Nobody wants to think about a time when they won’t be around to support their family. But, unfortunately, it’s a part of life. But we think that instead of worrying, we should all start planning ahead. And the best way to do that is to find the right life insurance policy that will support your family after you’re gone.
Your age, your health, and which policy and insurer you choose will all have an impact on the cost of your life insurance. But the truth is that life insurance is probably not as expensive as you think it is. And not only that, but not purchasing one of these policies will mean actually leaving your family with debt. Let us show you how life insurance can ensure your loved ones will be well taken care of.
What is Life Insurance and Why Do You Need It?
Your life insurance policy is a contract between you and your chosen insurance company. You will pay a monthly premium for the duration of this contract. And following your death, your insurance company will pay your chosen beneficiaries a death benefit. A death benefit is essentially a one-time payment in exchange for the premium payments you pay.
There are no obligations tied to this benefit: your beneficiaries can spend the money however they want. Many people choose to use the life insurance benefits they receive for things like bill payments, mortgage maintenance, or the cost of a child’s education.
Essentially, life insurance allows you to provide a safety net for your family. They will be able to continue to afford the things they relied on your income to pay for.
The Types of Life Insurance
There are numerous types of life insurance to choose from. Meaning there is a policy out there to meet anyone’s needs and preferences. If you’re looking for a policy, the first decision you’ll have to make is between the two main types:
- Term life insurance
- Permanent life insurance
This decision will be heavily dependent on your needs, especially whether those needs are short- or long-term in nature.
Term life insurance tends to be more popular because it is less expensive than permanent insurance. This is because term does not cover you forever. With term insurance, you choose the length of time you want coverage for. Policy terms are typically 10, 15, 20, 25, or 30 years. If you die during the term, your beneficiaries will be able to file a claim for the death benefit and receive the money tax-free.
Term also guarantees your premium. If your policy has “guaranteed renewability,” you can renew it annually if you outlive it. However, your premiums will rise annually.
There are several types of term life insurance plans:
- Level Term – The death benefit and premiums for level term insurance are fixed for the term of the policy, meaning they will stay the same for the duration of the policy. This is the most popular form of term insurance.
- Annual Renewable Term Life Insurance – This is a one-year term insurance policy. Memberships are renewed on an annual basis, but the premiums rise each year.
- Increasing Term Life Insurance – The death benefit of an increasing term policy grows over the term of the policy. Your total annual benefits could rise by 5% each year, for example. Annual premiums for increasing term insurance can vary throughout the policy’s term.
- Decreasing Term Life Insurance – The premium for a decreasing term policy stays the same while the death benefit decreases. Most people buy this policy as mortgage or loan protection insurance. The death benefit will decrease as you pay off the loan.
- Return-of-Premium – Return-of-premium (ROP) insurance refunds your premium payments if you die before the policy’s expiration date. While beneficial, the higher cost of ROP policies might outweigh the benefits.
Permanent Life Insurance
Unlike with term life policies, as long as you pay the premiums throughout your life, your permanent life insurance policy will remain in effect for the entirety of your life. This longer-term option for life insurance comes at a higher price than with shorter-term policies.
Another reason that these types of policies are more expensive than term life policies is that they often include a cash value, similar to a savings account. This cash value usually accrues interest. You can use the money during your lifetime. Sometimes to pay your premiums, so some people choose permanent life for this reason.
There are many different kinds of permanent life insurance policies available:
- Whole Life Insurance – As long as you continue to pay the required premiums, your whole life insurance policy will remain in effect for the rest of your life. Monthly payments are usually much higher than with a term life policy, but this policy offers a cash value component.
- Universal Life Insurance – Universal life insurance gives you more flexibility than many other types of policies. With this type of policy, you can establish a new death benefit and premium payment schedule at any time. The money you pay for your premiums will go both toward the cost of insurance (COI) and the cash value (CV). The COI is the minimum payment you need to keep your policy active, any additional amount that you want to go to your cash value is up to you.
- Indexed Universal Life Insurance – Indexed universal life insurance, or IUL, is another type of permanent insurance. Rather than being solely determined by non-equity earned rates, the cash value of an IUL may increase based on a stock index, which is a predetermined grouping of various stocks. An IUL premium, like a universal life policy premium, can grow and shrink in proportion to the policy’s cash value. In fact, the cash value might one day be sufficient to cover everything, and you will no longer have to pay your premiums.
