Broker Check

Life Insurance

Many folks believe life insurance only provides a death benefit to the family in the very unlikely event of a breadwinner’s death, so the cost and ownership of this “necessary evil” should be minimized. This viewpoint is often reinforced by competing traditional financial thinking, to help steer consumers towards their often-riskier financial strategies and away from the other benefits of owning life insurance.

For many folks, the lowest-priced life insurance is all they can afford, so the traditional approach of term insurance to get important protection for their families may make the most sense for them. Here is a brief description of the two basic types of life insurance. They are term life insurance and permanent life insurance (cash value life insurance).

Term Insurance
Term insurance is usually sold in term periods of 10, 20, and 30 years. It does not develop cash values and the costs are low. But when those term periods end and the insured becomes older and maybe less healthy, the term premiums can become prohibitively higher.

Permanent Insurance
Permanent or cash value life insurance come in two basic types, universal life and whole life. Both develop cash values but in different ways. Universal life has flexible premiums. This means that if the policy owner wants to pay a low premium, a high premium, or no premium he or she may do so as long as there is enough cash value in the policy to pay the monthly expenses of the policy. This can be very precarious because as the insured grows older insurance costs go up and if there is not enough cash in the policy to pay the increasing monthly expenses the policy will lapse. Whole life insurance has a required guaranteed premium, which guarantees the death benefit and develops guaranteed cash values. As long as the guaranteed premium is paid the guaranteed death benefit will be there. The guaranteed and non-guaranteed cash values will help offset the insurance costs so that the policy remains affordable.

Even those lucky enough to have more financial flexibility often view life insurance negatively, because by following traditional advice they own it in the wrong amount, in the wrong form and at the wrong funding levels. Once they understand the lowest price product isn’t necessarily the cheapest in the long term, folks appreciate the varied benefits life insurance can provide.

A strategically designed life insurance plan can provide so much more than just a cash death benefit resulting from an unlikely death. Life insurance can fit into your plans for secure wealth accumulation, income and estate tax advantages and a richer and more flexible retirement.

There are many things that you should consider before purchasing a life insurance policy, including:

  • Your protection goals, based on your current income and family situation, estimated final costs, future obligations, inflation, and your other financial assets and liabilities
  • Other financial goals, such as building wealth, potentially minimizing income taxes and steady asset growth
  • Other legacy goals, including protecting your key assets, funding estate taxes, giving to charities and wealth transfer
  • What types of policies provide the right mix of price and benefits for you
  • Your current health, and the risks of future changes
  • How much cash flow or assets you can commit to funding a life insurance program

Your life insurance policies should be reviewed periodically, especially when there is a life-changing event like a marriage, divorce, birth or adoption. Life insurance policies should also be reviewed if you make a major purchase such as a house or business. Any of these events might change of amount of protection that you and your family need.