There’s no avoiding risk, especially when it comes to managing your finances. It’s a natural part of life. You face a wide range of risks every day, from the possibility of a decline in investment values to a career interruption to even a costly injury or illness. While you can’t completely avoid risk, you can minimize your exposure to it and take steps to protect yourself.
One of the biggest risks your family faces is your unexpected death. That’s especially true if you’re the primary financial provider for your spouse, children or other dependents. If you unexpectedly pass away, they could face significant financial challenges. If you own a business, your employees and business partners could suffer in the wake of your death.
While you may feel that your death is an unlikely scenario, it is possible. Life insurance is an effective tool to protect against this risk because it provides a tax-free, lump-sum benefit to your designated beneficiaries. They can then use those funds to overcome financial challenges such as debt or a loss of income.
If you’re purchasing life insurance for the first time, you may be overwhelmed by the choices available. Most policies fall into one of two categories: term or permanent. Each type has its own benefits and costs and is designed to meet unique needs. Below is information on both types and how they may be right for you.
Term life insurance provides temporary protection. Your death benefit is in place for a defined period of time, usually from 10 to 30 years. You choose the term when you purchase the policy. Generally, the longer the term, the higher your premium will be.
Premiums in a term policy remain level throughout the duration of the coverage period. At the end of the term, you can let the policy lapse and stop paying premiums. However, that may not be your only option.
You could also choose to extend the term for a new period, though your premium would be recalculated to reflect your current age. Some insurers also offer the opportunity to convert the term policy to a permanent policy. Again, though, you will likely pay higher premiums to reflect your age and the fact that the policy is now permanent.
Term insurance could be appropriate if you’re on a tight budget or have a temporary need for coverage. Generally, term policies are more affordable than permanent insurance. You might consider term if you only want coverage while you have minor children in the home. Or perhaps you’re required to carry an individual policy as a condition of a new mortgage. Term insurance can be a cost-effective tool to meet these needs.
Permanent insurance remains in place for life, assuming you meet the premium requirements. While some policies do have end dates, those dates are usually at age 100 or beyond, so few people actually reach them.
Permanent life insurance also differs from term in that permanent policies accumulate cash value. A portion of your premium goes into a cash value account, which can then grow on a tax-deferred basis. The type of growth depends on your type of policy. Some policies pay interest or dividends, but others, such as variable universal life policies, allow you to invest your cash value in the market.
Permanent insurance is a great option when you have an indefinite coverage need. For instance, perhaps you want to leave money for your spouse or children, no matter your age when you pass away. Or maybe you own a business that will need liquidity after your passing.
Ready to develop your life insurance strategy? Let’s talk about it. Contact us today at Peak Financial. We can help you analyze your needs and choose the coverage that’s right for you. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
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