- Variable Universal Life Insurance – Like the cash value of other types of permanent life insurance policies, the cash value of a variable universal life (VUL) policy can be used to make investments. But a variable universal life insurance policy’s cash value can be invested using the policy’s investment subaccounts. The subaccount structure is very similar to that of a mutual fund, meaning there is risk associated with the way you invest your cash value. And, with VUL policies, premium changes are possible, just like with traditional universal life insurance.
How Much Can Your Family Save?
The answer to how much a life insurance policy can save your family differs for each individual. But, since your policy will pay out your death benefit to your beneficiaries, at the very least, your loved ones will be able to pay for your funeral expenses and cover any debts, so they won’t have to worry about finances while mourning.
In addition, if you choose a plan that grows over time, or one with a cash value, your family will receive money that will not only help with burial and smaller expenses, but also with bigger expenses and income replacement. If you plan ahead, you can even get a policy that can cover your children’s college tuition. This will allow you to rest easy knowing your family won’t be financially struggling with the loss of your income.
But to see more specifically how much you might be able to save your loved ones, do some math. Add up any debts like a mortgage, along with the average price of colleges or any other long term bills that your family would have difficulty paying without your income. That amount is how much money would be ideal to leave your family with. Once you know how much coverage you need, speak to an EZ agent about your free personalized quotes!
How long does it take to build cash value?
Depending on the policy, it can take at least five to ten years to accumulate a significant cash value. You can increase your cash value faster if you pay more than the required monthly premium. When purchasing a policy, it is best to discuss with your EZ agent how and when cash value will build.
How do I get money from my cash value?
When it comes to accessing the cash value of a policy, there are usually several withdrawal options available. How you withdraw depends on your policy. If you die before paying off the loan, your death benefit will be reduced by the amount of the loan and interest still owed. You can also contact the insurance company to cancel the policy if you no longer require coverage. In that case you will get the remaining cash value, minus a surrender fee.
What happens to my cash value when I pass?
You should use your policy’s cash value while you are still alive. When you die, the insurance company usually keeps the cash value. Your beneficiaries receive the death benefit, not the cash value. Premiums for policies with cash value payouts, on the other hand, are typically higher.
What can my beneficiaries use the death benefit for?
Your beneficiaries are free to use your death benefit however they wish. Even if you only have a final expense policy meant to pay for your funeral they do not have to use the money for that. Once the money is paid out the insurance company does not have a say in what the money is used for.
The Benefits of Life Insurance
The biggest advantage of having a life insurance policy is that, in the event of your passing away, the policy will pay out a “death benefit” to your beneficiaries. The majority of people who have significant financial obligations, such as a mortgage payment, children, or other debt, should consider purchasing a policy because the benefits of doing so outweigh the costs.
If you are able to work the generally very affordable cost of premiums ($25 to $35 per month for the typical individual aged 35) into your monthly spending plan, you can have peace of mind knowing that your loved ones will be taken care of financially in the event that you pass away suddenly.
The pros of having a life insurance policy include:
If the death benefit of your policy is large enough, it can pay off your mortgage and help put your kids through college. It can also serve as an emergency fund in case of expensive surprises. And unlike money your beneficiaries might inherit or receive from your estate, the death benefit of a life insurance policy is typically a tax-free lump sum. Life insurance is the best way to guarantee immediate protection for your family after your death. This is because taxes and legal processes like probate court can eat away at an estate for months.
Premiums for a term policy can be as low as $20 monthly. Depending on the amount of coverage you are looking for and your age when you apply. You can also keep your premiums low by reducing your coverage amount and the duration of the policy. It’s also possible to save hundreds or even thousands of dollars annually by purchasing life insurance at a younger age.
Peace of mind
Having life insurance, especially while you’re at your earning prime, can help ease your mind about the financial security of your loved ones after your passing. You buy life insurance for the same reason you buy health insurance or car insurance: you hope you never have to use it, but you also want to prepare for the worst.
EZ to Enroll
Online life insurance price comparison is a breeze with EZ. Free quotes from the best life insurance companies in the country are available in just a few minutes. All of your insurance needs can be met by working with our agents. Just put your zip code into the bar below or give us a call at 877-670-3560.