Life and Final Expense

You never buy life insurance for you.  You only buy it for the people who love and care for you.

There are many varieties of life insurance but basically it comes down to two types:  Term and Permanent

Term Life Insurance is what you normally have as a work benefit or you purchase for a specific purpose that has an end date in sight.  It is inexpensive insurance that protects for a certain time (term).  When you leave work, your insurance goes away.  You may buy a 1-30-year term policy.  You choose the death benefit (face amount) and the time frame you want it to last.  If you want it to pay off a mortgage and you have a 30-year mortgage, the policy face value would be the mortgage amount.  You would make premium payments that are locked in, for the next 30 years.  Unless, you die.  Then your beneficiary gets paid the whole face amount.  They may pay off the mortgage or use it however they see fit. You may only want a 10-year term if you can not afford anything else.  You then have a guaranteed right to buy a permanent policy anytime within that 10 years no questions asked.  You lock in your insurability.  And if you are unfortunate to die within those 10 years, it is fortunate for the person you love to have something nice to remember you by.

There is no cash value with a term policy.  You pay a minimal premium to basically “rent” coverage.  When the policy comes to the end of the term,

the policy can be renewed after the term is up but usually the premium jumps so high that it is no longer a wise financial decision to keep paying.

Permanent Insurance has many types, but it is designed to last you your whole life without an increase in the amount you must pay.  The premium is averaged out.  It is a set premium with a younger person paying for more than the insurance. The extra money paid into it, goes to a cash value account.  That money can be accessed in the form of a loan or surrender value.  If the policy is a universal type, the cash value is used to help pay for the cost of insurance as a person gets older.  I do not recommend taking loans from a life policy unless you intend to pay back the loan. 

Universal life is designed to last a lifetime, but it is not necessarily guaranteed.  The cash value is subject to changing interest rates or the stock market if it is a variable type.

Whole life has a guarantee that it will last a lifetime and has other benefits.  Because it has those guarantees, it tends to be more expensive.  However, depending on its purpose, it is often recommended.

Final expense is a whole life policy in a smaller face value.  It is designed to pay off the final expenses when someone dies.  Generally, it is purchased by older people who have no other insurance and do not want to burden those who must pay for the funeral and other expenses.

There are 3 varieties of this insurance.  One is guaranteed issued – no questions asked.  It is generally more expensive and may have a 2-year waiting period.

Graded insurance is a little less expensive than a guaranteed plan, but the insured must answer a few medical questions.

Underwritten insurance is the least expensive, but it is only offered to those who provide the insurance company with enough information to determine if they are a good risk. 

Insurance with Living Benefits can be a permanent or term type of policy.  It will pay a death benefit to a beneficiary.  However, it can do much more.  There are chronic (long term care) riders and critical care riders with it.  If needed, a portion of the face value can be used before death if someone is sick with cancer or other covered conditions.  If a person needs long term care (nursing home), again the face amount can be accessed to pay for that care.

Riders are extra insurance that is added to a base plan.  Some examples of them are Children’s Term insurance, waiver of premium if you become disabled, accidental death and living benefits.

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