Determining how much life insurance you need requires a careful examination of your current and future financial obligations (i.e., a combination of (a) what would it cost to help your surviving family members meet immediate and ongoing needs like funeral costs, taxes, food, clothing, utilities, mortgage payments, etc. and (b) your desires to help fund future obligations like college and retirement funding) and the resources that your surviving family members could draw upon to meet those obligations (i.e., your spouse’s income, savings and investments, other income producing assets, and any life insurance you might already own).
The difference between the two (your financial obligations minus the resources your family has to meet those obligations) is the approximate amount of additional life insurance you need. That’s why most people turn to a qualified insurance professional when they want to determine how much insurance they need. But if you don’t feel you’re ready to speak with an agent or want a preliminary sense of your needs before meeting with an agent, visit our Life Insurance Needs calculator. It will walk you through the various questions you need to ask yourself and provide you with a rough estimate of how much insurance you need to protect your family.
It’s impossible to say which is better because the kind of coverage that’s right for you depends on your unique circumstances and financial goals. But generally speaking, term offers the greatest coverage for the lowest initial premium and is a great solution for people with temporary needs or a limited budget. Permanent insurance may make more sense if you anticipate a need for lifelong protection and like the option of accumulating tax-deferred cash values. Also, it doesn’t have to be either one or the other. Oftentimes, a combination of term and permanent insurance is the right answer.
There are four main types of “permanent” insurance. Whole life insurance is the most traditional form of permanent insurance. With it, the face amount (the death benefit) and the premium (the amount you pay for protection each year) are fixed at the time you buy your policy and stay the same even as you age. You also earn a guaranteed rate of return on your cash values. Of course, any guarantee relies on the claims paying ability of the issuing insurance company. By contrast, the cash value in universal life is linked to interest rates, and the cash value of variable life and variable universal life is linked the performance of the underlying investment options you choose to invest in and fluctuate with market conditions. These two types of insurance products are offered via a prospectus, as such, you should always request a copy of a current prospectus, as it contains information you need such as the investment objectives, risks, and charges and expenses of the investment. The cash value of universal and variable policies is not guaranteed, although some policies set a minimum death benefit. With universal policies (universal life and variable universal life) you can reduce or increase the amount of the death benefit and vary the amount or timing of premium payments, subject to certain limitations. If you’re having a hard time understanding the differences between these policies, don’t despair. You can learn more about permanent life insurance by reading on. Or better yet, contact Luxon and we’ll take the time to walk you through your various options.
Many policies contain a provision that allows a terminally ill person to collect a significant portion of his or her policy’s death benefit while that person is still alive. The money can be used to get one’s family finances in order, pay for uncovered medical expenses, or simply do certain things for your family or friends while you still can. It’s important to note that the amount you take out while still living will be subtracted from the death benefit payments to your beneficiaries along with an interest charge to account for early payment of benefits.
Medical tests provide accurate and current information about an applicant’s health, thus enabling insurers to charge premiums that reflect the level of risk an applicant represents. Because some health conditions are easily managed through proper medication, therapy or lifestyle changes, medical information makes it possible for insurers to cover applicants with certain health conditions. More serious or incurable conditions present a very significant risk that some insurers simply may not want to assume.
- Always name a “contingent,” or secondary, beneficiary, just in case you outlive your first beneficiary.
- Select a specific beneficiary, rather than having the proceeds of your life insurance paid to your estate. One of the great advantages of life insurance is that it can be paid to your family immediately. If it is payable to your estate, however, it will have to go through probate with the rest of your assets.
- Be very specific in wording beneficiary designations. Saying “wife of the insured” could result in an ex-spouse getting the proceeds. Naming specific children may exclude those born later. If your child dies before you, do you want the proceeds to go to that child’s children? Changing the beneficiary designation is easy, but you have to remember to do it. Due to the various issues involved, a Luxon agent can be an excellent resource to help you properly set up your beneficiary designation.
Level Term Insurance is your typical standard term insurance. It has a guaranteed death benefit, level premium and at the end of the term period will convert into renewable term or just lapse. It is typically convertible and is available with riders such as waiver of premium or terminal illness.
The upside to level term insurance is that it is incredibly cheap, the downside to level term is that if you don’t die during the term period you get nothing from the coverage. This was the case until the introduction of return of premium term insurance. With return of premium term insurance at the end of the term period you will receive all of your premiums back. This is a great solution for individuals who need life insurance coverage for a limited period of time but don’t want to just lose their premiums at the end of the term period. Return of premium term insurance typically offers all of the same riders and benefits of standard term insurance.
Many carriers will allow you to “dial” your guarantee period, meaning that you can select a coverage period, usually beginning with 10-20 years, up to the rest of your life (a hypothetical age 120), making this product essentially a permanent life insurance contract, with the flexible premium structure of a traditional universal life insurance plan. Depending on the carrier and the contract, you may even be able to change the coverage period as well, allowing you to manage your needs as your situation changes. The easiest way to understand this concept is to obtain a universal life insurance quote from one of our Luxon agents and allow them to explain the details.
Think twice before you do, because in many situations it may not be to your advantage. Before dropping any in-force policy, consider:
- If your health status has changed over the years, you may no longer be insurable at standard rates.
- Your present policy may have a lower premium rate than is required on a new policy of the same type (if, for no other reason, that you have grown older).
- If you replace one cash-value policy with another, the cash value of the new policy may be relatively small for several years and may never be as large as that of the original one.
- You will be subject to a new contestability period.
You should ask a Luxon agent for a detailed listing of the costs of both policies, including premiums, cash surrender value, and death benefits. Compare these as well as the features offered by both policies. If you decide to surrender or reduce the value of the policy you now own and replace it with other insurance, be sure that:
- the proposal is in writing.
- you pass any required medical examination.
- your new policy is in force before you cancel the old one.
If you miss a premium payment, you typically have a 30- or 31-day grace period during which you can pay the premium with no interest charged. If you own a term policy and fail to pay your premium within the grace period, your insurance company will typically terminate the policy. If you own a permanent policy and fail to pay your premium within the grace period, your insurance company, with your authorization, can draw from your policy’s cash value to keep the policy in force. In some flexible-premium policies, premiums may be reduced or skipped as long as sufficient cash values remain in the policy. However, this will result in lower cash values and a shortened coverage period.
Whether you should add a rider to a policy you’re considering really depends on your specific needs, objectives and budget. Here are a few riders that should be considered:
A disability waiver of premium rider stipulates that if you become totally disabled for a specified period of time, you don’t have to pay premiums for the duration of the disability. Why might you want to consider such a provision? Disabling illnesses and injuries are much more common than you probably realize. If you become disabled and your income declines or disappears for a period of time, a disability waiver of premium can ensure that your life insurance policy will remain in force.
An accidental death benefit is another common rider. It will pay an additional benefit in the case of a death resulting from an accident.
Many companies offer accelerated death benefits, also known as living benefits. This type of rider allows you, under certain circumstances, to receive the proceeds of your life insurance policy before you die. Such circumstances include terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home.
Ask your Luxon agent for information about these and other policy riders.