One of the biggest reasons to buy life insurance is to provide money to the people you care about in case of death. If you’re single and don’t want to leave money to anyone, you may not need life insurance. But, as you take on more responsibilities and your family grows, your need for life insurance increases. The proceeds from a life insurance policy can replace the income lost to your family upon your death. If you have family plans, you may want to get your insurance while you’re young and healthy. The life insurance death benefit can also pay off debts and expenses, provide money to a charity or organization, and cover final and estate expenses.

Term or Cash Value?

There are two basic types of life insurance: term life insurance, which provides life insurance coverage for a specified period of time (the term), and whole life (permanent or cash value) insurance, which combines a death benefit with a cash value component. Term life insurance generally offers the most protection for the smallest price. Many term policies are renewable, meaning that you can purchase them again for the same term even if your health or circumstances have changed, although the premium will, most likely,  increase on renewal. Some term policies (called “convertible”) will permit you to convert the term life insurance policy to a permanent one at some point without undergoing an evaluation.

The advantage of cash value life insurance is that it offers lifetime protection. Permanent life insurance generally has higher premiums, especially initially, but unlike term insurance, it can also be used as an savings and retirement vehicle. However, some types of permanent life insurance (Variable Life Insurance) can act more like investments, meaning that their ultimate value depends in part on the performance of their stocks and bonds. With term life insurance, you protect you family’s financial future for a smaller premium payment. For a higher premium, permanent life insurance gives you financial protection now and savings for the future. To further compare types of life insurance, call me at (231) 744-9099.

Choose a Coverage Amount

The amount of life insurance protection you should buy depends on how much income your survivors will need, how much you own and owe, and the amount of other life insurance available to you. If you’re married, both you and your spouse should consider buying life insurance. For more information on how to determine the correct amount, you can use my calculators at www.muskegonlifeinsurance.com.

One of the easiest ways to estimate how much life insurance protection you should buy is to think about how much money your survivors would have to pay if you were gone. The process is similar for understanding how much car insurance coverage to buy.

What Term?

Term life insurance is usually offered for periods ranging from 1 to 30 years. Consider choosing a term that matches your need for life insurance protection. For instance, if your main reason for buying life insurance is to protect your 7-year-old twins until they’re out of college, you’ll want to buy a policy with a term of at least 15 years. Different types of term life insurance will have different premiums. Level term, in which the death benefit stays the same over the course of the policy, and renewable and convertible term life policies will tend to have higher premiums, but may offer the protections you want.

Two additional options for term life insurance are decreasing term and a return of premium feature. Decreasing term is often used by people who have a specific debt that is scheduled to decrease over time, such as a mortgage – although it may not be appropriate or cost-effective in all situations. It provides a continually decreasing death benefit, although the premium usually stays the same. The return of premium feature allows you to recover some of your premium payment if you never make a claim on your life insurance policy. It may be available in versions which allow for only portions of the premium to be returned, and may require that you reach the end of the term to qualify for a return. It almost always costs significantly more than other term policies, and thus does not make financial sense for all situations.

Premiums

How much you pay for life insurance will depend on a number of factors, including your age, your health, whether you use tobacco, your family health history, and the type and amount of life insurance you’re buying. Keep in mind that the premium payments may change later with some types of life insurance. If your policy does not guarantee that premiums will stay the same and that benefits will not decrease, that means the insurance company may raise the rate or lower the benefits. Be especially sure to understand how and why the premium and benefit payments are calculated, and what is guaranteed. Although many policies come with example illustrations of how the insurance company expects the policy to perform, your policy may not get the same performance. The best way to make sure your plan is on track is to sit down with your agent at least once a year and review the facts about your policy. If you expect or need guaranteed premium payments and benefits, we’ll make sure your policy provides them.

Steve Bedgood Agency

When we’re comparing life insurance quotes, let’s make sure that the policies and insurance coverage you’re comparing are similar. I’ll meet you at my office or at your home if you’re more comfortable there. And remember, any policy that you buy is only as good as the company that issues it. Find out what rating Farm Bureau Insurance of Michigan has received from major ratings services, such as A. M. Best or Standard & Poor’s, The Ward’s Group. These companies evaluate an insurer’s financial condition and claims-paying ability. The company giving you an insurance quote should provide you with this information. You can also contact your state’s department of insurance to find out more about an insurer’s record.

Submit an Application

Once you’re ready to purchase a life insurance policy, you’ll fill out a life insurance application that contains questions about your current and past health history and lifestyle. You’ll generally be required to take a medical exam, arranged and paid for by the insurance company. The answers you give on your application, along with the results from the medical exam and your past health history, will help the insurance company determine whether to offer you a policy, and if so, at what price. Be sure to answer the questions fully and carefully, because intentionally misrepresenting yourself or hiding information can cause the policy to be cancelled. There are many life insurance options and many companies. Why not start with www.SteveBedgoodAgency.com? I can also be reached at (231) 744-9099.

Read and Understand Your Policy

Life insurance contracts aren’t written to be exciting, but read and understand yours. Policy provisions, the amount of benefits, the premium, and other charges you’ll pay will be listed along with other important information such as the beneficiaries you’ve named and the premium guarantee period. Make sure you understand everything in the policy. Under the laws of your state, you have a “free look” period (typically at least 10 days) during which you can cancel the policy without penalty. If your life insurance policy doesn’t meet your needs, it’s easier to change it during this period than later, when you may face cancellation penalties.

