November is National Gratitude Month. Seems pretty fitting with Thanksgiving right around the corner. What are you grateful for? Your family? Friends? Your health? This week we’ll discuss how life insurance protects your loved ones.
Look around at the life you have created for yourself. How do you protect it? And, more importantly, how are you protecting the people in it?
How Life Insurance Protects Your Loved Ones
We all lead different lives. But chances are you have loved ones that rely on you. Have you planned for the unexpected?
Life insurance can ensure that your family can maintain their current standard of living even if you died unexpectedly and your paychecks stopped. Life insurance is affordable peace of mind.
A life insurance policy has an insured, policyowner, and beneficiaries. The policyowner has control over the policy and is responsible for paying the premiums. This person can be the insured, or it can be two different people. Upon the death of the insured, the beneficiaries receive death benefit proceeds from the insurance company.
» Compare: Term life insurance quotes
A term life insurance policy is the most affordable type of life insurance. It covers the life of a person for a specific number of years. If the person dies during this period, the death benefit is paid. If the person is still alive at the end of the period, the policy simply terminates.
How long should my term policy last?
When buying a term life insurance policy, you decide how long you want the term to last. Term lengths range from 5 to 40 years.
The term length that’s right for you is dependent on your unique situation. If you and your spouse just purchased your first home, then a 30-year term is ideal to financially protect your spouse until the mortgage loan is paid off. If you have children but they are already in high school, then a 15- or 20-year term policy may be sufficient to protect them until they are financially independent.
Tony Salzano is a 40-year-old husband and father of two young children, with a third on the way. Because his youngest child hasn’t even been born yet, he applies for the longest term length possible, 40 years.
Tony has high blood pressure but is otherwise healthy. He is approved at Preferred, just one risk class shy of the best.
Tony’s premiums for a $500,000 40-year term life insurance policy at Preferred rates is $137 per month. This policy insures Tony until he’s 80 years old.
If he dies within the 40 years, his family receives a check for $500,000. If he is alive at the end of the 40 years, hooray!
If there are different elements you want to protect, another strategy is laddering term policies to save some money on premiums. To explain how laddering works, I’ll use Tony as an example again.
Tony Salzano is a 40-year-old husband and father of five children: two children from a previous marriage, ages 16 and 13, and three children with his current wife, ages 5, 3, and a newborn.
He and his wife recently purchased a home with a 15-year $350,000 mortgage.
Tony applies for three different term life insurance policies:
- A 15-year $350,000 term policy to ensure his family could afford to stay in their home.
- A 20-year $200,000 term policy to financially protect his teenage children as they grow into independent adults.
- A 30-year $500,000 term policy to financially protect his wife and young children.
Tony has the high blood pressure risk factor and is approved as Preferred for all three policies.
- His 15-year $350,000 term life insurance policy costs $24 per month.
- His 20-year $200,000 term life insurance policy costs $20 per month.
- His 30-year $500,000 term life insurance policy costs $60 per month.
Since the different factors in his life that he wants to financially protect vary by how long he’d need the protection in place, laddering these policies makes more financial sense than buying one big $1,050,000 30-year term life insurance policy which would cost $124 per month.
Not only do his laddered policy premiums total $104 per month, but as each individual policy expires his financial obligation to them expires as well. For the first 15 years he pays $104 per month. Then for the next ten years he pays $80 per month. For the final ten years of the third policy, he only pays $60 per month.
See what you’d pay for life insurance
How much life insurance coverage should I buy?
Everyone’s life insurance needs are different. A general tip for buying a term life insurance policy is to buy a policy with a face amount that covers your largest amount of debt (this is typically a mortgage) and the longest term length you can comfortably afford.
To get a better estimate of how much coverage you need, play around with our life insurance calculator. After entering a few numbers, the calculator will give you a suggested coverage amount.
The calculator does not take laddering into consideration. If the laddering strategy explained above is the right strategy for you, each of your policies can have a different face amount. If you aren’t sure if laddering is your best option or not, feel free to ask your Quotacy agent about it.
What about whole life insurance?
Permanent life insurance, usually just referred to as whole life insurance since it’s the most well-known type of permanent life insurance, is another option. However, term life insurance is the best choice for most families because it fits in with their needs and budget. But some situations do call for a permanent life insurance product.
Consider a permanent life insurance policy if you wish to:
- Build tax-free wealth
- Equalize an inheritance without selling a family farm or business
- Leave a guaranteed inheritance to your loved ones
- Provide long-term care for someone with special needs or a disability
If you have a large estate, a permanent life insurance policy that generates a cash value and can provide tax advantages, such as a whole life insurance or universal life insurance policy, may be a good product for your financial portfolio. However, these policies come with high premiums.
For families with that are more budget-conscious but still want a permanent life insurance policy, a guaranteed universal life insurance policy may be the right choice. A guaranteed universal life (GUL) insurance policy is a type of permanent life insurance that focuses more on the death benefit versus a cash value accumulation feature. As long as you pay your planned premiums to keep your policy active, your beneficiaries will receive the guaranteed death benefit when you die.
These premiums are higher than term life insurance, but less expensive than other permanent life insurance options. To see your quote for a guaranteed universal life policy, simply run a term life insurance quote on our website but then move the Length of Coverage slider all the way to the right to Forever.
Buying Term Life Insurance and Permanent Life Insurance
Buying a less expensive term life insurance policy to cover all your big ticket financial obligations, such as the mortgage or children’s college tuition, and supplementing it with a small permanent life insurance policy may be the perfect solution. Let’s go back to Tony Salzano and his life insurance needs.
Tony Salzano is a 40-year-old husband and father of three young children, one of which has Down syndrome. He and his wife recently purchased a home. The 30-year mortgage has a balance of $250,000.
His daughter with Down syndrome may become semi-independent, but likely will need financial and medical assistance her entire life.
To ensure she can always get the proper care and maintain a healthy, happy standard of living, Tony wants to make sure and have some permanent life insurance on himself and his wife. If their daughter outlives them, the death benefit provided by the permanent policy can help her in life no matter when Tony or his wife dies.
Tony buys a 30-year $500,000 term life insurance policy to cover the mortgage and raising the children which costs him $60 a month at his Preferred risk class. This policy will be active until Tony turns 70.
He also purchases a $100,000 guaranteed universal life insurance policy for $70 per month. This is guaranteed to pay out no matter when Tony dies.
If Tony unexpectedly dies at any time within the 30-year term, both policies pay out.
As you have learned, life insurance isn’t one-size-fits-all. The life insurance policies that your neighbor has to financially protect his family is likely not the exact same setup that you need.
You never know what tomorrow will bring. And while medical technology is advancing every day, you’re not invincible. Now is the time to buy life insurance. Even a small $100,000 term life insurance policy is a million times better than nothing if you unexpectedly leave your loved ones behind.
Life insurance isn’t just about financial security. It’s about saving your family from having to leave behind the future you’re helping them shape today.
About the writer
Natasha Cornelius, CLU
Senior Editor and Licensed Life Insurance Expert
Natasha Cornelius, CLU, is a writer, editor, and life insurance researcher for Quotacy.com where her goal is to make life insurance more transparent and easier to understand. She has been in the life insurance industry since 2010 and has been writing about life insurance since 2014. Natasha earned her Chartered Life Underwriter designation in 2022. She is also co-host of Quotacy’s YouTube series. Connect with her on LinkedIn.