confusing and financially dangerous if you are trying to use it for investing, loans, or other uses beyond insurance because of all the fine details that regularly get overlooked, or worse, misunderstood. Part of a whole life premium is to create cash value that occurs in the account. Insurers invest the additional premium which in theory lowers premium payments later. In many cases it is sold so that the insured individual can request a loan for this cash value at a low interest rate and get money “tax free”. This is one of those things that can go wrong down the road if you don’t continue making payments on the insurance or pay back the loan. If the individual dies with a loan, then the beneficiary’s insurance payment is less the loan.
In a few cases with estate tax issues a whole life policy makes sense, but for most of us we need to use life insurance to insure income for a time period and invest the difference. Many agents try to push a whole life policy on clients instead of a term because of higher commission rates. Using a financial planning team like BCR that doesn’t get compensated for the insurance you purchase can help in the decision. Otherwise, it is up to the individual to decide what he or she can afford, if they even need it, and what they think will be the most beneficial for the legacy they are trying to leave for their loved ones.