The Basics of Life Insurance Pt. 2
Hey again, future financial gurus!
In Part 1, we covered the what, why, and how of life insurance—why it’s a must-have, common myths busted, and how to get started. Now, let’s dig deeper into the types of life insurance and how to pick the right policy for your needs. Because not all life insurance is created equal, and choosing wisely can save you money and stress.
Ready? Let’s level up your life insurance knowledge!
Term vs. Permanent: What’s the Difference?
Life insurance comes in two main flavors: term life and permanent life. Here’s the breakdown:
1. Term Life Insurance
What it is: Pure protection for a set period (e.g., 10, 20, or 30 years).
Best for: People who want affordable coverage for a specific timeframe (like until the mortgage is paid or the kids are grown).
Pros:
✅ Cheaper (often just pennies on the dollar for coverage).
✅ Simple—no investment component, just straightforward protection.
Cons:
❌ Expires after the term—if you outlive it, no payout (but hey, that’s a good problem to have!).
2. Permanent Life Insurance (Whole Life, Universal Life, etc.)
What it is: Lifelong coverage with a cash value component (like a savings/investment account).
Best for: Those who want coverage forever or are using it for estate planning, wealth transfer, or tax advantages.
Pros:
✅ Never expires (as long as premiums are paid).
✅ Builds cash value over time (which you can borrow against—but more on that later).
Cons:
❌ More expensive than term life.
❌ Complexity—some policies have fees, investment risks, or confusing terms. Make sure whoever you talk to breaks these down for you.
Which one’s right for you?
If you need affordable protection for a set time, you might go with term life.
If you want lifelong coverage + cash value (and can afford higher premiums), permanent life might make sense.
Wait… What’s This “Cash Value” Thing?
Permanent life insurance policies (like whole life) include a cash value component that grows over time. Think of it like a forced savings account inside your policy.
How it works: Part of your premium goes toward the death benefit, and part goes into the cash value, which grows tax-deferred.
What you can do with it:
Borrow against it (but unpaid loans reduce the death benefit).
Surrender the policy for cash (though fees may apply).
Use it to pay premiums later.
Catch? The growth is usually slow, and fees can eat into returns. Everyone’s needs are different—talk to a financial pro to see what fits your goals.
Riders: Customizing Your Policy
Want extra flexibility? Many policies offer riders (add-ons) for specific needs, like:
Accelerated Death Benefit: Access part of the death benefit early if diagnosed with a terminal illness (now standard on many policies).
Waiver of Premium: Stops premiums if you become disabled.
Child Rider: Adds coverage for your kids (usually cheap). However, this is different than them having their own policy.
Riders can be useful, but they cost extra—so only add what you truly need.
How Much Coverage Do You Really Need?
In Part 1, we mentioned the *10-12x income* rule, but let’s get more precise. Ask yourself:
Income Replacement: How many years would your family need support?
Debts: Mortgage, student loans, credit cards—what needs to be paid off?
Future Expenses: College tuition? Funeral costs?
Final Expenses: Medical bills, estate taxes, etc.
A quick formula:
Total Coverage Needed = (Annual Expenses × Years Needed) + Debts + Future Costs
Still unsure? A a chat with a broker can help.
When to Review (or Change) Your Policy
Life changes—and so should your coverage. Re-evaluate if:
✔ You get married/divorced.
✔ You have a baby (or another one!).
✔ You buy a house or take on big debt.
✔ Your income jumps significantly.
Pro Tip: If you bought term and now need permanent coverage, some policies let you convert without a new medical exam.
Final Thoughts
Now you’ve got the full picture: term vs. permanent, cash value, riders, and calculating coverage. The next step? Take action.
If you don’t have coverage yet, meet with someone ASAP.
If you have a policy, review it to make sure it still fits your life.
Life insurance isn’t just about you—it’s about protecting the people you love. And that’s worth every minute you spend getting it right.
Got questions? Drop them below or reach out to a trusted advisor. And if you found this helpful, share it with someone who needs a nudge to get covered!
Stay savvy,
Allee
P.S. Missed Part 1? Catch up [here]! 👈
