Here at Legacy Partners, we understand life insurance coverage can be overwhelming. You just want to make sure you and your family are protected, but with all the options to consider, and the complex terminology the industry uses, it can seem like you need a dictionary just to understand what coverages you are applying for! Trust us – it doesn’t have to be difficult. There are really only three important decisions to make about your coverages.
Decision #1: Do you want temporary coverage that lasts for a specific time period, or do you want permanent coverage that lasts for your entire life?
Term Life: Term life policies provide coverage for a set period, typically between ten and thirty years. Term life is cheaper than whole life. The downside is your policy may never pay out. Your beneficiaries will receive a payment if you die within the specified time frame; however, no payment will be made if you live past the fixed time period.
Whole Life: While there are a number of different options that fit within this category, whole life policies provide permanent life insurance, meaning you have coverage for the rest of your life. This coverage is more expensive than term life. Whole life policies also have a cash value component, in which a portion of your premium dollars is invested in a cash value account that grows tax-deferred over time and can typically be borrowed against.
Still not sure which option is best for your needs? It doesn’t have to be an either/or proposition. Many people we work with choose to have one whole life policy and one term life policy to provide some coverage for life with a cash value component, and additional coverage if they pass away during the term to help cover big ticket expenses for their families (mortgages, college tuition costs, etc.).
Decision #2: How much coverage do you need?
The amount of life insurance you need is determined by your unique circumstances. Consider the following:
- Your financial situation
- The number of people who are financially dependent on you
- The value of your assets
When purchasing life insurance, a good guideline is to purchase ten times your annual income in coverage. For example, if you earn $80,000 per year, it is recommended that you purchase $800,000 in life insurance. Some individuals may benefit from more or less coverage depending on the policy they purchase.
Our agents at Legacy Partners can assist you in determining how much coverage you need, and which policy is best suited to your needs and lifestyle.
Decision #3: Which payment plan is right for you?
Single Payment: For those of you looking at whole life insurance options, the easiest payment method is just to pay the full cost of the policy up front in a single payment. That way you’re covered for life and will not need to make any additional payments.
Level premium plan: Want to pay the same amount monthly, quarterly, semi-annually, or annually? Great, that’s easy to do with level premium payment plans! These options are available for both term and whole life policies. With term policies, you can pay a level amount for the whole policy term; with whole life policies, you can pay the same amount for your whole life OR you can choose a fixed payment duration (e.g., 10 years, or until you turn Age 65) where you are insured for life as soon as your payment period is complete.
Flexible premium plan: Not sure you want to be stuck paying the same amount on a regular basis for an extended period of time? We find some people prefer a flexible premium payment plan where the policy owner can adjust the premium payment amount at any time within a range defined by the insurer. This can result in a change in coverage terms, like death benefit amount, but provides greater flexibility. With many flexible premium policies, the policyholder can even choose to pause payments for a while before restarting them.
Life Insurance FAQS
Why do I need life insurance?
Life insurance allows you to build a financial safety net for your family, guaranteeing that they are secure in the event of your death, which is extremely beneficial to their peace of mind. Paying off a mortgage, providing for children, planning for college, and replacing lost income are all examples of this. The best financial preparation guarantees that your family will be taken care of even in the worst-case scenario, which is exactly what life insurance does.
At what age should I start looking into purchasing a life insurance policy?
When it comes to purchasing life insurance, the younger you are the better. Looking at getting life insurance in your twenties is smart because you will be eligible for lower premiums that you can lock in for life. Additionally, as you get older, you may develop health issues that raise the cost of insurance or possibly prevent you from purchasing certain plans. Although you may not need life insurance yet, it is smart to purchase it young because you will have it for years, if not your entire life, and you will pay a lower premium while also preparing for your future needs.
Should I get term or whole life insurance?
If you want general coverage for a set period of time, term life insurance is the way to go. Term life insurance is a fantastic option if you want an affordable way to leave a death benefit that will financially support your loved ones and you plan to self-insure, convert your policy, or purchase a new policy in the future. If you want long-term coverage that never expires, whole life insurance is the best option. This is a great choice if you want to reduce your estate tax, build cash value, or have long-term dependents who rely on you financially. Although every situation is different, both term and whole life insurance are great options that can be tailored to your personal needs.
