By Darrell Bryant
When you purchased a life insurance policy, whether that was last year or decades ago, you probably worked through questions about how much insurance you needed, what additional insurance or riders you should add, and where to get your policy from. Based on the information you had at the time, you made the best decision for you and your family and obtained a whole life insurance policy.
But how long has it been since you revisited that policy? Do you know if it’s still right for you or if the high premiums are worth it? Here’s what to think about when you review your life insurance policy.
Whole life insurance, also called permanent life insurance, guarantees that your premiums (paid monthly or annually) will stay at the same rate for the rest of your life or for as long as you hold onto the policy, as opposed to term life policies, in which the premiums are only guaranteed for a set policy period (10-, 20-, or 30-year options). However, premiums for whole life policies are typically higher than those of term life, possibly 6 to 10 times higher. If you want a policy that will last for the rest of your life and you can find a reasonable rate, then whole life could be your answer. If you need a policy that has lower monthly payments, then you may need to consider term life policies.
The Benefit Amount
The benefit amount, also known as the death benefit, is what your policy is worth in dollar value and what your family will receive after your passing. Whole life, term life, and indexed universal life all have different benefit amounts to choose from, with options anywhere from a $50,000 policy to well over $1,000,000. Whichever policy you have or are considering, make sure the benefit amount is enough to take care of any remaining mortgage payments, tuition fees, ongoing medical costs, or other expenses your current income covers.
The Policy Structure
This is the crux of the whole life insurance model. The reason why the premiums are higher for whole life policies is that a portion of the premiums goes into a savings account created by your insurance company. The money in this account is guaranteed to grow at a slow and steady pace, as opposed to the market, which can rise up and down with gains or losses at a much faster rate. Contrary to what many people think, this savings account is not meant to be additional income outside of the policy benefit amount. It is actually meant to provide cash value to pay off the premium and provide for the benefit amount, as this policy is intended to last for more than 30 years. This is why the premiums of whole life policies are guaranteed for the entirety of your lifetime.
If you have an existing whole life policy (or have a quote for one) with a reasonable rate that fits into your budget, then keeping or moving forward with this policy will cover you for the rest of your days. If covering the higher premiums to make way for the savings account is putting your budget in the red every month, then moving to a term life policy could give you lower and more affordable payments for a similar death benefit.
When choosing a life insurance policy, be sure to educate yourself on what and who you need to protect and how much money you will need to do just that. Once you’ve gathered all pertinent information, reach out to different life insurance companies and compare their monthly/annual premiums to the benefit options offered, both for term life or whole life insurance policies. Then see how the quoted premiums fit into your budget and make a decision that makes sense for your family.
If you currently have a whole life policy, it’s worth another look to make sure your money is working for you. If you’d like help evaluating your life insurance policy and coverage or want to know more about protecting your assets, we’d love to be your unbiased source of advice. Contact D. Bryant Retirement Strategies to schedule a review by calling us at (402) 932-2141 or emailing firstname.lastname@example.org.
Darrell Bryant, CFS®, CAS® is Omaha’s Retirement Strategist. As the founder of D. Bryant Retirement Strategies, he focuses on helping individuals and couples nearing retirement do so successfully. Along with more than 30 years of experience, he received the Certified Fund Specialist (CFS®) designation and a Certified Annuity Specialist (CAS®) designation from the Institute of Business & Finance. Passionate about helping as many people as possible in his community, he hosts Retirement Strategies Radio, heard Saturday mornings at 8 a.m. on 1110 KFAB. He has also written articles on financial planning that have been featured on Fortune.com, FoxBusiness.com, Money.com, and in the Midland Business Journal. To learn more, visit his blog, his website, or connect with him on LinkedIn.