The future will always be uncertain, which can leave you feeling unsettled. One thing you can do to give yourself some peace of mind in this unpredictable world is putting a plan in place now to ensure your loved ones are taken care of financially if you were to pass away. Think of your life insurance plan as setting out a safety net for the most important people in your life so that they have the means to continue with the same standard of living should something happen to you. Having a life insurance policy in place can often mean the difference between being able to keep the family home or being forced to put it on the market.
To make sure you’re making the right coverage choice for your family, start with figuring out what life insurance coverage you need. Having a thorough understanding of the different types of life insurance and riders available will help you determine what level of protection works best for you.
There are two main types of life insurance: term life insurance and whole life insurance. As its name suggests, term life insurance provides coverage for a specified term. That term usually ranges from five to 30 years, and your rate is locked in for that term. It is a more affordable, simple policy when compared to whole life insurance.
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It might be helpful to think of term life insurance as renting life insurance rather than owning it; many people use it as a short-term solution to cover a set amount of debt. For example, perhaps you have a $100,000 loan that would take 10 years to pay off. You could get a $100,000 life insurance policy for a 10-year term to cover the debt. If you passed away during those 10 years you’re paying off the debt, the $100,000 lump sum of your life insurance would be paid to your beneficiary, which they could use to pay off your remaining debt.
Alternatively, whole life insurance provides coverage for your entire life–as long as you have paid your premiums. Rather than renting life insurance, like in the case of term life insurance, whole life insurance can be compared to owning your insurance policy. While it is more expensive and complex than term life insurance, it comes with several benefits, including the policy itself building cash value over time. What’s this mean? Given that the policy itself has a cash value, after a waiting period, you could borrow money against the policy’s accumulated cash value, use the cash value to pay your premiums or cash out to spend during your retirement.
While whole life insurance provides protection for your whole life, there is another layer to this type of policy you may want to take into consideration as well, on top of the protection it provides–they can be participating or non-participating. As a participating policyholder, you earn dividends on the investment portion of your policy–and you can then withdraw or borrow against your savings, or simply let your funds accumulate and grow. On the other hand, as a non-participating policyholder, you typically pay lower premiums compared to participating policyholders, however, the profits are not shared and no dividends are paid to policyholders.Â
When it comes to whether you’re more of a term or whole life insurance type, it comes down to some key factors while taking into consideration your age, health, family’s financial needs, your children’s ages, your long-term health risks and concerns and retirement plans and the level of protection you would like. Generally speaking, term life insurance is best for individuals with life insurance needs of 20 years or less or for those looking to pay lower premiums. Whole life insurance, in comparison, is best for people who want permanent life insurance protection and are happy with accumulating the cash value of the policy. Ultimately, you’re best off speaking to a licensed at about your individual circumstances and the level of protection you are interested in. Advisors can address your concerns, while explaining the finer details of insurance policies and provide expert recommendations that best suit your specific needs.Â
Add on Your Riders
Once you’ve chosen between term or whole life insurance for your personal circumstances, you can then consider purchasing additional coverage, known in the insurance industry as riders. Four of the most common riders include critical illness insurance, disability insurance, guaranteed insurability and waiver of premium. What exactly are these customized add-ons when it comes to protecting you?
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Critical illness insurance protects you if you were to suffer a serious illness such as cancer, a heart attack, or stroke and you became unable to work. If, after your waiting and qualification period, you are diagnosed during your coverage term, you would receive a tax-free, lump-sum payment, which you could use towards medical treatments, family expenses, debt or however you wish. It allows you to cover your financial commitments, maintain your standard of living and focus on your recovery during this period of decreased income.
Disability insurance, on the other hand, protects your income if an unexpected illness or injury prevents you from working. Because while your income comes to a halt while you are out of commission, your bills and living expenses continue to add up. Disability insurance replaces a substantial portion of your income, however rather than a lump sum payment as with critical illness insurance, with disability insurance you receive regular tax-free monthly payments while you recover or until the end of your coverage period – whichever comes first. Once you are able to work again, the benefits usually stop.
Another common rider, guaranteed insurability, allows you to increase your insurance coverage at certain times, without having to complete a medical questionnaire or medical test. It makes it easier to adjust your coverage when you need it, rather than applying for a brand new policy, which would likely demand higher premiums. It can be a particularly important rider to have when you consider the unpredictability of life–a chronic illness, for example, may make purchasing life insurance much more expensive. Having the guaranteed insurability rider gives you the option to increase your coverage in the future should you need it–perhaps, say, you get married or have a baby. It’s a clause that permits some flexibility to your coverage needs.
Another common rider, waiver of premium, allows you to skip premium payments if you become critically ill, seriously injured or disabled and are unable to work. It would free up cash you could use on other life necessities. It could be a particularly worthwhile rider for a younger person buying a policy with a long term (plus, the premium is typically lower for younger people as well). Keep in mind, however, that some policies require that you meet certain health and age requirements.
When considering riders, weigh the cost of the rider with the financial risk; remember, too, that the rider may never be used–you may never experience an unexpected prolonged illness, for example.
Still have life insurance questions? A licensed from can take into consideration your coverage needs balanced with your financial goals and advise on the policy and riders best suited to you. Connect with a today by calling 1-888-444-6711 or booking an appointment online.
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