Life insurance can be one of the most complex – and confusing – financial purchases out there. Like many complex areas, planning ahead and understanding the product you are buying, along with a defined goal, can save you from wasting money, time and prevent nasty surprises that result from the gap between expectations and reality.
First of all, understand WHY you are buying life insurance, and then identify the product or products that best fit your reasons or goals. There are many reasons to purchase life insurance, and a few common ones are:
- Income replacement for the family in case of death
- Inheritance for the family
- Funding retirement
Once you decide on your reasons, you can pick a product. This article isn’t intended to promote insurance products, merely to explain how various types of insurance are best used.
Term insurance– this is generally the least expensive type of insurance. It doesn’t gain cash value and will pay out until the term expires (as long as the premiums are paid). This is what we would consider for replacement of income in case of an untimely death. Even if you have only $25 or $30 per month – buy it. It will provide security for your family or pay your final expenses. .
If you are 30 years old, purchasing a term insurance is a good option, but let’s take a closer look at inheritance. That same 30 year term policy expires when you are 60 – but when you reach that age, the term has expired – and no payout will happen. This is the limitation of term insurance.
Permanent insurance (whole, universal or indexed policies) — Inheritance for your family may require one of these types of policies. There is no term and will pay as per the contract as long premiums are paid. Here is where you want to research the products available, as these are more complex – and costly – options.
Then there’s retirement. Pensions are a thing of the past. The only way retirement funds are related to your occupation is through 401-K funds that can be taken with you. If you are lucky your employer may match your contribution.
Indexed Insurance— There are insurance products that allow you to save for retirement as well as have replacement income – these are called indexed universal life insurance products. A quick definition is a permanent life insurance policy that allows policyholders to tie accumulation values to a stock market index, and provides flexible premium payments.
The key to purchasing any life insurance policy is to purchase as young as possible.
- Age -lower age, equals lower premiums
- Healthy lifestyle – non-smoker, lower weight, no medications equal
- The more time for your policy to grow and investment to mature (for permanent policies)
This way the policy has a chance to grow in value – allowing you to put away money for yourself and your family.
For any insurance or investment strategy, make sure you utilize a trusted, ethical, advisor. Trinity Financial Consulting is always available to give you educated, honest advice based upon your particular situation and the market. Contact us.