WHAT IS LIFE INSURANCE?

Life insurance is a contract between you and an insurance company. Essentially, in exchange for your premium payments, the insurance company will pay a lump sum known as a death benefit to your beneficiaries after your death.

Your beneficiaries can use the money for whatever purpose they choose. Often this includes paying everyday bills, funeral, and burial cost, paying a mortgage, or putting a child through college. Having the safety net of life insurance can ensure that your family can stay in their home and pay for the things that you planned for.

WHY IS LIFE INSURANCE WORTH IT?

There are many answers to the question of why life insurance is important. But by and large, the most important one is ensuring your family’s financial security and peace of mind.

If anyone depends on your income, they will most likely struggle if you were to pass away. That is why life insurance is so important to have. There are different types of life insurance policies, but essentially, they all pay cash to your loved ones when you die.

PERMANENT LIFE INSURANCE

Permanent life insurance provides lifelong coverage. It is more expensive than term life because it:

KEY TAKEAWAYS

  • Whole life insurance lasts for a policyholder’s lifetime, as opposed to term life insurance, which is for a specific number of years.
  • Whole life insurance is paid out to a beneficiary or beneficiaries upon the policyholder’s death, provided that the premium payments were maintained.
  • Whole life insurance pays a death benefit, but also has a savings component in which cash can build up.
  • The savings component can be invested; additionally, the policyholder can access the cash while alive, by either withdrawing or borrowing against it, when needed

The cash value component accumulates on a tax-deferred basis over the life of the policy. It acts as a savings portion of the policy. Typically, you can borrow against the policy’s cash value or make a withdrawal. If you decide to end the policy, you can get the cash value minus any surrender charge.

In some policies the cash value may build slowly over many years, so do not count on having access to a lot of cash value right away. Your policy illustration will show the projected cash value.

There are several varieties of permanent life insurance:

  • Whole life insurance offers a fixed death benefit and cash value component that grows at a guaranteed rate of return. Many whole life insurance policies pay out dividends that can be used to reduce premium payments or can add to your cash value.
  • Universal life insurance often offers more flexibility than a whole life insurance policy. You may be able to alter your premium payments and death benefit, within certain limits. With a universal life insurance policy, the cash value will build depending on the policy type. For example, an indexed universal life insurance policy will have cash value tied to an index such as the S&P 500. A variable universal life policy will typically have investment subaccounts that you can choose and manage.
  • Burial insurance is a small whole life policy with a small death benefit, often between $5,000 and $25,000. Burial insurance, otherwise called Final Expense is designed to cover only funeral costs and final expenses. (Please visit our Final Expense page for additional information)
  • Survivorship life insurance or “second to die life insurance”  insures two people under one policy, usually a married couple. When both spouses have passed away, the policy pays out the death benefit to the beneficiaries. Usually, survivorship life insurance is part of a larger financial plan to fund a trust or pay federal estate taxes.

WHAT IS A RIDER?

A rider is an insurance policy provision that adds benefits to or amends the terms of a basic insurance policy.

KEY TAKEAWAYS

  • A rider is an insurance policy provision that adds benefits to or amends the terms of a basic insurance policy to provide additional coverage.
  • Riders tailor insurance coverage to meet the needs of the policyholder.
  • Riders come at an extra cost—on top of the premiums an insured party pays.
  • Riders come in various forms, including long-term care, term conversion, waiver of premiums, and exclusionary riders.
  • In some cases, a policyholder may not be able to add a rider after the policy has been initiated.


UNDERSTANDING A RIDER

Some policyholders have specific needs not covered by standard insurance policies, so riders help them create insurance products that meet those needs. Insurance companies offer supplemental insurance riders to customize policies by adding varying types of additional coverage. The benefits of insurance riders include increased savings from not purchasing a separate policy and the option to buy different coverage at a later date.

Important: Before adding a rider to an insurance policy, the holder should weigh the cost of the rider and decide whether they really need it. It is also wise to check that the rider does not duplicate coverage already included in the basic policy.

 TYPES OF RIDERS

 Riders come in various forms, including long-term care, term conversion, waiver of premiums, and exclusionary.

LONG-TERM CARE RIDER

Long-term care (LTC) coverage is often available as a rider to a cash value insurance product such as universal, whole, or variable life insurance. A rider can address specific long-term care issues. The funds reduce the policy’s death benefit when they are used. Designated beneficiaries receive the death benefit less the amount paid out under the long-term care rider.

