Every day, I come across clients that tell me that "they're all taken care of," whether this means they already have something in place or they're currently working with another advisor. But frequently, they don't have clarity as to what type of life insurance they own.
When my Grandfather passed away, the time came to contact his insurance provider regarding his death claim; we were told that the policies he paid into for many years would not payout due to his cause of death. This news came as a big shock to our family. See, my Grandfather was led to believe he owned a policy that covered any cause of death. What he had was an accidental death policy that covered nothing other than precisely that, an accident. You can imagine the frustration and despair that came over my family at that moment.
Life insurance policies can be complex to understand in which types are available and what they cover precisely. If you're not working with someone who is transparent, you could wind up paying into a policy that would reciprocate no benefit to you or your family. This undesirable outcome can happen so quickly because how are you supposed to know what to ask? You rely on an advisor that you trust to take care of this and handle everything with an ethical standard. To help consumers navigate the marketplace, I will explain the three most common policy types.
The first key policy is Term Insurance. This type of policy is a simple concept; when you buy term insurance, you purchase a certain amount of coverage for a specific period. If you pass during the chosen period, whether from 10 years to 30 years, the insurance company pays out the claim to your named beneficiary. Term life insurance is typically the most cost-effective policy, and you can carry a large amount of coverage for a much lower cost than other types of policies. In most cases, policy owners pay a fixed premium for the policy’s life, meaning your premium will stay the same from the day you purchase the policy to the very last day of the *term. Frequently customers choose these types of plans for mortgage protection, business planning, asset protection, income for their family, etc.
The second most common policy is what's known as a Permanent policy, often referred to as whole life. This policy does not expire; unlike term insurance, this policy will stay with you for the remainder of your life. There is a common misconception that these policies can be cost-prohibitive; on the contrary, they can be very cost-effective and make the most financial sense for a customer depending on their goals. The best part of a permanent policy outside of having a set premium is that it combines a death benefit and a savings component. This allows your policy to grow in value every year and gives you access to a portion of the growth account for supplemental income.
The last type of insurance common in the marketplace is what is known as Universal Life, which is a type of permanent policy with a little twist. Universal life insurance has a flexible premium payment structure. The insurance company will set a range for the minimum amount required to be paid for the guaranteed death benefit and a maximum amount allowed to be applied. The maximum amounts are governed by a tax code set by the IRS, limiting the amount of money one can fund into a life insurance plan. Universal life is complex, and when misrepresented can cause a host of problems to the Insured.
I hope what you have read here is something that can be of great value and referenced as you explore insurance information. If you have any questions regarding additional life insurance policy types or are searching for which plan best suits your needs, please feel to reach out to one of our specialists for a complimentary review.