Life Insurance
Types Of Life Insurance Policies
In a very broad sense, there are two types of life insurance:
1) Permanent life insurance
2) Term life insurance
PERMANENT LIFE INSURANCE
Permanent Life Insurance is a type of life insurance that can stay in force for your entire life, as long as you pay your premiums in full. Permanent life insurance usually, but not always, builds cash value for you that you can use for expenses later in life.
Whole Life Insurance
Whole Life Insurance is life insurance that you own for your entire lifetime. The amount of the death benefit or face amount can be selected to meet your needs.
Premiums, or payments, are fixed and can be paid monthly, quarterly, semi-annually, or annually. As more premiums are paid, your policy accumulates a cash value that grows on a tax deferred basis. In essence, whole life is like buying a house versus renting it. The monthly cost is higher than it would be for a term life policy, but with each payment you make you gain equity. You can borrow against a Whole Life policy for any purpose. Loans, however, require you to pay interest and any borrowed amount you do not pay back is deducted from the payout to your beneficiary at the time of your death.
Universal Life Insurance
Universal Life is permanent insurance that has the potential to accumulate cash value. However, it offers additional features and options. For example, you can increase or decrease your policy’s face amount to accommodate your changing protection needs. You can also increase or decrease the dollar amount of your premium payments and make additional lump sum payments to your policy. Since a Universal Life policy accrues cash value, you can borrow against this cash value for any purpose.
You have the option to skip premium payments if your account has accrued sufficient value because the premiums will be taken from the accrued value. A Universal Life policy also has the potential to earn a higher rate of return than a whole life policy, although there is a risk that your rate of return could drop.
TERM LIFE INSURANCE
On the other hand, term life insurance is only in force for a specified amount of time: usually 10, 15, 20 or 30 years. At the end of the term, your coverage expires and you will need to either convert your policy to a permanent life insurance plan (if available) or purchase a new policy for a new term. The advantage of term life insurance is that it’s somewhat less expensive than permanent life insurance. Premiums, or payments, which can be the same amount or increase with time, must be made monthly, quarterly, semi-annually, or annually. If you die during the term of coverage, the face amount of your policy will be paid to your beneficiaries. Term insurance policies do not accumulate cash value and therefore usually offer lower premiums than other life insurance products with the same face value.
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Life Insurance For Diabetics
In 2012, 9.3% of the U.S. population was diagnosed with some form of diabetes.* If you have diabetes and think that you can’t find affordable life insurance then think again. Diabetics can find affordable life insurance, especially those who control their blood sugars with diet or oral medications. Also, if you were diagnosed with late onset diabetes (after the age of 50) it is possible that you could qualify for affordable “above average” rates.
How Does Diabetes Impact Life Insurance Rates?
Many factors impact your rates. The more recent the diagnosis the better, because, over the long term, blood sugar medications harm our bodies. So someone diagnosed at age 65 with late onset diabetes is less of a risk for life insurance companies to insure than a 35-year-old who was diagnosed during adolescence.The type of medications a diabetic takes also impact rates. For example, a Type II diabetic taking only oral medications is less of a risk than a type I diabetic taking insulin. Diabetics controlling their blood sugars with diet are even less of a risk than the other two.
Life insurance for diabetics is comparable to any other health concern. If you follow your doctor’s orders and your diabetes is under control your rates should be affordable. The key is always good control and following doctors’ orders. If you are diabetic and looking for life insurance, be sure give us a call. We work with various companies to help you find the most affordable life insurance rates for your condition. Remember, we’re here to help you get the best possible rate.
Which Is Right For You?
The answer depends on what you’re trying to accomplish by having a life insurance policy. Are you insuring your life so that when you pass away your children will be able to go to college and your spouse will be able to pay off the mortgage? These are temporary concerns and so a temporary form of life insurance – term life – is best suited to address them.
However, if you are concerned about providing income to a widow or widower for life, funding retirement, or passing wealth to a future generation then you will find that permanent life insurance is better suited to address these goals.
Always ask yourself why you need your life insurance policy. If it’s for a temporary goal, then term insurance is probably best. If it’s to address a long-term need or concern, then it’s time to start looking at permanent policies.
How Much Do I Need?
One reason for choosing a life insurance policy is to determine how much your dependents will need after you’re gone. In order to choose the face value (the amount your policy pays if you die) of your life insurance you should consider the following:
Amount of Debt
All of your debts must be paid off in full, including car loans, mortgages, credit cards, etc. If you have a $200,000 mortgage and a $4,000 car loan, you need at least $204,000 in your policy to cover you debts (and possibly a little more to take care of the interest as well).
Income Replacement
One of the biggest factors for life insurance is for income replacement, which will be a major determinant of the size of your policy. If you are the only provider for your dependents and you bring in $40,000 a year, you will need a policy payout that is large enough to replace your income plus a little extra to guard against inflation. Just to replace your income, you will need a $500,000 policy. This is not a set rule, but adding your yearly income back into the policy (500,000 + 40,000 = 540,000 in this case) is a fairly good guard against inflation. Remember, you have to add this $540,000 to whatever your total debts add up to.
Future Obligations
If you want to pay for your child’s college tuition you will have to add this to the amount of coverage you want, which would be about another $100,000.
Adding everything together, you will probably want a policy for $840,000 ($540,000 to replace yearly income + $200,000 for the mortgage expense + $100,000 university expense).
Once you determine the required face value of your insurance company, you can start shopping around for the right policy (and a good deal).
Obviously there are other people in your life who are important to you and you may wonder if you should insure them. As a rule, you should only insure people whose death would mean a financial loss to you. If you have spouse or partner that also is a contributor to the family income then it would make sense to go through the same exercise to determine the face value of the policy.