Last week we went into detail about health insurance. If you missed it please check out that article here. Today, we’re going in detail with life insurance. We never want to imagine anything bad happening to our loved ones. But the unfortunate reality is unexpected things happen in life. Life insurance serves as a protection against high funeral costs and loss of income. Also, loss of income doesn’t only apply to the person passing. It also includes bereavement time, having the option to stay home or go right back to work. What types of life insurance are available? When is the best time to get life insurance?
First what is life insurance? It is an agreement with a company that as long as monthly payments are made the company will pay a set amount, normally ranging from $10,000 – $250,000, upon the passing or death of the policy holder. The payment will be made to the designated beneficiary. The payment to the beneficiary is not taxable by the IRS. (Note: If there are any life changing events such as a marriage or divorce please be sure to update your beneficiary)
3 Main Types Of Life Insurance
Term Life Insurance is the most basic and least expensive. It’s set for a specific term i.e. 10, 20 or 30 years and that’s it. This policy often requires a medical exam to be performed by the insurance company before granting the policy. Many insurance providers have the option to convert the policy or a portion of it to whole or universal after some time has passed.
Whole Life Insurance, as the name indicates, covers the policy holder for their entire life. Unlike term policies, there is no expiration. This type of insurance also increases in value over time. That value is called “cash value” which can be withdrawn. For example, after 10 years a policy may have accumulated a cash value of $5,000. That amount can be withdrawn by the policy holder. Note, this does not affect the original policy value. Whole life policies are more expensive than term life policies but provide more benefits.
Universal Life Insurance is similar to whole life but offers more flexibility. You can increase the monthly premium to increase your cash value. There are many options and its best to discuss all the details with your insurance agent.
The best time to get life insurance is as soon as possible. Mainly because none of us can predict when an unforeseen occurrence will occur, but also because the younger we are the cheaper the cost. Age increases the price of all life insurance policies and sometimes will make a person ineligible. So, the sooner the better. It’s also wise to get whole or universal life policies for young ones for the same reasons just mentioned.
As mentioned earlier these topics are never easy. None of us want to think of painful circumstances that can affect our family. But if COVID-19 has taught us anything it’s to prepare as best we can now. Many of us wished we had more savings or multiple streams of income once things got worse. The bright side is now we can still do all those things, including protecting our loved ones and ourselves with life insurance. If you already have it, wonderful! If not, just schedule a call with your insurance agent. If you are pleased with the company you have auto insurance with, start there. You may receive a bundle discount. As always, you got this!
Until next time,
Crystal
Crystal Chantel is an accountant with well over a decade of experience in tax, finance, audit and accounting in New York and Florida. Each week in Money Talks, she’ll share her advice to help individuals to navigate their financial challenges! Looking for more advice? Check out her blog where she offers business, tax, and self-care tips for female entrepreneurs!