The most popular types of life insurance: What you need to know

Life insurance is a good part of financial planning. Your coverage should match your circumstances. / Credit: Getty Images

About half of Americans had life insurance in 2021, according to report from the industry association group LIMRA. If you’re not one of them, you might be wondering if you should check it out. But what is life insurance and who benefits?

In exchange for regular payments to the insurance company or to the employer, the beneficiaries you choose receive an agreed-upon amount of money when you die through your life insurance policy.

Experts recommend that most people have life insurance as part of good financial planning. Life insurance protects your spouse, children, family members and others who depend on your income. It can also be part of an inheritance or charitable gift.

If you don’t have life insurance or want to increase the amount you already have, now is a good time to start. You can Get started with a price estimate today.

“Most people don’t expect to die suddenly. And it’s often an inexpensive way to make sure your loved ones are taken care of,” says Jarrod Sandra, owner of Chisholm Wealth Management in Crowley, Texas and a certified public accountant (CFP). . Life insurance is one of the biggest things Sandra said she sees as part of customer planning.

Who should get life insurance?

Just as health insurance is an important part of your health, and auto insurance is important for driving, life insurance can be an important part of your financial life. “Spouses, any dependents and business owners” should seriously consider having life insurance. .

How can 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 labor unions, also offer group policies as part of benefits. Insurance companies are regulated by states. The National Association of Insurance Commissioners has a a directory of authorized service providers and companies. Many states also provide details of life insurance and exits on their websites.

You can also buy the policy online. It is wise to buy things. Many experts recommend that you consult with a financial advisor who is the only one who has a CFP. Kevin Lao, CFP and founder of Imagine Financial Security in Jacksonville and St. Augustine, Florida, advises clients to also speak with a Chartered Life Underwriter (CLU).

“I recommend talking to a financial planner and an insurance broker,” says Lao. “This way the ideas are connected and there are multiple eyes on this.”

If you are looking for life insurance there are several options to choose from depending on your needs and circumstances.

How much life insurance do I need?

Consider carefully how much life insurance you may need. You don’t want to pay a monthly premium that’s too high for what you currently have, or too low to pay for something you know will benefit when you’re gone. Then consider dependents such as children, your marital status and current debt, experts say. Think about what they need and for how long, taking into account the money you’ve lost. You may also want to leave an inheritance to someone for future use.

In most cases, beneficiaries receive life insurance payments tax-free. Lao recommends using an insurance calculator to find out what you need and often advises people to consider the provision of a premium of at least 10% of your 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 ways:

Permanent: This covers a lifetime (payments can cost more). Time: This takes a set amount of time until the process completes.

Here are the popular types of permanent and term insurance:

Whole: Whole life insurance is a common type of cash value policy and is usually a fixed term life insurance policy. Payments are made for life. If you take out a policy when you’re young, for example, in your 20s, you’ll pay less over the course of your life because you’re paying into the policy over a longer period of time. The cost of the plan increases depending on the fixed cost set by the company.

Advantages:

Valid for the rest of your life (as long as you pay on time and don’t earn money in the policy) Some plans offer annual payments (although in most cases they are not guaranteed) You can increase the value of the money and you can borrow from the policy (premiums). imprisoned for life)

Disadvantages:

Often more expensive than long-term life Premiums can increase with age, so experts advise starting earlyIf you need to spread more over the course of your life it can be expensive.

Term: Term insurance covers several years. This can be useful at other times in your life, such as parenting. But you have to renew the policies for a long time, and the salary often goes up.

Advantages:

Cheapest of all You pay for what you need Good for a while (if you’re raising a family, for example)

Disadvantages:

It only depends on the age set in the policy. Every time you increase the premium, it increases. If you are sick or have a high-risk disease, you cannot renew.

Universal: Universal life is a type of cash value policy with variable premiums that can be adjusted over time. It handles the three main aspects of the policy separately: premium, death benefit and cash value.

Advantages:

Flexibility The death benefit can be fixed or increased over a period of time Can change the value of the premium and the value of the benefit The annuity can be paid out early

Disadvantages:

If you pay less than what you pay, the profit can be lost. It is easy to lose and do not build on the value of money. If the value reaches zero, the policy can be lost.

Other types of life insurance

Variables: Profits and monetary value can vary, as the name implies. Insurance companies place your contributions in areas such as stocks, bonds, and other funds, such as mutual funds. As a policyholder, you assume that risk. If the money goes well, you get a lot of profit. If they fall, your premiums can go up, cutting the cost of your policy. Addendum: This is what it sounds like: spread over your original plan. This can include spousal, child or accidental death insurance. Pooling: This expensive option involves two or more people who pay when the first person dies. Insurers see pooled policies as risky because the higher returns are higher in the short term.

Ultimately, your decision may depend heavily on your accountant and other circumstances, said Curtis J. Crossland, CFP and managing member at Suttle Crossland Wealth Advisors in Scottsdale, Arizona.

“Are you starting a family or do you want to protect or provide for your significant other? Concerns about paying back money, credit claims, the future of money that will not be known, etc. It all comes down to the right circumstances,” said Crossland. “If you’re a bachelor or bachelorette for life, dying with a lot of debt, or not building a full retirement account, it won’t have the same effect on others.”

Have more questions about which life insurance is right for you? You can Get started and get the word out right now.