Have you reviewed your life insurance during the pandemic? Let’s review the basics…

Just thinking about life insurance can be unnerving for many people. It’s a reminder that you or someone you love will eventually pass away. Uncomfortable thoughts like these can push buying life insurance farther down your to-do list.

But the possibility of an unexpected death is exactly why you need coverage. If you have loved ones who rely on your income, life insurance can help protect them and alleviate financial stress at the time of your passing.

If you’re a little unsure about life insurance and you want to learn more about it before purchasing a policy,

Choosing the Right Type of Life Insurance

Knowing the difference between whole, term, and universal life insurance — and knowing which riders you might actually use — can narrow your search for the best policy. Here’s a breakdown of the basic types of insurance. Which type would best meet your needs? Let’s find out.

Term Life Insurance

Term life provides a fixed death benefit for a specified period of time.

Let’s say you buy a $25,000 policy for a period of 10 years. If you pass away during those 10 years, the death benefit would be paid to your survivors. If you lived beyond the 10-year term of the policy, your coverage expires and no benefits would be paid.

Term insurance policies almost always cost a lot less than other kinds of insurance because your insurer takes less risk. You can buy a lot of coverage for a smaller amount of money.

Some insurance providers let term policyholders renew their coverage for a new term, but the premiums will be more expensive because they’re based on your age and health when you renew. Your policy’s term could range from 1 to 30 years. Most term policies last at least 10 years. Others can be tied to a specific age (commonly 65).

There are two basic types of term insurance policies:

• Level Term policies mean that the death benefit stays constant during the full term of the policy.
• Decreasing Term means the death benefit goes down, normally in one year increments, during the term of the policy.

Some insurance companies may also provide a “return of premium” feature. If you outlive your term, this feature could refund your paid premiums. This feature will add significant cost to your coverage.

Permanent Life Insurance

Permanent life insurance covers a variety of policy types, all of which can span the rest of your lifetime. Just like term life, permanent life policies can pay a lump sum of money to your survivors when you die. Unlike term, permanent policies also accrue their own cash value over time. This cash value could be withdrawn, borrowed against, or in some cases used to reduce the amount you pay in premiums to keep your policy.

Premium payments on permanent life insurance policies are almost always significantly higher than those for term life insurance policies, so these policies may not be the best option if you are on a tight budget.

Here are a few common types of permanent life insurance:

Whole Life Insurance: This most common type of permanent life insurance allows you to lock in a fixed-rate premium for the life of the policy. The savings portion of the policy will accumulate cash value at a fixed rate, much like a savings account, and interest earned is usually tax-deferred.

Universal Life Insurance: This permanent coverage also provides a death benefit and accumulates value, but universal life offers a lot more flexibility than typical whole life. A universal policy’s cash value can interact fluidly with its coverage. As a result you could adjust the amount of your death benefit or use accumulated cash to reduce premium payments later in life. However, once the cash value amount is gone, you either start paying the premiums again or the policy may lapse. People who want the stability of a fixed premium but the flexibility to change the amount of coverage over time should consider universal coverage.

Variable Universal Life Insurance: Variable universal life insurance features flexible minimum and maximum premium payments but with a twist: You could invest the cash portion in insurance company-managed mutual funds. Your cash component could grow — or decline — depending on the performance of the funds. Many companies will cap your policy’s potential gains and also absorb some of your policy’s heavy losses.

Indexed Universal Life Insurance: The cash value component of this policy connects to a stock index such as NASDAQ or the S&P 500. Your cash can grow or decline along with the broader market.

Types of Life Insurance Riders

A rider adds benefits or amends the provisions of your life insurance policy, making your coverage more flexible.

Common riders include:

• Accelerated Death Benefit: If you became terminally ill, this rider would let you access your death benefit early to pay for medical care.
• Long-term Care Provisions: You could access your death benefit early to pay for assisted living or other long-term care.
• Premium Waivers: You could keep your coverage even without paying premiums if you became disabled and couldn’t work. These waivers tend to be temporary.
• Benefit Exclusions: Riders could even prevent your insurer from paying your death benefit if you died from specific causes.

Riders also add cost to your premiums, so try to avoid adding too many. You can add riders only when buying your policy. You can’t add them later.

Life Insurance FAQs

We get a lot of questions about life insurance. Here are some of the more common questions and their answers:

What’s the difference between whole & term life?

A term policy expires after a set period of time, while whole life insurance is permanent and accumulates a cash value that consumers can borrow against. Many financial experts recommend term life insurance for the average family since that is adequate for most needs.

Is whole life insurance a good investment?

Whole life insurance is often sold as an investment, but it comes with much higher premiums than term policies. And if you simply want to invest your money in the stock market, buying low-cost index funds is a cheaper way to go. In and of itself, life insurance isn’t a good way to invest money.

Will I need a medical exam to get coverage?

Most life insurance companies will require you to take a free, in-home medical exam as a part of the application process. You can avoid the medical exam but doing so normally makes your coverage a lot more expensive, especially if you’re healthy enough to qualify for low premiums.

How much life insurance should I buy?

There are many ways to estimate how much life insurance you need, such as purchasing a policy worth 10 to 12 times your income or estimating the expenses and debts that need to be covered if you die with those obligations. This topic is important enough to expand on below.

Do I really need life insurance?

Not everyone needs life insurance — if no one would be harmed financially by your death, it may not be for you.

How Much Life Insurance Do I Need?

