Guide to Universal and Term Life Insurance

In this challenging economy, the typical worker who is employed by a medium to large-sized corporation and receives full benefits is certainly not the norm as it was 10 or 20 years ago.  That group is shrinking and an increasing number of Americans are now working part-time, starting their own businesses or are unemployed. These three scenarios share at least one thing in common—they offer few to no company benefits.

As a result, part-time workers, business owners and those unemployed look to outside insurance companies to purchase the minimal medical and dental coverage they need for themselves and their family members. While that is a good start, there is another coverage that is often overlooked by people when purchasing benefits on their own — life insurance. Or for those who do work for companies that provide life insurance coverage, it is often not enough to fully cover their family’s expenses should they die prematurely.

To assist you in understanding how life insurance works and tips on how to purchase it, check out a Guide to life insurance types. This guide helps answer some basic questions you may have regarding life insurance.

Why Is It Important?

Because a life insurance premium payment has to compete against more obvious monthly expenses like housing, food and transportation, it’s important to understand why purchasing life insurance is a priority or it will continue to sit on the bottom of your to-do list. Some of the reasons people put off buying life insurance is because they view it as a low financial priority, don’t understand how it works or think it is too expensive. Basically, buying a life insurance policy gives your family a financial safety net in the unfortunate event you have an early death. This financial protection gives you peace of mind knowing that if your spouse were to lose your regular salary, he or she would be able to pay for the funeral costs and monthly expenses. Depending on the coverage you select, the death benefit can also help pay off remaining debt, medical bills and in some cases, fund college tuition for your children. No one wants to add a financial burden to their grieving spouse when the reality sets in that they are left with the same expenses but half to all of their regular income now gone.

What Is Universal Life Insurance?

Now that you know why you need life insurance, there are two types to choose from. The first type is called a universal life insurance plan, also known as a cash-value or permanent insurance. This type of insurance combines a death benefit with a savings or cash value benefit and is effective over your entire lifetime. You accumulate savings, which is reinvested and grows tax-deferred, during the life of the policy and the savings is available to use in the future or to borrow against if needed. However, you are penalized if you terminate the contract earlier than its full term and the value of the policy is reduced as you age. When you are younger, more cash is diverted into the savings part of the plan and as you age, less goes into savings and more goes toward the purchase of the insurance. While this might not be the best choice for the average consumer, it can be a good option for those looking for a tax-deferred plan and don’t mind the additional costs that are included.

What Is Term Life Insurance?

Term life insurance is a policy that is set for a certain length of time. For example, a husband and wife in their early 30s with young children might want to purchase a 20-year term life policy to provide financial security for the remaining spouse and children (while still at home) should the other spouse die prematurely. The cost of the policy is low since they are relatively young when they purchase it and as long as they keep up their monthly premiums, they will have coverage until it expires. Many term life policies also provide a feature you can add called Return of Premium that reimburses you all the premiums you paid into the policy should you live until it expires. The term insurance policy of today still remains an affordable cost for most age groups and only requires you to fill out a questionnaire and participate in a general health exam. It’s easy, simple and the approval process goes relatively fast.

Tips On Purchasing Life Insurance

Whether you decide to purchase a universal life insurance policy or the popular term life type, here are some things to keep in mind:

• Whether you work part-time or full-time, check with your current employer to find out what, if any, life insurance the company provides and then order a separate supplemental policy should the amount be less than what your family would need for after-death expenses. It is a good idea to have a private policy of some type anyway in the event you suddenly lose your job—that way your family has coverage at all times.
• Save yourself time by working with an independent insurance broker like True Blue Life Insurance. They represent many of the country’s top insurance companies and help consumers save time and money by giving them online information to help them to compare companies and policies.
• Be sure to purchase enough coverage for your family, about five times your annual income is normally recommended but adjust accordingly.
• Look beyond rates when deciding what company to go with for your insurance plan. You want to choose a reliable company that has been in the business awhile and has a good insurance rating. Do a comparison of at least two to three companies and compare each death benefit to the monthly premium.
• Evaluate your policy each time you have major life change such as having or adopting a child, changing jobs, caring for an elderly parent, getting married or divorced, starting a new business or experiencing a major illness, disability or death in the family.
• Remember to never cancel a life insurance policy unless you have another one lined up so there is no lapse in coverage. Call your insurance agent or broker to confirm that you have coverage up until the time you start a new policy.

• About the Author

About Brian Greenberg

Brian is the CEO and Founder of True Blue Life Insurance. Brian is licensed to sell life, health, annuities, and property and casualty insurance in all 50 U.S. states. He is the author of The Salesman Who Doesn't Sell and is a member of the Million Dollar Round Table, an organization that consists of the top 1% of financial advisors worldwide.

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