With September being Life Insurance Awareness Month, I thought I would explain some of the more common types of life insurance policies that are available. Before going in to coverage explanations, the first question is; do you need life insurance? There are only two reasons to purchase a life insurance policy, you either love someone or owe someone. If you do not answer yes to one of these, you do not need coverage.
Term Life Insurance: This is the least expensive type of life insurance coverage. This policy will provide coverage for a set period of time, normally 10, 20 or 30 years. The policy does not build cash value as you are only paying for the cost of the death benefit based upon your mortality rate. The only way that the policy will pay is if you die while coverage is in effect. You are betting that you will die during the period of coverage, the insurance company is betting you will live.
Whole Life Insurance: This the most expensive type of coverage, referred to as a permanent policy because it will run to age 100 as long as the premiums are paid. The premiums are higher than a term policy. The extra money provides so that cash value and dividends work within the policy to build cash value and allow you to accumulate cash that can be borrowed or withdrawn in later years. Until recently, the interest rate of 3 to 4% was considered low and viewed as a poor way to accumulate money. This type of policy provides piece of mind because it can provide coverage your entire life.
Universal Life Insurance: This type of coverage combines the idea of term and whole life insurance. The carrier charges a premium that is higher than a term policy and invests the excess cash and pays current interest rates. The idea is to take advantage of times when interest rates are higher. In order to protect yourself in times of low interest rates, the purchase of a guaranteed death benefit is strongly suggested. Like a whole life, this policy can build cash value that can be borrowed or withdrawn, is a permanent policy running as long as age 120 and is less expensive than a whole life policy.
I hope you find the thumbnail sketches of several life insurance options helpful. As always, please call us with any questions at Pinnacle Group Insurance at 412-816-1000.