What is the most common type of life insurance?

About half of all American adults will have life insurance in 2021, according to a report Limra. If you’re not one of them, you might be wondering if you should look into it. But what is life insurance and who benefits?

In exchange for regular payments over time through an insurance company or employer, you designate individuals as such Beneficiary With your life insurance policy you get a lump sum when you die.

Experts recommend life insurance to most people as part of a prudent overall financial plan. Life insurance helps protect spouse, children, family members and others who depend on your income. It can also be part of an inheritance or philanthropic gift.

“Most people don’t expect to die unexpectedly. And it’s usually an inexpensive way to make sure your loved one is taken care of,” says Jarrod Sandra, owner of Chisholm Wealth Management in Crowley, Texas, and a certified financial planner (CFP). . Life insurance is one of the main things Sandra said she considers as part of a comprehensive plan for clients

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Who should have life insurance?

Just as health insurance is an important part of healthcare, and Self insurance Needed to drive a car, life insurance can be an essential part of your financial picture.

“Married couples, anyone with dependents and business owners” should seriously consider carrying life insurance, Martin A. says Scott, a CFP and founder of Lasting Wealth Principles in Freehold, New Jersey, which specializes in advising people in their 30s and 40s. .

How do I get life insurance?

You can buy life insurance individually or through a group. Insurance companies offer policies to individuals. Employers and groups, such as professional associations, also offer group policies as part of benefits packages.

Insurance companies are regulated by the state. The National Association of Insurance Commissioners has one Directory of licensed agents and companies. Many states provide details of life insurance ins and outs on their websites.

You can also buy the policy online. It’s wise to shop around. Most experts recommend that you consult a financial advisor with a fee-only CFP who is a fiduciary. Kevin Lau, a CFP and founder of Imagine Financial Security in Jacksonville and St. Augustine, Florida, advises clients to speak with a chartered life underwriter (CLU).

“I recommend talking to a financial planner And An insurance broker together,” says Lao. “That way the recommendations are coordinated and have multiple eyes on it.”

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How much life insurance do I need?

Carefully consider how much life insurance you may need. You don’t want to pay a monthly premium that’s too high for your current financial situation, or too low to determine what your beneficiaries might need after you’re gone.

Then consider dependents like children, marital status and your current debt, experts say. Consider what they need and for how long, considering your lost income. You may want to leave an inheritance to someone for future expenses.

Generally, beneficiaries collect life insurance payouts tax-free. Lao recommends using an insurance calculator to figure out your needs, and generally advises people to consider coverage worth at least 10 times your gross income. It all depends on your situation.

What are the different types of life insurance?

There are two main types of life insurance, offered in different forms:

• the whole: It covers entire lifetime (premium may cost more).
• Duration: It covers a fixed period till the expiry of the policy.

the whole: Whole life insurance is a common type of cash value policy and often the simplest type of permanent insurance. Premiums are usually paid throughout life. If you take out a policy at an earlier age, for example, in your 20s, you will pay lower premiums than later in life because you are paying cash into the policy. The cash value of the policy increases based on a fixed rate set by the company.

Benefits:

• Effective for life (as long as you pay on time and don’t cash in the policy)
• Some policies pay a dividend annually (though usually not guaranteed).
• You can build cash value and be able to borrow from the policy (premiums are locked in for life).

Disadvantages:

• Generally more expensive than term life
• Premiums can increase with age, so experts recommend starting early
• If you need more coverage later in life, it can be expensive

Duration: Term life insurance covers a fixed number of years. This can be useful at certain times in your life, such as when you are raising a family. But you have to renew the term life policy and the premium often goes up.

Benefits:

• Less expensive than whole
• You pay for what you need
• Good for a period of time (if raising a family, for example)

Disadvantages:

• The policy covers only a certain number of years
• The premium usually increases each time you renew
• If you become ill or have high-risk treatment, you may not be able to renew

Public: Universal life A type of cash value policy with flexible premiums that can be changed over time. It considers three main parts of the policy separately: premium, death benefit and cash value.

Benefits:

• More flexibility
• Death benefits can be fixed or increase over time
• Can change premium and benefit values
• The policy can be paid off early

Disadvantages:

• If you pay less than the premium, the benefits may lapse
• Easy to lose track and not build on cash value
• If the value is zero, the policy may be invalidated
• May include “mortality” and costs that climb with age

Other types of life insurance

• changeable: Benefits and cash value may vary, just as the name implies. Insurance companies invest your contributions in stocks, bonds and other investments like mutual funds. As the policy holder, you assume that risk. If the investment is successful, you will get a high return. If they fall, your premiums can climb, reducing the value of your policy.
• Supplement: It’s what it sounds like: coverage on top of your primary policy. This may include insurance for your spouse, children or accidental death coverage.
• Joint: This usually expensive option covers two or more people with the payout coming when the first person dies. Insurers view joint policies as risky because a larger benefit payout can be sooner and larger overall.

Ultimately, your decision may depend most on who will depend on you financially and in other circumstances, Curtis J. said Crosland, a CFP and managing member of Suttle Crosland Wealth Advisors in Scottsdale, Arizona.

“Are you starting a family or want to protect or provide for a significant other? Income replacement concerns, debt concerns, future exposure to expense concerns, etc. These all play into the right situation,” Crossland said. “If you’re an admitted bachelor or bachelorette for life, dying with a bunch of debt, or not building a full retirement account, won’t have the same effect on others.”

Have more questions about which life insurance policy is right for you? You can get started by getting a quote now.

Other life insurance considerations

It is very important to understand and familiarize yourself with the types of life insurance available. As you research your options, there are other factors to consider. It includes how much do you need, How much will you pay? (How to get cheap life insurance) and what kind of policy you need if you want one Cash-out option. Ultimately, the decision to purchase life insurance is a personal one based on your own personal financial situation and preferences.

But many financial advisors recommend having a baseline of protection. That’s why it’s worth talking to a life insurance representative who can help you find an affordable plan that protects you and your family.