Term Insurance

Life insurance is about risk — the risk that you will die at an inappropriate time. Now, there is one sure thing: We will all die sometime. So you’re hedging your timing bets with money to replace your “value” to those who depend on your current — and future — earnings.

 

How much insurance do you need? Think about what your dependents would endure over the years without your earnings stream.

 

Term life insurance is the least expensive and simplest form of insurance. The premium dollars you pay to buy this insurance cover the “mortality costs” — the likelihood that you will die this year.

 

There is no extra cash buildup within the policy. Ordinarily, as you get older the cost of life insurance should rise, along with the likelihood of your death. But the insurance industry has gotten around this issue by creating “level term” — a guarantee that the annual cost will remain the same for 10, 20, or even 30 years.

 

With term insurance, as long as you keep paying the annual premiums (which you may pay monthly, or quarterly), the policy will stay“in force” — protecting you and paying the death benefit to your designated beneficiaries.

 

The problem with term insurance is that the term ends — and it may leave you uncovered for insurance in 20 or 30 years, when you are not healthy enough to qualify for a new policy. That’s why many people turn to various forms of “whole life” insurance, which will cover your entire lifetime.

 

With these policies you pay higher premiums, but some of that money is “saved” inside the policy, earning interest or invested to build up even more cash. Then in future years, you can borrow out some of the excess cash — or use it to pay premiums when you’re older and have stopped working.

One warning: Many of these whole life, investment-linked, or universal life, or universal variable life policies are shown with “illustrations” of money growing inside the policy to pay premiums when you are retired. But illustrations are not guarantees. And in this low-interest rate environment, it’s wise to ask for an insurance checkup to make sure you are paying enough in premium to keep the policy going in later years.

 

Go view www.LifeHappens.org — a non-profit devoted to educating consumers about life insurance.