Life Insurance

Life Insurance is for the people who live, not the people who die.

You may have heard this familiar tag line in a radio advertisement from LIFE, The Life Insurance Insurance Foundation for Education, a not for profit foundation dedicated to increasing public awareness of the need to own life insurance. The advertisement plays the sound of a heart monitor beeping and then going to a steady tone, flat line, as the announcer talks about your heart stopping and then closing with the statement "Life insurance is for the people who live, not the people who die". If you think about it for a minute, you will realize the truth in that statement.

The purchase of life insurance on your life is a very noble deed and is an act of self-lessnish. You are doing something to protect those you love from financial devastation in the event of your death.

Who needs life insurance?

• Primary breadwinners, income producers, who are depended upon to provide money for food, clothing, shelter and all the extras.
• Stay at home spouses without an immediate source of income if the income producing spouse dies.
• Parents with dependent children.
• Parents of children with a disability that will prevent them from becoming independent as adults.
• Spouses whose income is relied upon by the other spouse; both working to make ends meet.
• People with mortgage balances, or any other debt, that would need to be paid in the event of their death.
• Business partners who rely upon each other for keeping their business alive.
• Businesses with key personnel with vital skills that would be difficult to replace immediately.
• Practically anyone whose death would have a significant financial impact on someone else.

The different types of life insurance:

TERM LIFE INSURANCE

Term life insurance is the purest and simplest form of life insurance. It is also the least expensive to buy now. This is because it is purely insuring the risk of death over a limited period of time and there is typically no cash value accumulation. At the end of the term period the cost to keep the policy inforce will increase drastically in the case of a renewable term. In the case of a non-renewable term the policy will cancel. The term period, the length of time that payments remain level, can range form 1 year to as many as 30 years. As an example a 35 year old can buy a 20-year term policy and the price would remain level until age 56 and then would go up drastically.

The reasons people buy term insurance are for short term needs, such as to guarantee repayment of a debt or mortgage. When the debt is paid off, that need for insurance goes away. Dependent children are another reason for term insurance. If you were to die while your children were young and still in need of your support the benefits of a life insurance policy could provide for them financially. Once they are grown and self-supportive this need for life insurance goes away. Another reason is affordability; it is simply cheaper than other types of life insurance.

The advantage of term insurance is that you can buy the most coverage for the lowest possible price. The disadvantage is that when the term period runs out and the price goes up, you may be forced to drop the policy and then you may find yourself uninsured and not able to buy more insurance due to a change in your health. In order to prevent this, it is important to buy a term policy that has a good conversion option. Conversion means you can change the policy to a permanent one without proof of good health or underwriting questions.

UNIVERSAL LIFE INSURANCE

Universal life is considered by some to be permanent. But in fact it is nothing more than term insurance with a savings account. The payments are flexible and can even be skipped from time to time. The internal term insurance cost also varies as well as the interest rate earned by the savings account. This means if you are not careful and skip too many payments or early on do not pay enough money into the policy it can cancel even though you are still making premium payments.

The reasons people buy universal life insurance is to provide for permanent or long term coverage at a price that is both affordable and flexible. Another reason is the accumulation of cash. Cash values grow inside of a universal life insurance policy income tax deferred and at a competitive interest rate.

The advantage of universal life insurance is low cost permanent coverage. The disadvantage is the false security of thinking that you are paying enough premium to make the policy last when in fact you may not be because of all the variables and flexibilities built into the policy.

WHOLE LIFE INSURANCE

Whole life insurance is forever. It is a very unique financial product. It has the ability to provide rock solid guarantees of both death benefit and cash value for a fixed and guaranteed payment. It is recommended for covering permanent needs such as final expenses; providing for continuation of pension or other retirement income, equalization of inheritance, and payment of estate/inheritance taxes. The bottom line is that if the need for life insurance does not have a foreseeable end, in other words, if you want to provide money for someone at your death whether you are hit by a bus or die in your sleep with gray hair, whole life is the best solution.

Reasons people buy whole life insurance are to cover the permanent and long term needs with a guaranteed death benefit, guaranteed cash value and guaranteed premium payments. In addition to long term needs mentioned previously, someone may also consider insuring themselves with whole life insurance to provide for special needs children that because of mental or physical handicaps, will never become self supportive. Whole life insurance is also popular with business owners as a way to provide executive benefits. Grandparents often buy whole life insurance policies on the lives of grandchildren as a gift with future value.

The advantage of whole life insurance is the sound guarantees of premium, cash value and death benefit. The disadvantage of whole life insurance is the cost. Because of the guarantees, premium payments must be enough to support benefits regardless of what happens with the economy. Although whole life insurance is more expensive than other types of coverage, this fact must be considered. When the need for insurance is 30 years or longer and permanent insurance is needed, dollar for dollar, whole life is a better, less costly policy than universal life. The same payments going into both contracts produces more death benefit and cash value in a whole life policy compared to a universal life policy.

BLENDED LIFE INSURANCE

Blended life insurance is purely a plan design that is tailored to an individual's specific situation based upon their needs, the results they are looking for and their budget. Blending involves the use of two or more types of insurance or multiple term lengths or any similar combination. The point of blending is to design a custom insurance plan that ultimately does what the insured needs and wants the plan to do. A good blend will result in the use of term insurance or under funded universal life insurance to cover short term to intermediate term needs and properly funded universal life or whole life insurance to cover long term needs.

The reasons people buy blended life insurance is simply that it is personally fitted to them and is uniquely theirs. They are not overpaying or improperly insuring by using the wrong type of insurance for the wrong need.

The advantage of blended insurance is that it is both cost effective and benefit conscious. The disadvantage of blended insurance is that there are so many variables and variations that the process can become complicated. As with any insurance purchase but even more so with blends, you should use the guidance of a qualified insurance or financial advisor that understands the policy contracts and how they work.