Life Insurance
Life insurance is a policy that pays out upon the death of a loved one where the named beneficiary receives the death benefit in a lump sum tax-free. The idea behind life insurance is to make sure your family is financially secured upon your passing. You can purchase one of three types depending on your needs which include Term Insurance, Whole Life Insurance, and Universal Life Insurance.
Term Insurance:
Term insurance, also referred to as temporary insurance, is a life insurance policy that expires after a length of time. Policies usually come in a 10 year or 20-year term with the option of a guaranteed renewal. Term insurance is the cheapest of the three and usually used to cover expenses such as a mortgage or until children grow up and move out on their own.
Participating Whole Life:
Participating Whole life is another form of life insurance but unlike term, this policy stays in place for the whole life span of the individual. As long as all premiums have been paid the death benefit will be paid to the designated beneficiary upon your death. Your premiums will be more expensive compared to term but they will remain consistent through the life of the policy. When you buy participating life insurance, you are also eligible to receive policyholder dividends, which can be used to buy more coverage, reduce your premium payments or taken as cash. Any withdrawals made will be taxed, which is something to consider.
Universal Life:
Universal life insurance offers you flexible, cost-effective lifetime coverage that can be personalized to match your changing lifestyle. It’s combined with a tax-advantaged investment component, which you can manage based on your financial goals and risk tolerance. The money you pay goes into a policy fund that’s used to pay for the cost of your insurance coverage. The remaining balance is invested on a tax-advantaged basis. You choose from a variety of investment account options based on your objectives and tolerance for risk. The growth of your investment account depends on how well your investments perform, and the size of your premium payments. The money in the account can be used to help make future premium payments or provide a source of future savings. That money can be borrowed against, withdrawn or left to your beneficiaries. Keep in mind that borrowing or withdrawing money from your policy will reduce its cash value, and how much money your beneficiaries will receive when you die.
| Term | Permanent | |
|---|---|---|
| Duration | 10 years or 20 years | Lifetime |
| Age | 18 to 65 years old | 0 to 75 years old |
| Description | -instant coverage for a specified length of time – cheapest form of insurance -ability to renew until death – option to convert policy until the age of 70 without providing evidence of insurability. |
-premium remains the same throughout the policy life -offers a surrender value that increases over time. -ability to select premium due dates. |
| How to Pick the right type | – limited budget -reimburse debt in a short or medium term |
– you wish to leave an inheritance – have insurance no matter your health condition |
| Cost | $ | $$ |