By Trae Norrell, Account Executive
As we get older, we begin to realize the importance of having a good life insurance policy in place. Whether you’re just starting your family or nearing retirement, the need to protect your loved ones in your absence is an unfortunate reality we all must face.
If you’re looking into different life insurance policies, this a great starting point to really get an understanding of the different types of policies out there, and which one might be best for you at this point in your life.
Life insurance is very complex, and when it comes to purchasing, there are two major groups to consider: whole life and term life insurance. By definition, whole life insurance protects you for your “whole Life”. Then there’s term life insurance, which you purchase for a specified amount of time, usually in 10-year, 20-year, or 30-year terms.
When it comes to deciding whether term or whole life insurance is best, here are a couple of different factors to take into consideration.
#1: Your level of debt. The first step in determining if whole or term life insurance is best is to take a look at your debt, including any mortgages or student loans. Even if the income’s there right now, you need to look at the ability to liquidate and pay off that debt.
Maybe you've got a 30-year mortgage so that 30-year term policy would be appropriate. After the mortgage is paid off in 30 years, there isn’t near as much debt to be paid in the event something happens to you. Therefore, there's not a huge need for a large policy other than just making sure death benefits are paid and income is replaced.
#2: The size of your family. The size of your family tells a lot about what kind of insurance you need. If you're single, and there's really not a ton of debt to be paid, there are some options for death benefits that are very affordable under a term life insurance policy.
Someone who is married, and even beginning their family, should ask themselves, what would happen if tomorrow the household income was either cut in half or completely gone? It’s a really hard conversation, but at the same time, it's a good one to have. Could your loved ones survive if the ‘provider’ of the household was no longer there?
Let's say you have a seven-month-old and own a house. In this case, you want a policy that will ensure that if something were to happen, your family would not be left with that burden of debt and figuring out a way to pay those future expenses. This is when a whole life policy may be worth the higher premium.
#3: The premium of the policy. Your premium price for a term life insurance is going to be cheaper than it is for a whole life policy. The longer the term, obviously the higher the price. Therefore you must decide whether or not the premium is worth the benefits of a whole life policy.
Term Life Insurance
Pro: You know what you're getting; you know exactly the number of years, and you know the face amount, which is the money that you will be paid in the event that something were to happen. It's very cut-and-dry.
Con: The con would obviously be, well, what if I outlive my policy? If I have a 30 year term and 30 years comes, what is that worth? When this happens, there are some options to extend the policy though most of the time it’s converted to a whole life or a permanent policy.
Whole Life Insurance
Pro: One of the biggest advantages to the whole life policy is that you have an option to build cash value, and what that means is, as I'm paying throughout those years, I'm not only ensuring that I get the face amount, but there’s also some extra cash value that can be withdrawn throughout the life of that policy for retirement planning or end of life care, such as nursing home expenses.
Con: The con for a whole life insurance is the premium that you're going to pay.
For individuals who are in a position to handle that it's a great policy, and we've got great companies out there that are willing to offer an awesome product. I would say these policies are best for someone who's either a little bit more established financially or who’s looking to invest long term.
How much life insurance you need varies person to person and income to income, but generally speaking there’s not a ton of difference in the premium of a half a million dollars and a million dollars in coverage.
For most, a term life insurance policy is going to be very affordable, and for pennies a day, you can ensure your family's taken care of.
Understanding and purchasing a life insurance policy is important for you and your loved ones. We can help.
Byars|Wright, Inc. is a locally owned and operated independent insurance agency with four offices in the greater Birmingham area that has developed into a major provider of commercial and personal insurance. Since 1946, the agency has made acquisitions to expand its scope of business and delivers a wide-range of insurance products with quality coverage at competitive prices. Byars|Wright has been designated a Best Practices Agency by the Independent Insurance Agents and Brokers of America and was also named “Best Companies to Work For in Alabama” by Business Alabama in 2016, 2017, and 2018. Byars|Wright, Where Relationships Matter. www.byarswright.com.