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Life insurance isn’t for those who die it’s for those that live. We all love our families yet many of us fail to protect them in the event something should happen to us.
Buying life insurance will probably never be fun but we’ve made it as easy and painless as possible with our free insurance quote and apply tool below.
How Much Life Insurance Do I Need?
How much life insurance you need is a moving target as the amount of life insurance needed will change throughout your life. Most would say as a general rule someone in their 30’s to young ’40s should have 10 to 15 times his or her annual income.
Put simply, in the event you die, you want life insurance payouts to allow your spouse and children to continue their lifestyles without worrying about money. You may also want to provide for future expenses like your children’s education.
Term life insurance
In general, term life insurance is the best option for most people because it’s more affordable than whole life insurance. But like any insurance product, there are pros and cons to consider.
Term life insurance lasts for a number of years before it expires. If you die before the term is up, a set amount of money, known as the death benefit, is paid to your designated beneficiary. Term insurance is considered the simplest, most accessible life insurance policy.
When you make your payments (known as your premiums), you’re paying for the death benefit that will go to your beneficiaries when you are gone. The death benefit can be paid out as a lump sum, a monthly payment, or an annuity. Most people elect to receive their death benefit as a lump sum.
Cash Value Life Insurance
Whole Life Insurance
Whole life insurance, on the other hand, is a type of permanent life insurance because it does not expire. It has a death benefit and a cash value, which is an investment-like, tax-deferred savings account that is included in the policy. The cash value accrues interest at a predetermined fixed rate. Each month, a certain portion of your premium will go into the cash value of the policy, which offers a guaranteed rate of return (the exact amount that goes into savings is determined by your individual policy). The policy’s cash value grows over time and can be withdrawn when it accumulates enough value or is used for a loan.
A whole life insurance policy can cost five to 15 times as much as a term life policy for the same death benefit amount.
Whole life offers lifetime coverage as long as you pay the premiums. However, the cash value component makes whole life more complex than term life because of surrender fees, taxes, interest, and other stipulations.
Whole life insurance may be worthwhile if you need the cash value to cover things like endowments or estate plans, or if you have long-term dependents such as children with disabilities.
Universal life insurance
Universal life insurance has a cash value, just like a whole life insurance policy. Your premiums go toward both the cash value and the death benefit. But there’s a twist: You can change the premium and death benefit amounts without getting a new policy.
Although you need to have a minimum premium to keep the policy in force, you can use the cash value to pay that premium. That means if you have enough money in the cash value, you can use that to skip premium payments entirely, letting the accrued interest do the work until the cash value is depleted
Indexed Universal Life Insurance (IUL)
Indexed universal life insurance (IUL) is a type of universal life insurance (UL), but the way the cash value behaves differentiates the two.
An index is essentially a group of investments like stocks or bonds. The S&P 500 and the NASDAQ-100 are examples of indexes. The insurer doesn’t directly invest in the market but uses the interest rate and performance of a specific index to set the interest rate for your policy.
Indexed universal life insurance policies have a minimum guaranteed interest rate (so you won’t lose money), but the interest rates aren’t fixed or varied like some other permanent insurance policies.
IUL policies have all the same offerings as universal life insurance policies, but the way the cash value account grows and shrinks is different. While universal life’s cash value has a variable interest rate set by the life insurance company, indexed universal life’s cash value is based on an index chosen by the insurer.
Life Insurance FAQs
Term life and permanent life are the two main types of life insurance policies. Both offer a tax-free death benefit to your beneficiary/beneficiaries if you pass away. Term life insurance provides coverage for a set period and is often the lowest priced coverage option. Permanent life insurance provides the security of lifelong protection and can also build cash value over time.
A term life insurance policy offers affordable, straightforward protection that lasts a defined period, which you can typically set at between one and 30 years.
A universal life insurance policy offers flexible protection that can last your lifetime and includes various cash accumulation options.
A whole life insurance policy offers predictable lifelong protection with the most guarantees, including a fixed premium and death benefit.