LIFE INSURANCE

Life insurance is all about planning for the unforeseen. While the death benefit that’s paid out to your heirs or your estate upon your passing is often viewed as the main benefit of a life insurance policy, today’s life insurance plans have evolved to provide for you before your death as well. When considering life insurance policies, there a few main costs and benefits to consider: premiums, living benefits and death benefits.

Life insurance premiums are the monthly or annual costs that you have to pay in order to receive life insurance coverage. These payments go directly to the life insurance company, and you don’t get them back. While the terms for each life insurance policy varies, you must remain current on your life insurance premium payments, otherwise your life insurance policy will lapse and you won’t receive a death benefit.

The cost of your life insurance premium depends on a number of factors, including the face value of your policy (how much is paid upon your death), your health, age, occupation and other factors that increase or decrease the probability that you may be filing a life insurance claim.

Living benefits are the monetary benefits and financial instruments that you can use while you are still living. Living benefits exist for permanent life insurance policies that accrue cash value over time. Typically, you can withdraw from this cash value (less a surrender fee) or take a loan out from the life insurance company while using your life insurance policy as collateral. This is a flexible and cost-effective way to manage unexpected expenses and finance major steps in life, such as college education for your children or home improvements.

Permanent life insurance policies with cash value can also be used as income generating vehicles. For example, a universal life insurance policy’s cash value accrues interest, much like a savings account or CD account. A whole life insurance policy can be invested in a more aggressive instrument. Many individuals use a permanent life insurance policy as a combination retirement savings and life insurance policy.

The death benefit is the amount that is paid out to your heirs or your estate upon your passing. This amount varies depending on the type of life insurance policy you have and how much you’ve opted to receive. This amount can stay constant over the entire term of the life insurance policy, or it can increase or decrease. For example, a decreasing term mortgage life insurance policy diminishes in value in accordance with the amount left on your mortgage balance and disappears once your principle reaches zero. On the other hand, a universal life insurance plan can increase if you choose to deposit more into your cash value account.

When it comes to choosing life insurance, you have many options - both in terms of policy types and the agencies who provide it to you. There is wide variation across both of these, and your best bet is to interview two or three insurance agents or insurance brokers and let them know what your needs, goals and concerns are. They’ll usually be able to suggest one or two different products that will work best for your long term and short term goals.

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