A colleague of mine often says, “When you hear that someone has passed away, you usually don’t think ‘gee, I hope that so and so had a nice whole life policy that had cash value and paid a generous dividend.” {{more}} Rather, it’s usually “I hope their family will be okay and I hope they had enough life insurance to cover their financial needs.”
But which type of life insurance is the best to have? The truth is it will depend on your needs and financial situation. When working with my clients, the first thing I need to do is determine how much life insurance is needed (which I discussed in the last issue). There are so many different types of life insurance, each with a fair amount of technical terms that almost seem like a different language. So let me try to simplify things a bit by focusing on the two main types of life insurance.
Term life insurance is akin to “leasing” insurance. You get a specified amount of coverage for a specified period of time or term (usually 10, 15, 20 or 30 years). Typically you are locking in the amount of coverage or death benefit your beneficiaries will receive as well as the premiums (the cost you must pay) to get it. Once the “term” expires, your life insurance coverage is over.
With permanent life insurance, you own your coverage. There are three main variations of permanent life insurance. Whole Life Insurance will have level premium, guaranteed level death benefit and guaranteed cash accumulation with dividend potential dependent on the company. Variable Universal Life is often reserved for my more aggressive clients. The policy’s cash value has upside and downside risks associated with the volatility of the stock and/or bond market and no cash value guarantees.
However, certain policies may provide death benefit guarantees. Universal Life Insurance is what I refer to as the permanent/term hybrid. You can expect very little to no cash value, but you will have a level death benefit. When considering this alternative, I suggest that you look for a policy that provides guarantee level premiums for the duration of the policy.
Which one is right for you? Well, it really depends on your needs. Is your need temporary or permanent? Are there legacy or estate planning motivations? Other uses?
A knowledgeable professional can help bring clarity to the choices and match your needs, risk tolerance and budget to the product that makes the most sense for you.
Don’t let the number of alternatives keep you from making a very important decision to protect the people you love.
PJ Shanley is a financial advisor at MetLife Securities Inc., and a financial services representative with Barnum Financial Group.
He can be reached at 203-513-6282 or by email PShanley@MetLife.com.