Life Insurance 101
Protecting the Present and Future: Exploring Term and Permanent Life Insurance with Living Benefits
Don't roll your eyes just yet! While it might not be the most thrilling topic, it's crucial. So, grab your glasses and your favorite highlighter. You'll want to stick around for this one—it's the kind of knowledge that pays dividends.
When considering life insurance, it's important to understand the different options available and the potential benefits each type offers, for the future and present. While the primary purpose of life insurance is to provide a death benefit to your beneficiaries, both Term and Permanent Life Insurance can offer living benefits.
Living benefits are additional features that can be added and often are included in policies, providing financial support in case of qualifying terminal, chronic, or critical illnesses, injuries, or even conditions like Alzheimer's Disease. These benefits can help cover medical expenses and major life changes (e.g., if you cannot perform two activities of daily living, such as bathing and transferring). They can also provide an income stream that you cannot outlive.
Brace yourselves for some sobering stats: 53.8% of adults aged 18-34 grapple with at least one chronic condition. Approximately 1 in 7 of adults aged 45-54 reported having at least two. And nearly 15% of middle-aged folks struggle with basic daily activities. Not exactly the life goals we dream of, right? Health issues can throw a wrench in your financial plans, derailing your savings and future ambitions.*
Term Life Insurance
Term Life Insurance is designed to protect you for a specific period, known as the term. Commonly, terms can range from 10 to 30 years. This type of insurance is ideal if you need coverage for a particular period—for example, until your children graduate from college or your mortgage is paid off.
Duration: Coverage lasts for a specified period (e.g., 30 years).
Affordability: Provides the most coverage for the lowest initial premium, making it an excellent choice for those on a tighter budget.
Coverage Purpose: Suitable for temporary needs like debt repayment or financial support for dependents.
Conversion Option: Many term policies include an option to convert to a permanent policy without a medical exam, offering flexibility as your needs change.
Think of term life as the rental apartment of life insurance policies: affordable, temporary, and gets the job done until you’re ready to buy a house.
Permanent Life Insurance
Permanent Life Insurance offers lifelong protection and a range of additional benefits that make it a versatile financial tool.
Lifelong Protection: As long as you pay the premiums, your coverage continues for your entire life.
Cash Value Accumulation: Accumulates cash value on a tax-deferred basis. This can be used to:
Buy a Home: Use the cash value as a down payment.
Pay for College: Help fund your children's education.
Supplement Retirement Income: Provide additional funds during retirement.
Cover Emergency Expenses: Access funds in case of unexpected costs.
Tax-Free Loans: You can take out loans or borrow money from the cash value, and the funds are tax-free, offering a significant financial advantage.
Permanent Life Insurance is like the Swiss Army knife of financial products—it’s got a tool for every occasion.
Life Happens, a nonprofit organization, emphasizes the importance of life insurance in providing financial security and peace of mind. They offer tools like the Life Insurance Needs Calculator to help you estimate the ideal coverage based on your family's financial needs. This can include daily living expenses, debt repayment, childcare costs, and more.
Bringing It Home
The choice between Term and Permanent Life Insurance depends on your specific needs and financial goals. Term Life Insurance is an affordable option for temporary needs, while Permanent Life Insurance provides lifelong coverage and cash value accumulation, offering a broader range of living benefits.
Understanding these differences can help you make an informed decision and choose the policy that best suits your needs and long-term financial plans. The sobering statistics above underscore the importance of a financial safety net. Living benefits can help manage unexpected health-related expenses and ensure that your financial goals remain on track.
Whether you’re looking for a short-term solution or a long-term investment, understanding these differences can help you make an informed decision. Life’s unpredictability is no match for a well-prepared plan. Let’s explore options that are best for you.
*Medical debt is the number one reason for personal debt in the U.S., with 20 million people (nearly 1 in 12 adults) owing medical debt.
Source: CDC.gov | Census.gov | Life Happens