February 12, 2021

What type of life insurance do I need?

What type of life insurance for this family?

Have you considered getting life insurance? Right now many people are contemplating this question, especially in light of the COVID-19 pandemic. You may be wondering what type of life insurance is best for your family. Let’s dig in and take a look at the kinds of policies out there.

Life insurance comes in two basic categories: term and permanent (also known as whole life). Each kind provides important protection, but key differences exist. Another important consideration is how much life insurance to have. Be sure to consider your family’s needs, consult a financial adviser, and discuss your options with a licensed and qualified insurance agent before making your own personal decisions on the policy that will work for you.

Term life insurance

Term is the simplest type of life insurance. It is purely transactional. As the name suggests, you select a term — whether it’s 10, 20 or 30 years, for example — to pay into this insurance policy. The rate can be quite low if you are healthy and sign up at a younger age (e.g., in your 30s). Per the policy, if you die during that term period, your family or other beneficiary receives the amount for which you are insured (benefit amount), whether it’s $250,000, $500,000 or $1 million.

As one example, many parents choose to have term insurance to protect their family during the time they are raising their children. If the parent passes away within that specified term (say, a 20-year period), the beneficiaries receive the amount for which the parent was insured. However, if the parent does not die within that specified period, the life insurance policy expires when the term does.

In the family case above, the premise is that once the term ends and the children are adults, they will no longer need to rely on their parents for financial support. As a result, it is not important to have parental life insurance beyond that critical period.

However, family circumstances or today’s economic uncertainties may make some parents think twice about a term policy alone. Two examples: Parents might fear that their children will graduate college with high student debt and will continue to need financial assistance. If the term insurance has ended and the parent then dies, the support will immediately end. Or perhaps the family includes a child or an adult sibling with a chronic life-threatening medical condition or other challenges and will always need support.

For some people, the lower premiums and specific time frame for coverage of term life insurance presents an ideal mix. Other people, however, prefer the additional benefits and peace of mind provided by a permanent life insurance policy.

Permanent life insurance

Also known as whole life insurance, permanent life insurance reflects its name: It stays with you for your entire life. The fact that it will always be there is a source of comfort to many. It will never expire, as long as you continue to pay the premiums.

A main benefit of permanent insurance is that it can build tax-free cash value over the decades. When you pass away, your beneficiaries will receive the accrued payout, and can use it for whatever purpose they wish, without having to pay taxes on that money. They may use it to pay for the parent’s funeral expenses, pay off college debt, make a down payment on a house, or any other financial need.

Another benefit of permanent life insurance is the ability to withdraw (borrow) some of the cash value of the benefit amount. However, you have to be sure to pay it back, or the death benefit will be reduced to cover the withdrawal. Additional types of permanent life insurance, with a variety of other benefits, include universal life, adjustable life, variable life and variable-universal life. Your insurance agent can help you decipher the options.

The decision is yours — just be sure to make it

Ultimately, of course, the decision is all yours as to which type (or types) of life insurance you need. Some people even decide to have a mix of term and permanent policies. Consider your family’s needs, check in with your financial advisor, and talk to your Bradish agent to help you decide which options will serve you best.

Deciding on life insurance is a long-term decision with the potential for immediate and lasting impact. The sooner you make the decision, the sooner the policy will be put into place, the sooner you will have peace of mind knowing your family will be taken care of in the event of the unthinkable.

by Kris A. Mainellis