People buy life insurance for all sorts of reasons. Some feel that it’s a good investment. Some feel that it’s just the thing that responsible adults should do. But the number one reason that people do (and SHOULD) buy life insurance is because of the people they love.
Providing for those that depend upon you in case of your untimely death is the point of life insurance.
So each September during Life Insurance Awareness Month we encourage you to review your life insurance to make sure that it is meeting this one, all-important goal; taking care of those you love.
Though there are many unique types of life insurance, they can almost all be categorized as either Permanent or Term. Knowing the differences in these main categories will help you to choose the best fit for your needs and those that you love.
Permanent Life Insurance
A Permanent or Whole Life policy is aptly named, as it is designed to last for your whole life. Many of these policies also have saving and borrowing mechanisms within them that allow them to accumulate cash value over time. This is why they are often considered as part of a retirement plan. In order to allow for that and to compensate for higher mortality risk in later years, premiums are much higher than their counterpart, Term Life Insurance.
Proponents of Permanent/Whole Life policies use it as a vehicle to save for inheritance, whether your inheritors are children or adults, as well as to borrow from later in life as needed.
Term Life Insurance
This type of life policy is much less expensive but, as a result, doesn’t reap dividends throughout it’s life. It is only valid for the term during which it is purchased and, if it isn’t used (the insured does not die) during the term, it expires.
Proponents of term policies advocate using it only during the time period that you have people that depend upon you. For example, if you purchase the insurance at the age of 20 for a forty year period, it expires when you are 60. If, at that point you have investments to meet the needs of your spouse in case of your death and your children are no longer dependent upon you, you may not have need for a life insurance policy at all. Rather, long-term care insurance and non-insurance investments would ensure retirement and the ability to leave an inheritance.
Which is Right for You?
Answering that question without looking at the larger picture of your portfolio would be unwise. And the many varieties of policies underneath these umbrellas of Permanent/Whole Life and Term Life (Decreasing Term Life, Limited Pay, Graded Premium and Adjustable Life, to name a few), further complicate the answer.
The best way to choose life insurance is as a piece of your entire financial outlook. If you don’t have other mechanisms to save and want to leave an inheritance to your beneficiaries, Permanent/Whole Life might be worth the additional cost. If you only need insurance during the time that your dependents depend upon you and you have a clear financial plan for inheritance and self-care in retirement, saving premiums on Term Life might be a better option.
Whatever you decide, just make sure that you do it!
Do it for the love of the people who depend on you.
As you sort through the Life Insurance options to choose the best fit for you and your people, please feel free to contact your Compass Insurance Partners agent. We’re happy to help.