Life insurance comes in two types; Term and Permanent. Term is always called Term, but Permanent has many names such as Universal Life, Indexed Universal Life, Variable Universal Life, Whole Life and more.
Term insurance costs less. Permanent insurance costs more.
The “Term” in term life refers to the number of years the premiums are locked in, such as 10, 15, 20, 25 and 30. At the end of the initial term, the premiums go up every year thereafter to age 95 or 100.
Term is a great value for young families when they need it most. The coverage is high and the premiums are low, especially on a 10-year policy. The challenge is that Term will age you out and could force you to look at purchasing a new policy. For example, a 25-year old purchases a 20-year term policy, but at age 45 finds they still need life insurance. The annual premium increase will be substantial and likely force you to shop for a new policy. That is not where you want to find yourself, especially if your health has declined. You will pay higher than normal rates, or may even be uninsurable. In which case you will be stuck with your term policy because you have no other option.
We strongly recommend term insurance for young families. But we strongly recommend you select wisely. Make sure the term you select is long enough so you won’t age out of the policy while your family still needs the protection.
What is a good amount of life insurance? We like 20x the income of the person being insured. With that amount of coverage, the life insurance money could be used to fund an investment or annuity that would replace the person’s income so the family can continue on without suffering financially.
But make no mistake. Some protection is better than no protection. Whatever amount you decide is up to you. We are here to help you get what you want, not tell you what you need.
For people in their 40’s and beyond we strongly recommend permanent insurance. Here’s why. A permanent policy taken out at age 45 and structured to age 100 will act much like a term policy because the premiums will be level like term insurance, but for the rest of your life. The premiums are higher than term for a good reason. The cost of insuring your life rises as you age, so the higher premiums paid in the early years of a permanent policy offset the higher cost of insurance in the later years of your life. You receive equal value in the long run for the premiums paid.
Beyond that, a nice feature of permanent policies is they build up a cash surrender value. If you do not want to keep the policy to age 100, you can surrender it and get cash back. The cash accrues earnings as well. And there is another twist. You can structure a permanent policy to become “paid up” after a certain number of years. That means you could pay in for a limited time such as 20 years, and the policy would have enough cash value to then make its own premium payments for the rest of your life.
That explains the basics of term and permanent insurance and how we feel which product makes the most sense for you. Term works well when you are young and your needs are high. Permanent works well when you get beyond age 40 and other considerations take over, but knowing you have an out and can get money back if you desire.
Orlando 401k Specialists provides a full suite of individual and group life insurance products. Contact us today for quotes.