In some cases, the policyholder’s needs may exceed the total benefit of the life insurance policy. So it may be more advantageous to purchase a stand-alone LTC policy. If the LTC rider is unused, the policyholder saves in costs when compared to purchasing a stand-alone LTC policy.

TERM CONVERSION RIDER

Term life insurance provides coverage for a limited time, typically 10 to 30 years. Once the policy expires, the policyholder is not guaranteed new coverage at the same terms. The policyholder’s medical condition may make it difficult or impossible to obtain another policy.

A term conversion rider allows the policyholder to convert an existing term life insurance to permanent life insurance without a medical exam. This is typically favorable to young parents seeking to lock in coverage to protect their families in the future.

WAIVER OF PREMIUM RIDERS

This rider is generally available only when the policy begins and may not be available in every state. Under the waiver of premium rider, the insured party is relieved of premium payments if the policyholder becomes critically ill, disabled, or seriously injured. There may be certain requirements to add this rider, such as age limits and certain health requirements.

RETURN OF PREMIUM RIDER

Term life insurance offers an affordable way to protect your family, yet this type of coverage does have one tragic flaw. Unlike whole life insurance, term life insurance is only valid for a specific period of time (usually 10 to 30 years). Once the timeline of your policy is over, you no longer have coverage, and all your premiums are gone.

Fortunately, it is possible to purchase a specific type of term life insurance coveragethat won’t leave you empty-handed when your policy expires. With return of premium (ROP) life insurance, you will pay a flat rate for the duration of your policy, but you will get all your money back at the end of the term.

Return of premium life insurance policies tend to cost 30% more than traditional term coverage. However, the additional investment in premiums could be worth it if you want your policy to have a built-in savings mechanism that rewards you for your faithful payments later on.

Reach out to discuss policy options and riders.  Everyone has different needs and requirements that evolve over time. Our job is to fully understand those needs and make the best possible recommendations.

HOW TO CHOOSE A LIFE INSURANCE COVERAGE AMOUNT

A good rule of thumb for estimating how much coverage you need is to:

  1. Add up all the expenses you want to cover, such as income replacement for your work, a mortgage and children’s college expenses.
  2. From that, subtract the amounts that your family could use to cover those expenses, such as savings and existing life insurance. Leave out retirement savings if your spouse will need that later on.

The resulting number is how much life insurance you need. It may look high, especially if you have factored in income replacement for many years. Still, life insurance quotes are free, so it does not hurt to price out the coverage you need.

If it turns out to be unaffordable, you can buy what you can afford now to lock in a good rate. You can buy more later, just be aware that several years from now your rate will be based on your older age and any health conditions you have developed.

Use the Life Insurance needs calculator below for an idea of what you may need.  Call us to discuss other options, we are happy to help and assist with finding the right policy for you.

WHY LIFE INSURANCE COMPANIES REQUIRE A MEDICAL EXAM

Life insurance companies use a process called underwriting to determine how much of a risk you are to insure. Insurers need to calculate the life expectancy of applicants. This helps insurers price life insurance policies accurately to protect themselves financially.

It also helps prevent healthy people from overpaying for coverage to subsidize those who are not as healthy. Healthier applicants are more likely to get lower insurance rates. And those with health conditions and at older ages will pay more or could possibly be declined for coverage.

So a big part of the underwriting process involves gathering information about an applicant’s health. Insurers will ask you to fill out an application with questions about your medical history, prescriptions, your family’s medical history (parents and siblings), and your driving record, dangerous hobbies and plans for international travel.

A fully underwritten policy (which takes all medical and personal information into account) typically requires a medical exam to verify the information you provide and determine whether you have any health conditions that could affect your life expectancy.

If your interested in discussing plan options please send us your contact information and someone will get back to you promptly.

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Secure One Life LLC would like to help get you the best coverage possible. Please click below to apply for a personalized term life insurance policy with our life insurance partner, Ethos.

Because we are independent, our priority is you, not the insurance company. We represent many different insurance companies which offer a wide variety of coverage options and price points.  If your interested in something other than simple term, or term with specific riders (conversion, waiver), reach out to us directly to discuss your specific needs.

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x SecureOne Life LLC 

Quote and Apply simplifies the quoting process for Whole Life, Long Term Care, Disability, and Annuities.  Save time and money by shopping the top-rated insurers in one place.  Please click below for a personalized insurance policy with our life insurance partner, Back9 Insurance.

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Not sure what you need? Let us help you eliminate the guess work to make sure your life’s work is protected from the unexpected.

  • We can review your current plan or policies to insure they still meet your goals.
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