We’re breaking down the Who, What, When, and Why of Life Insurance this month.
September is National Life Insurance Awareness Month, so the team at Bialke Insurance Agency wants you to understand the need and benefits of one of the most misunderstood and neglected insurance policies available to you, your family, and even your business today.
Let’s start with why you should consider a life insurance policy today.
If you are newly married or building a family, a life insurance policy is paramount to a successful plan for your financial security and future.
Perhaps the most obvious benefit is that a sound life insurance policy can provide financial security for your loved ones in the event of your death. But, what if it’s just you/yourself? Why might you consider a life insurance policy for yourself?
There are many benefits of having a life insurance policy for an individual.
A life insurance policy can often be used as a tool to help you save money on taxes and to create an inheritance for other important people in your life or non-familial heirs or beneficiaries such as a nonprofit organization, foundation, or place of worship.
In addition, certain life insurance policies can be used as collateral for a loan, which can give you access to additional funds if you need them.
Adding a life insurance policy with terms specific to your business is another consideration for a small business owner today. A life insurance policy can be a valuable asset for a business owner for a number of reasons.
First, if the business owner dies, the policy can provide funds to help keep the business afloat during the transition period of either a business sale or closure.
Second, the death benefit from a life insurance policy can be used to pay off any outstanding debts of the business, which can help protect the business owner’s loved ones from having to shoulder that burden.
Third, a life insurance policy can be used as collateral for a loan, which can provide the business with additional funds when needed.
Finally, a life insurance policy can give the business owner peace of mind knowing that their family and potentially their workforce will be taken care of financially if something happens to them.
What are the different types of Life Insurance available for consideration?
There are five different types of life insurance in the market today that can be broken down into two categories: Term Life and Permanent Life. However, most individuals and families find themselves deciding between two products – Term Life and Whole Life.
- Term life insurance:
This is the most basic and straightforward type of life insurance. You pay premiums for a set period of time, usually 10, 20, or 30 years. If you live past the term, the policy expires and there are no death benefits paid out.
However, if you pass away during the policy period, your beneficiaries will receive the death benefits prescribed in the policy. Those monetary benefits can be used to help sustain your loved ones and ease the financial burdens of those day-to-day expenses like a mortgage, education costs, utilities, home repairs, and even groceries.
Learn more about the core features and benefits of a Term Life Policy with the Bialke Agency when you visit our product highlight page.
- Whole life insurance:
This type of policy covers you for your entire life as long as you pay the premiums. The death benefit and the cash value of the policy increase over time, which makes whole life insurance one of the more expensive options.
- Universal life insurance:
Universal life is similar to whole life insurance, but with more flexibility. You can choose how much coverage you need and how much you want to pay in premiums. The death benefit and cash value of the policy fluctuate depending on the stock market and other factors.
- Variable life insurance:
Variable life insurance combines features of term and whole life insurance. The death benefit and cash value of the policy are invested in stocks, bonds, and other securities. The return on investment can be high, but there is also a greater risk that the cash value of the policy will decrease.
- Variable universal life insurance:
This type of policy is similar to universal life insurance, but with the added feature of being able to invest the cash value of the policy in stocks, bonds, and other securities. As with variable life insurance, there is a higher risk that the cash value of the policy will decrease.
What are the benefits or drawbacks of a term life policy versus a whole life policy?
Both types of policies have their advantages and disadvantages. Term life insurance, however, is usually less expensive than whole life insurance but does not build cash value. Whereas, whole life insurance is more expensive but will build cash value you can use during your lifetime for expenses such as paying medical bills, college expenses, buying a car or a down payment on a home — just about anything else you might need cash for.
Plus, because the insurer holds the funds to cover the loan against your policy, there are no underwriting requirements that need to be fulfilled before funds can be distributed.
So, how do you know how to choose the right Life Insurance for yourself and your family?
There are several things you’ll want to keep in mind when shopping for Life Insurance including how much coverage you need, health factors, and cost.
How Much Coverage Is Needed?
When you are thinking about how much coverage you need, you will want to consider your current financial situation and your family’s needs. You should also think about any debts or other financial obligations that would need to be paid off if you were to pass away. Another factor to consider is whether or not you have any dependents who rely on your income.
Business owners have additional considerations to make when shopping for their own personal life insurance policies because how that policy is structured could affect their business operations, debtors, and beneficiaries if they were to pass away during operations.
- Key person insurance consideration: This type of life insurance policy is taken out on a key employee or business partner. The death benefit can be used to help the company maintain operations while it adjusts to the loss of the key person.
- Buy-sell policy agreement: A buy-sell agreement is a contract between business owners that outlines what will happen to the business if one of the owners dies. The agreement can specify that the surviving owner will buy out the deceased owner’s share of the business. The life insurance policy can be used to fund the buy-out.
- Business debt consideration: If your business has any debts, you may want to consider taking out a life insurance policy to make sure the debt is paid off if you die.
- Business continuity: A life insurance policy can be used to help your business maintain operations after the death of a key employee or business partner. The death benefit can be used to help fund the hiring of a new employee or to cover the costs of temporarily shutting down the business.
Health Factors That Affect Premiums
When it comes to health factors, you will want to think about any medical conditions that you have or any family history of medical conditions. Your overall current health condition — blood pressure, diabetes, etc. — are factors that can all affect premium costs. You should also consider whether or not you smoke, as this, too can impact your premiums.
Premium Terms and Benefits
Finally, you will want to think about the cost of the policy itself and whether or not the terms, features, and benefits as it relates to its cost are worth it for you to invest in right now or if you need to get creative with stacking or layering policies.
Life insurance policies can vary in price depending on a number of factors, including the type of policy, the amount of coverage, and the length of the policy.
The length of your policy terms will depend greatly on the needs and goals of your family or business. For example, if you are looking for a policy to cover a specific need, such as a mortgage, you will want to carry the policy for as long as the mortgage is outstanding. If you are looking for a policy to provide protection for your family in case of your death, you may want to consider a longer-term policy to help pay for daily expenses and potential future college expenses.
What about life insurance riders or policy options?
There are a number of riders and options available with life insurance policies. Some of the more common riders include the child rider, which provides protection for your children; the waiver of premium rider, which allows you to waive premiums if you become disabled; and the accelerated death benefit rider, which allows you to access a portion of the death benefit if you are diagnosed with a terminal illness.
Your Bialke Insurance Agency Team can help you answer additional questions about any of these life insurance products and provide you with additional resources to help you make an informed decision for yourself, your family, or your business.