Looking for different information? Have questions or feedback? Please let us know

Here’s a quick look at all of the options: term, whole, variable and universal.

Few people who have bought insurance — or even window-shopped for it — have escaped the debate over term versus permanent insurance.

And the wrong kind of life insurance can do more damage to your financial plans than just about any other financial product today. So, the first and most important decision you must make when buying life insurance is: term, permanent or a combination of both? Let’s look at each.

Term life policies offer death benefits only, so if you die, you win (so to speak). If you live past the length of the policy, you (or, more specifically, your family members) get no money back.

Permanent life policies offer death benefits and a “savings account” (also called “cash value”) so that if you live, you get back at least some of, and often much more than, the amount you spent on your premium. You get this money back either by cashing in the policy or by borrowing against it.
Permanent life insurance is more expensive
As you might expect, permanent life insurance premiums are more expensive than term premiums because some of the money is put into a savings program. The longer the policy has been in force, the higher the cash value, because more money has been paid in and the cash value has earned interest, dividends or both.

The debate is all about that cash value. If you buy a policy today, your first annual premium is likely to be much higher for a permanent life policy than for term.

However, the premiums for permanent life stay the same over the years, while the premiums for term life increase. That extra premium paid in the early years of the permanent policy gets invested and grows, minus the amount your agent takes as a sales commission. The gain is tax-deferred if the policy is cashed in during your life. (If you die, the proceeds are usually tax-free to your beneficiary.)

The saying you always hear is, “Buy term and invest the difference.” The fact is, it depends on how long you keep your policy. If you keep the permanent life policy long enough (and the market ever rebounds), that’s the best deal. But “long enough” varies, depending on your age, health, insurance company, the types of policies chosen, interest and dividend rates, and more. The reality is that there is not a simple answer, because life insurance is not a simple product.
Guidelines to live by when buying
Even with all of these variables, there are some guidelines you can follow. The key is how long you plan to keep the policy. If the answer is less than 10 years, term is clearly the solution.

If it is more than 20 years, permanent life is probably the way to go. The big gray area is in between. Here is where you need an expert to run the term vs. permanent analysis for you. (I have over 19 years experience) Of course, this assumes you keep the policy in force. Most people drop their policies within the first 10 years, but if you do your homework now, that shouldn’t be the case for you.
How to choose
Start by assessing your life insurance needs with Farm Bureau’s Life Insurance Needs Estimator at www.muskegonlifeinsurance.com.

Categorize your insurance needs by their use. If you need $60,000 for college and your youngest child will graduate in three years, you need $60,000 of term insurance as a short-term hedge against your death, thus insuring that your child can finish his or her education. Meanwhile, if your estate will owe $200,000 in taxes at your death, you probably need permanent insurance, because you’re not likely to die in the next 20 years (you hope). You also may want to re-evaluate your estate plan, but that’s a different issue.

Once you figure out your needs, it’s time to choose the type of policy that makes most sense for you.
Term insurance
Term insurance is relatively easy. You can buy term insurance that stops after 10 or 20 years, or that can be continued beyond age 70. You can choose for your premium to increase each year (annual renewal term) or to remain at the same amount for a fixed number of years.

Most term policies offer both a current payment schedule and a maximum rate for each year. With some policies, the company reserves the right to increase premiums if company costs increase. With others, your health may be a factor in determining rates. At certain “re-entry” ages, you may have to prove your good health in order to keep the lower premium.

Most term policies are convertible to permanent ones without evidence of good health.
Types of permanent life
The real wild card in terms of price is permanent insurance, because most policies have guaranteed and non-guaranteed portions. There are three main types of permanent insurance.

Traditional whole life: This type offers the most guarantees. The annual premium is guaranteed, and there are minimum guaranteed cash values and death benefits. Most whole life policies these days are “participating,” meaning that the dividends they earn can be used to increase the cash value and/or death benefits, decrease the premiums or be refunded in cash.

If you are a conservative investor and also have trouble saving, traditional whole life makes sense.
Universal life: If you need premium flexibility, especially in the early years of the policy, universal life is for you. Universal life insurance was developed in the 1970s, when insurance-industry regulations changed to allow insurers to be more competitive with other financial-services providers.

Universal life insurance is more flexible than traditional whole life, because premiums can vary from year to year and sometimes can even be skipped. Universal life has maximum guaranteed premiums and minimum guaranteed cash values and death benefits. Instead of dividends, universal life policies earn interest at the credited interest rate determined each year.
Not an investment tool
Life insurance should never be purchased solely as an investment. After all, some of your premiums are being used to buy death-benefit coverage and to cover other expenses (including sales commissions). Life insurance should not be purchased on children as a way to save for college, and make sure you (and your spouse) have all the coverage you need on yourselves before you buy any coverage on a child.

When you make your purchase, avoid all of the fancy riders, but do consider the waiver of premium, which suspends your premium payments but keeps the policy in place if you become disabled.

If you find that you cannot afford all of the permanent insurance you have decided you need, consider a combination term-plus-permanent policy with me at Farm Bureau.