Types of Life insurance, when to use them
Confused by all the commercials advertising life insurance? One says it’s for their kids’ college; the next one says they can’t be turned down for medical reasons; the next one says they have the lowest prices. ... It’s enough to make you turn the channel and want to forget you ever asked.
The objective of this article is to cut through the clutter and let you know what’s out there and when to use it. So let’s get started:
1. Life Insurance for College (or whatever) Funding. The “college funding” policy referred to in that very annoying Gerber TV ad (my wife and I can’t hit the “mute” button fast enough whenever it comes on) is nothing more than a simple whole life policy. Whole Life policies accumulate cash value on a very conservative (read: slow) basis. Since the policy “endows,” which means that the cash value should be equal to the face amount by the time the hopeful parents need it, the premiums will be very high. Also, life insurance has been marketed as a college-funding vehicle for decades so this idea is definitely not “different.”
2. Can’t be Turned Down for Medical Reasons. This is nothing more than Simplified Issue (SI) Whole Life Insurance. Since SI accepts basically everybody into its plan, the premium will be far higher than that of an individually-underwritten life insurance policy. If you are relatively healthy, you’d be better off going with a No-Lapse Guarantee Universal Life policy where the premiums will almost certainly be lower. Yes, you have to get a physical (called a paramed exam) but that’s nothing compared to the money you’ll be burning on an over-priced life insurance policy. Should we alert Alex Trebek?
3. Lowest Prices. This is the “holy grail” of the life insurance industry: get the most for the least. I am certainly not arguing with the concept (hence my website) but remember: there are tradeoffs with everything. If you want a lot of life insurance for just a little money, then term insurance is for you. This is sometimes referred to as “pure insurance” as it only provides life insurance and nothing else such as cash value or lifetime guarantees. Also, the low premium generally expires after a certain period of time. For example, if you buy a 20-year term policy, the premiums will remain the same for 20 years and then skyrocket to the tune of five to 15 times what you were paying. The idea of term insurance, therefore, is to cover a temporary need such as a mortgage, the kid’s college or any other large debt.
For information, go to thriftytermquote.com/contact-us/.
Timothy Caso, a resident of Warrington, has more than 20 years of experience advising people about their life insurance needs, estate planning options and on business succession planning.
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