By: Todd Halterman
You Don’t Own Life Insurance? Think Hard On That Choice
If you’re one of the many who don’t own any life insurance policies, you have lots of company, so why don’t you own life insurance?
A J.D. Power Household Insurance study says just over 44 percent of consumers actually do own an individual life insurance policy, and that means nearly sixty percent don’t.
One sensible reason for purchasing a life insurance policy is that it can’t leave your family with a clean slate regarding any debts you might have at the time of your death. Do that, and you’ve relieved your loved ones of a massive headache and a considerable worry. When you add up all your obligations; auto loans, mortgage notes, credit card tabs and miscellaneous outstanding bills, you can see where this is headed.
It might also make sense, while you’re buying that policy you need, to add $15,000 of coverage just to cover the cost of your funeral.
With life insurance rates at an all-time low, it’s an ideal time to lock in an affordable life insurance policy rate.
To make it happen, decide on an initial rate guarantee. Next, decide whether or not term life works for you over a given time period of from 10 to 30 years, or perhaps a “lifetime policy” that offers level coverage and premiums for life.
If you settle on the lifetime rate guarantee, expect to pay higher premiums.
If you’re focused on a plan which will help your family pay off debts, you’ll probably prefer a term life policy. Term life policies offer high flexibility when it comes to selecting an initial rate guarantee period, and that period is usually 5, 10, 15, 20, 25 or 30 years. Most financial planners recommend choosing a rate guarantee that tracks your debt with the longest duration. In many cases, that’s usually the number of years left on your mortgage.
Say you’re wealthy. First, congratulations. If you’re wealthy and you looked far enough ahead to consider your federal and state estate tax liabilities, then the lifetime policies is the way to go as the estate tax is triggered when the last to die in a marriage or estate situation passes on. Set up correctly, you’ll need coverage for each spouse and the amount of insurance you purchase should equal the estimated amount of your projected estate tax liability. Once you have insurance to cover your anticipated liability, your heirs will be protected from having to sell off your assets such as a family business or a beloved vacation retreat.
Standard term life policies cover death by any cause, at any time and in any place (with the exception of death by suicide within the first two years of the policy; one year in some states). On the other hand, the proceeds derived from a term life policy go directly to your beneficiary free of all income taxes. How’s that for a nice surprise to your family once you’re gone.
Term life payouts, designed to arrive in one lump sum, can be doled out over time if your beneficiary chooses that option. If the beneficiary selects a payout over time, the life insurer will often tack on interest to the payments.
Early Payout Features
When you buy a new term life policy, it should include an early payout of the policy death benefit should you become chronically – or critically – ill. These “early payout” features are a relatively fresh innovation to the marketplace, and they’re a response to what is an increasingly consumer-driven model. They often cost nothing or a slight upcharge, and it makes that option attractive indeed for money.
A life insurance policy for your family takes on a whole new level of value if a payout ahead of your death is available to ease their financial burden. If you become seriously ill, this type of rider – commonly known as a “living benefit rider” or “accelerated death benefit,” is invaluable. Make sure to read the fine print which describes the rider before you buy. You’ll want to make sure you only purchase a rider that pays out in the event of a defined chronic or critical illness. While the death benefit of the policy is reduced once an early payout occurs, it’s a great feature to have in the worst case scenario of long-term illness.
Yet another feature of most term life policies makes them, at the close of the initial rate guarantee term, renewable on a year-to-year basis without a medical exam. While those renewals will have higher premiums, the renewable feature is ideal for those who are terminally ill – and as a result not insurable – through standard markets.
The survey also included the surprising revelation that only some 17 percent of life insurance policyholders ever interact with their agent following their purchase. Don’t be in the majority here and pencil in a yearly “life insurance checkup” to prevent yourself from losing track of your ultimate insurance goals.
Since your goal is to provide for your family in death in the responsible way you took care of their needs in life, including mortgage loans and anticipated estate tax liabilities in your planning for the future will give you the peace of mind you want when you’ve chosen a life insurance policy to free your survivors of worrisome financial concerns.