Why should I buy life insurance for my children?
We understand that when you think of life insurance, buying this coverage for your children probably isn’t the first thing that comes to mind. However, there are a number of great reasons to consider life insurance for your children starting at a very young age: (1) coverage is relatively inexpensive; (2) you can use a whole life policy as a savings/investment vehicle that your child can borrow against at a later age; (3) you can get life insurance coverage in place now so that they don’t run into eligibility or insurability issues if they try to apply for coverage later in life.
Not sure a separate policy is needed? Some carriers allow you to purchase a child rider as an "add-on" to an individual life insurance policy, that not only covers your child's life, but also can be converted into a permanent policy later in life without the child having to prove insurability.
An insurance-based product that is tax deferred and can provide a stream of income at retirement. It's a contract with an insurance company in which you pay a premium, similar to life or health insurance premiums, in exchange for regular payments over a specified period, potentially the rest of your life. You can annuitize your funds, which is the process of receiving an annuity payout in a series of periodic payments, or you can put your funds in an annuity for a long period of accumulation (or growth) before withdrawing it in a lump sum amount.
What happens to my annuity when I die?
The death benefit is a unique feature of an annuity. If an annuity owner dies before receiving all their annuity payments, the remaining assets can be transferred to a surviving spouse or beneficiary.
What does it mean for something to be tax deferred?
Annuities are tax-deferred, meaning that interest earned on the money is not taxed until it is withdrawn. This status increases the income growth of an annuity account.
Why should I choose an Annuity over a Mutual Fund?
Mutual funds follow the market conditions. While they may provide a better rate of return when conditions are favorable, they also come with a greater danger of losing income and interest. Annuities, on the other hand, offer a consistent, low-risk stream of income regardless of market conditions.
A long-term care insurance policy helps you cover the costs of care if you have a chronic medical condition, a disability, or an illness like Parkinson’s disease. Most policies will cover you in a variety of locations, including your home, a nursing facility, or an assisted living facility. Long-term care costs, especially for individuals in their 50s and beyond, should be factored into any long-term financial plan.
Long-Term Care FAQS
When should I purchase a long-term care policy?
Long-term care coverage becomes necessary in people's 40s and 50s, but you don't want to wait until you become ill and need it right away to purchase it. This is something to prepare for and doing so when you are younger makes it more affordable and easier to plan for.
When do I have access to my benefits with long term care insurance?
Before receiving coverage, most policies require you to demonstrate that you have lost the ability to perform at least two or three daily tasks. Most policies also include a deductible, often known as an "elimination period," which is a specified number of days between the time you become disabled and eligible for benefits, and the start of your coverage.
Can I purchase long term care insurance for someone other than myself, such as my parents?
Yes, you can! You can pay for the policy and then name your parents as the beneficiaries. If you know you will be the primary caretaker for your aging parents, purchasing insurance on their behalf can help cover the costs of their long-term care.
End-of-life expenses, such as funeral and burial costs, are covered by this type of life insurance. These policies are permanent in the sense that they will continue to exist as long as you pay your premiums, but they do not have any cash value or investment component to them. Without dependent children, older adults frequently purchase final expense policies to protect loved ones who might otherwise be responsible for these costs.
Final Expense FAQs
Who are the best candidates for final expense insurance?
A final expense policy can help both healthy seniors and those with terminal illnesses. When people are ill, these policies are easier to obtain because they don't usually require a medical examination. They are also ideal for parents with adult children who are no longer financially dependent on them, reducing the need for a large amount of life insurance and instead for a smaller policy to cover final expenses.
Are final expense policies more expensive than other types of life insurance since they are purchased later in life?
While it is possible to get a more affordable 20-year term policy, many older people have health issues that prevent them from doing so. Final expense policies can be even less expensive than term life policies, depending on the amount of coverage you need, and are a far better option for older individuals with health concerns who need permanent coverage.