On the Work It Mommy podcast, I sat down with Clarissa to chat about Life Insurance Options. This is probably a topic that is not discussed enough but that needs to change. A part of being Financial Literate means we have to plan for the unexpected. Especially when the unexpected, death of a spouse in this instance, can be financially devastating to a family.
We all know that the next day is not promised to us and we all either know of someone who tragically passed away or we know of someone who has lost someone suddenly or expectantly. Nothing, and I mean NOTHING, can right the wrong of losing a loved one. But we can prepare financially for a death and it shouldn't be a taboo subject. Let's talk!
How to Choose
The type of life insurance to choose will depend on your needs and goals. Check out the details about the 4 main types of life insurance
Term Life - Term Life insurance is sold in a variety of lengths (10, 20 or 30 year terms) and is ideal for those who are concerned about having coverage during a term, such as when your kids are young. A young couple about to have kids may be interested in a 20 year term life policy. If something were to happen to either parent, the insurance money would assist with paying off debts and assist with raising the kids. Term Life insurance is one of the cheapest policies and the price will vary based on the term length. But rest assured that the price you pay will remain consistent throughout the entire term.
Whole Life - Whole Life insurance is considered as a permanent policy. This policy will stick with you until death and the payments will be consistent throughout the term. But the price for this policy will be higher than most other term and permanent policies (often 5 to 10 times more than a term policy rate) which can be a problem for many as we age and may be on a fixed income. If payments on the policy lapse, then coverage will be terminated. One thing to note is that Whole Life insurance comes with a guaranteed rate of return on the policies cash value. This cash value is part of the monthly premium and can accessed by the policy holder. Whole Life is not a favorite option for the financial savvy. A prospective policy holder might be better off investing their premiums in the stock market as opposed to buying a Whole Life insurance policy.
Universal Life - Universal Life insurance is also a permanent policy which costs less than Whole Life because it comes with little or no cash value. You will also choose the age in which the death benefit is guaranteed, such as to age 95 or 100.
Variable Life - Variable and Universal Life Variable life insurance is similar to Whole Life in the sense that there is a cash value tied to the premium that you pay. That cash value is invested in mutual funds or bonds. It's different from all other insurance plans because the reoccurring premium and change and the death benefit is not guaranteed. This type of insurance plan requires more hands on attention since part of your premium is invested. This is not the solution for someone looking for a policy that they can purchase, put on autopay and forget about it.
When to Buy Life Insurance
Do not delay! The time to buy life insurance is when you are young and healthy. This is when it will be the cheapest. If you wait until you are older, your rate could sky rocket with any sign of disease such as high blood pressure, diabetes or just being over weight.