Life insurance is an important part of your financial planning toolkit. If you were to die, your loved ones would benefit from your smart planning steps taken now with a windfall to help ease the burden of life expenses such as being able to make mortgage payments, pay for utilities and have a more comfortable cushion of money to live on without your income.
If you are the breadwinner in your household, there’s no more important step to take. And if you’re not the breadwinner, your own life insurance policy still benefits your partner, kids and grandkids in your absence.
As you know, the life insurance landscape can be a confusing one, with varying types of insurance policies to consider. Today, we’ll focus on one type of life insurance plan: term life insurance.
What is term life insurance?
Term life insurance provides a lump sum amount to your beneficiary or beneficiaries in an amount of your choosing. It provides coverage for a set period of time, such as during your working years. This defined range of potential use – often in 10-, 20- and 30-year periods — can often mean that term life insurance polices are less expensive than other types of life insurance policies. One of the most beneficial aspects of a term life insurance policy is that, for most policies, the premium will never increase.
In other words: a term life insurance policy delivers a designated death benefit set by you, and that amount does not fluctuate with any market.
Types of term life insurance policies
As you likely expect, there are diverse types of term life insurance policies. You should consult with a qualified financial advisor to help you determine which type of term life insurance plan fits your life best, as well as the optimal amount of life insurance to get. Your financial planner can help you:
- Understand the role that your personal health figures into any life insurance planning, and
- Navigate any alternative life insurance plans such as group life insurance plans offered by your employer.
Looking at term life insurance policies in general, there are two main considerations to keep in mind:
A term life insurance convertibility option.
Always look for a convertibility option in any term life insurance policy you’re considering (your financial advisor surely will remind you this option as well!) The benefits of a term life insurance policy that has a convertibility option are:
- You are able to convert your policy from a term plan to a permanent plan without needing to prove your insurability.
- You could even potentially sell your insurance policy if you need the funds during your lifetime.
Without getting too macabre about changing life situations or financial status, it may be to your advantage to have the option to sell your policy. Or, your financial advisor may see that a plan you bought prior to working with your financial planner isn’t ideal for you, and the convertibility option lets you make a change without penalty or loss.
While you could save money on a term life insurance policy that doesn’t have a convertibility option, convertibility is one of the most important features of a strong term life insurance policy.
The insurance company’s financial ratings.
What good would it do you to have a term life insurance policy provided by a company that goes out of business? Some state insurance divisions will guarantee a death benefit if it becomes insolvent, but they may limit the amount they’ll provide.
For instance, let’s say you have a $1,000,000 life insurance policies with a particular company. If they were to go under and you live in Massachusetts, the state insurance fund will pay a maximum death benefit of $300,000. You would lose $700,000 in death benefits.
So be sure to research life insurance companies well to find out their financial ratings. Again, your financial advisor can take on the work of researching life insurance companies for you to help select the strongest, healthiest, most reliable life insurance company or companies out there. When the insurance company is strong, and run well, your loved ones will likely have less hassle to deal with in the future and your money will perform best for them.
Listen to our podcast for more details, and contact us to see how your existing life insurance policies may be able to be improved, or to begin your process of choosing optimal life insurance policies to protect your loved ones and your business.
Life insurance policy details can be confusing, and rushing into buying a policy just to ‘get it done’ is a recipe for disaster. With a qualified financial planner’s help, this important estate-planning step can ‘get done’ smartly for your, and your family’s, peace of mind.