Learning Center (Life Insurance)

No longer with us. Passed on. Gone to a better Place.

Most of us don’t like talking about death.  Which is interesting because we all face it, sooner or later.  Have you thought of the impact your death sudden or otherwise would have on those you love?  Nothing can be done to protect a person from the distress of losing a father, a husband, a mother, or a wife.  But there is something you can do to protect your loved ones from the financial struggles that are likely to follow your death.

BUY SOME PEACE OF MIND.

Life insurance was created to protect the financial security of your loved ones after you die.  You pay premiums for a number of years and when you die, the insurance company pays out what’s called a death benefit to the person(s) you name as your beneficiary.  This person can put the money toward medical bills, funeral expenses, and outstanding mortgage, other living expenses, college tuition and retirement or whatever is needed to continue his or her life without you. 

One of the nice things about leaving your beneficiary with likfe insurance money instead of cash or investments is that the death benefit is excluded from his or her taxasble income. 

Sounds nice and simple, right?  Well, yes. But no. There are a lot of variations, options and costs to consider before buying life insurance. 

There are two types of life insurance in this world.

There’s term and there’s perm, which we’ll explain. Some people what straightforward life insurance, as described on the first page.  Others want their life insurance policy to work a little harder.  The type that you choose will depend on your financial situation and what you’re looking for in an insurance policy. 

TERM IS FOR A TIME.

Term insurance is the most basic type of insurance.  You can buy protection for a certain amount of time (or term) such as 5, 10,15,20,30 years.  If you die before the term is over, your beneficiaries get no payment.  The main benefit of this type of insurance is that it’s usually the least expensive to buy.  Term policies often allow you to extend your coverage for another term without having to get a medical check-up.  For example, you can simply renew the policy for another term.  Or you may be allowed to convert your policy to a permanent policy.  With both renewals and conversations you can expect an increase in premium.  Also, once you reach a certain age, say 65 or 70, you might run into more limitations on renewals or conversions. 

PERM IS FOR LIFE.

One main difference between term and perm life insurance is that perm doesn’t expire. As long as premiums are being paid, it stays with you permanently throughout your lifetime. 

The other big difference is that with permanent life insurance your premiums are invested to produce returns.  This gives your policy a cash value, which usually accumulates at a guaranteed minimum interest and is available to use for retirement, education funding, emergencies, major purchases, and more.*   Because the federal government likes to encourage responsible financial behavior, such as buying life insurance, they currently allow your cash value to grow tax deferred.  Because of this benefit, a permanent life insurance policy has become more than a protection tool for some people it’s also a financial tool.

*Available through loans and withdrawals that, until repaid, will reduce cash value and death benefit of the policy.  Withdrawals and surrenders of earnings are taxed as ordinary income.  If the policy is a modified endowment contract, loans are also taxable, and loans, withdrawals and surrenders of earnings may be subject to a 10% penalty tax if made prior to age 591/2.

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