Do You Rent or Own….Your Life Insurance?
June 1, 2016
Online Shopping…Deals & Steals
December 2, 2016

In my last blog, “Do You Rent or Own….Your Life Insurance,” I used the example of a group life insurance policy through work is like “renting”, whereas as carrying a policy outside of work is like “owning”.

The same example of renting vs. owning can also be used to explain the differences of term insurance and permanent insurance. In Part 2 we will look at a few basic features of a term insurance policy and a permanent policy.

Term life insurance is like renting. I’m not talking about a group life insurance policy through work – I’m talking about a 10, 20, 30-year term insurance policy that you carry outside of work. Like renting, there are many benefits of a term policy. You get more “bang for your buck”, meaning you can obtain pretty high amounts of coverage (for example $250,000, $500,000, $1 million, etc.) for relatively low premiums. It is great for those who are in a transition period of their life and may not have as much disposable income. Term insurance is also great to cover temporary expenses such as a mortgage or outstanding debts, just as renting is great for temporary living. But on the flip side, once your lease is up, you have not built up any equity and have no ownership of that property. Like renting, once a term policy expires so does your coverage.

Permanent life insurance is like owning a home. Although premiums are higher than term life insurance, you have ownership of that policy and the coverage will not expire as term policies do. There are different types of permanent insurance, including whole life, universal life, indexed-universal life, variable life and variable-universal life. These types of policies provide the opportunity to build cash value which can supplement retirement income, provide disability income, pay for estate taxes, or even be taken out as a loan or withdrawal if needed. Just like owning a home, permanent life insurance allows you to design a policy to fit your specific needs and financial goals.

Answering these few questions and talking with your agent or financial advisor can help you determine how much coverage you need and what the best type of policy is right for you:

  1. How much income would your family need to maintain their standard of living if you suddenly passed away?
  2. What are your outstanding debts? (for example: mortgage, vehicle loans, school loans, credit cards, etc)
  3. What are your plans for retirement?
  4. What is your monthly budget to spend on life insurance? And what is something you could give up each month if you had to pay for life insurance?

The most important thing to remember is whether you “rent” or “own” your life insurance, either option is better than being “homeless”!

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