While having the right life insurance provider is important, so too is buying the right amount of insurance. Too little, and your loved ones won’t be fully protected. Too much, and you’ll be overspending for years to come. financial advisor says you should consider your debts and your assets when you choose a life insurance policy amount. He suggests buying enough coverage to replace your income for years to come.

“There’s a misconception about insurance that, instantly, the beneficiary gets the money and then just pays every bill off,” he said. “That’s all well and good but if they have no money left after paying the bills it doesn’t really help them. Luckily, there are a few different methods for deciding how much to buy.

Rule of Thumb: 10 to 12 Times Your Income

At a bare minimum, many financial experts recommend a quick back-of-the-napkin calculation: buy coverage equal to 10 to 12 times your annual income. For example, if you make $50,000 per year, you’d need to purchase $500,000 to $600,000 worth of life insurance. This is a good starting point for most people, but realize your actual needs might vary.

For example, if you’re debt-free with no children and your spouse earns more than you do, you may not need as much life insurance as this. That’s why many experts recommend crunching the numbers as a better approach.

Tally Up Your Financial Obligations and Savings

Unless you’re getting fancy with high-net-worth estate planning, most life insurance has a specific purpose: to provide financial support for your loved ones upon your death.

For most people, this means paying off any debts, paying your children’s college tuition, and providing a supplemental income to keep your family afloat in the absence of your regular paycheck.

You may also consider funding your funeral expenses, budgeting enough money for your spouse to take bereavement leave without having to worry about going back to work immediately, and including the costs of raising a child until age 18.

Case Study: The Smiths

Meet the Smiths, a hypothetical family with a set of twins and two working parents who each earn $50,000 per year.

If the Smiths have $500,000 worth of mortgage debt, $10,000 worth of car loans, and $50,000 worth of student loans, their total debt is $560,000. The Smiths also want to save $20,000 each for their kids’ college education, and expect that a funeral would cost $10,000.

So the Smiths tally up their financial obligations: $560,000 of debt, $40,000 in anticipated college savings, and $10,000 in funeral expenses, for a total of $610,000. In addition, the Smiths want to provide enough income for the other spouse to live on for a full five years if they choose (add on $250,000), and enough money to raise their two children to age 18, from their current age of five.

The USDA estimates it costs $14,000 per year to raise one child, so the Smiths will need an additional $364,000 to raise their children. Adding up all these expenses, and the Smiths estimate that they’ll each need a life insurance policy worth about $1.25 million.

Use a Life Insurance Calculator

You can also take a shortcut and use a life insurance calculator, which are available for free on many life insurance company websites as well as other insurance advice websites. If you opt for this route, try using several calculators and taking the average life insurance amount so that you’re getting the best estimate.

Using a life insurance calculator can provide a better estimate than a rule of thumb, but it may not be as accurate as calculating how much you need yourself, or even asking for professional help. Still, it’s a reasonable alternative and will give you an idea of how much coverage you’ll need to buy.

Ask a Financial Advisor or Life Insurance Agent

The best way to find out how much insurance you need is to ask a life insurance agent, or even better, an independent financial advisor. While agents are essentially salespeople for life insurance policies, they can still be able to help you find a policy that meets your needs. An independent agent — one who doesn’t work for a specific insurer — has the most freedom to help you. Financial advisors often receive a commission based on the investments they manage for you, but you can find a fee-only financial advisor. These financial advisors provide unbiased financial advice for a flat fee, and they can help you determine how life insurance fits into your larger financial picture.“It makes sense to talk to a financial advisor that can assess your needs based on your assets and on your family dynamics.

Review Your Policy Regularly

This may not sound like fun, but it should be a part of your financial or estate planning. You should review your life insurance policy regularly to make sure the coverage you initially chose is still the right one for your needs. Circumstances in life can change. Events like getting married (or divorced), having children, and buying or selling a house can all affect how much insurance coverage you need or the number of beneficiaries you have designated on the policy. “I generally say to customers that if there is a life-changing issue, anything positive or negative, that’s when it needs to be reviewed.”

In fact, according to the Insurance Information Institute, you should make a habit of reviewing your policy once a year – this way you won’t forget to do so if a major event does occur in your life.

Having life insurance is important. The buying process can be confusing, but the right information makes the process much smoother — and you’ll be able to choose the best options with confidence.

How Can I Afford Life Insurance?

Life insurance costs will be higher for a shopper with health problems or someone who’s 45 or older. Because of this fact, some people assume they’ll never be able to afford coverage, especially if they’ve had health issues in the past, Kasparian says. Yet many companies can evaluate your condition and, in most cases, still be able to provide coverage. These companies will evaluate the risk presented by those suffering from conditions like cancer, diabetes or heart disease, decide the risk is acceptable, and provide coverage. Premiums may be higher, but having the protection of a life insurance policy for your family is worth the investment.

Younger shoppers who are healthy often feel intimidated by the potentially high cost of life insurance. In fact, according to LIMRA’s 2018 Insurance Barometer Study, Millennials estimated the cost of life insurance at five times its actual price.

While people habitually overestimate its cost, in reality, life insurance doesn’t have to be that expensive, especially if you purchase a policy early on. Thanks to new technology, you can get quotes and buy coverage more quickly than ever online. In fact, almost half of adults looking for life insurance in 2018 researched purchasing it on the internet, according to the LIMRA survey. Iinsurance really mostly serves the purpose of protecting loved ones. Losing a loved one is hard enough without finding out you’ll have to leave your home, he added.

New Horizon MC, Agent Ameritas life Insurance and Investment 305-582-1104. We can Help.