Life insurance is one of those adult vocabulary words many are aware of and understand generally how it works, but not to any great extent. Sort of like my car, I’m vaguely aware of how the axle is connected to the engine, or how the radiator works but my knowledge is not enough that I would feel comfortable in any way inspecting my car and saying something isn’t optimal. Or recommend one product over the other on request to a stranger. Hopefully this blog can serve as providing a little more insight into two very common words in the life insurance world: Term and Whole Life so that you can make a better informed decision about your own.
Term Life
Both terms (no pun intended) generally reflect a literal meaning of what they represent. Term life is designed around designating a specific amount of years to be covered and then it ends. 30 years is often the max ‘term’ one can find, and typically won’t let you go past age 80. One of the great things about term insurance is the price point. Due to there being a set expiration date, the premiums tend to be lower than other insurance methods. The price also stays the same for the duration of the term.
Term life often is a good fit for folks on the younger end of the spectrum. It keeps the price point low for those starting careers and covers a large portion of said careers. Term is sort of like a gamble. Like an ‘I bet I’ll die before X time is up’ and the insurance company simply bets against you. Not that anyone should ever bet/plan/design/or anything else pre-meditative of terminating life, that is bad. It’s more a safety gamble. A ‘just in case’ bad things happen, I want to help my loved one(s) that are still here.
Ok, back to happy thoughts. Be like the kids in Peter Pan where happy thoughts are magic and provide full-course meals and help you fly! That has gotta make you smile at least a little!
Term Life Add-ons
Last bit on term insurance is that there are many little variations that can be added in, however, they are not all commonplace, like leather seats, or heated flooring in the bathroom. Having your term life convert to whole life at term end is an option, although it is a rare option. Using term life during estate planning is a bit more common helping shore up costs or payouts that wouldn’t otherwise be able to be covered. Please consult with a great financial planner when looking at customizing your life insurance, such as Centric Advisors https://centricadvisor.com/ There are a lot of subcategories and layers to finding exactly the right product of term, whole, or other life insurance. There is no substitute for working with an expert.
Whole Life Insurance
Whole life, like stated before, is also a literal meaning of an insurance model. It simply keeps going until you don’t anymore like when the energizer bunny finally runs out of battery power. My closest friend hates spoilers, so heads up – Spoiler Alert – anyone reading this will sadly die at some point. I hope I didn’t ruin the movie for anyone though it is still really worth watching. There are a LOT of great funny moments, happy moments, and I would bet some action scene’s still to come! (Oh come on, haven’t you ever dropped something and caught it before it hit the ground, that is exiting! That counts as action!)
Whole life insurance is structured to maintain your payments the same throughout as long as possible, but it is often done in an interesting manner.
For Example:
Let’s say your premium was $800.00 a month, for the first 17 years the actual premium of the insurance was under that $800.00 a month – the difference is placed into a cash fund portion of the whole life insurance. The premiums do gradually rise as time passes and you get older. Eventually the premium will cost more than $800.00 a month, however you are able to keep paying only $800.00 a month because the difference is now taken out of that cash fund portion. A couple of folks made a really smart cookie one day who came up with that method.
Some may have read that example and exclaimed “800 a month!”, are you sure you fully woke up this morning? The payout affordability of whole life insurance when compared to term insurance is generally lower, simply because the premiums of whole life are set higher. It sounds like a con after con for whole life – however the largest pro is the no end date. Maybe term is awesome for you for 30 years and then you live 2 years longer, now there is nothing. That is not the case with whole life.
What If I Don’t Have Life Insurance?
If not having life insurance doesn’t settle well with you, yet the cost seems prohibitive then sometimes an honest look at a budget and a planning session or two can help tremendously. We offer personal and family finance consultations, one time or ongoing https://molentax.com/services/personal-family-budgeting/. Doing it yourself is very possible, but sometimes having someone else help hold you accountable gets the job done when it otherwise wouldn’t. (Sort of like cleaning my house – if guests are due to visit, its going to happen.. when it’s a no guests visiting weekend, it often simply does not get done – do nothing weekends are too appealing aren’t they!)
There is another uncommon tip for those looking at life insurance, as stated before, small or big things that can be added to the policy. Accelerated benefits is sometimes an option, providing some of the life insurance payout prior to passing away. This can go to help big medical bills, nursing home care, etc.
When Should I Get A Life Insurance Policy?
One might be thinking at this point – great, now I know a little more, however when should I really consider an insurance policy, or have my policy reviewed. Truthfully there is no magic time, but there are some highlight moments in life that stand out for consideration:
- When you have kids
- a job change
- estate planning
- college
- when paying off the house.
Maybe these are reasons to start – maybe that is the time you need to add/change beneficiaries. Like good investors, reviewing your insurance policy with an expert is very advisable. Investors need to review their portfolios a bit more often than insurance policies, but the concept holds true for both. I do hope that everyone reading this has a least started a retirement account, meaning you are all investors of one type or another. Have you met with an expert this year at all about your investments yet? Please consider adding life insurance to the conversation for you next one!
Charles Steinmetz
Senior Tax Advisor
