USBA Article: How does life insurance work?: Why your family...

How does life insurance work?: Why your family needs life insurance

  • If you’re single and have little or no debt, consider the cost of final (funeral) expenses in case you were to die.
  • If you’re married; have dependent children; have debts such as a mortgage, car payment, or credit card balances; consider enough life insurance to cover your income for the period of time your family will need if your income were suddenly no longer available.

If you’ve finished raising your family and paid off your mortgage and other debts, your life insurance needs are different than when you were younger. But you’ll still need to make sure final expenses are paid. And if you’re married, the family’s income may be considerably less with you gone. Enough life insurance can help to “fill the gap”.

Life insurance “in a nutshell”

When you buy life insurance, you’re grouped with other people similar to you in age, gender, and health. Professional actuaries - business professionals who deal with the financial impact of risk and uncertainty – calculate how many people in each group are likely to die in a period of time. The more deaths there are in a group, the more money will be needed to pay death claims. As you might expect, since younger people are less likely to die than older people, insurance premiums are generally lower at younger ages.

Two kinds of life insurance

Life insurance can be viewed like real estate. Consider if you rent a house, you’ll have the right to live there for a specified period of time, but you won’t own the property, and you won’t benefit if the property value goes up. Also, the amount of rent you pay may increase from time to time.

If you buy a house, on the other hand, you may make higher monthly payments, but you’ll gain equity in the house that you can keep. You'll also have the right to sell the house, pay off the mortgage, and keep any money remaining from the sale. If the property increases in value, you will benefit if you sell the property. And your house payments probably won’t change over time.

Term insurance is like renting a house. You pay premiums for the specified term of the policy and receive insurance coverage during that time. At the end of the term, depending on the policy, you may have to re-qualify for coverage or renew it at a higher rate if you wish to continue your protection. If your health has changed, you may not be able to qualify or you may have to pay a higher rate.

Term insurance is pure protection that doesn’t build cash value. As a result, it’s often a good option at younger ages. Generally, either the cost goes up or the protection goes down at older ages, when the risk of death is greater. At some predetermined age such as 65 or 80, the coverage will generally end. USBA’s 15 and 20 year Group Level Term policies are examples of term coverage.

Whole Life Insurance is more like buying a house. It costs more than term insurance, but over time it builds cash value that grows tax-deferred. You can use the cash value in a variety of ways. For example, you can surrender the policy for its cash value, take loans against it, or use it to purchase paid-up insurance. The premium and the death benefit generally stay the same while you own your coverage, and you can keep it for the rest of your life, not just until age 65 or 80-even if your health changes.

Whole Life coverage is often a good option for buyers who may not need a large amount of coverage, but want guarantees that their premiums won't go up and their coverage won't end. USBA’s Fifty Plus Whole Life policy is an example of Whole Life coverage.

Many other varieties of Term and Whole Life policies are available through USBA. Call us at 877-297-9235 or Contact Us conveniently online to learn more.

Don’t skimp on life insurance

If you’ve talked to an agent to estimate the amount of life insurance your family needs, you may feel overwhelmed by the cost of the recommended coverage. But even if the full recommended amount of coverage is too expensive to consider, you have options that will help you protect your family.

If you can’t afford coverage to replace ten or fifteen years of paychecks, maybe you can afford enough for five years. Also, you can purchase inexpensive accidental death & dismemberment (AD&D) coverage to go with your regular life insurance. If you were to die as a result of an accident (a leading cause of death, especially at younger ages), your family could then receive benefits from both your life insurance and AD&D policies.

It’s easy to make the mistake of thinking that life insurance provided through your job will always be available for your family, but don't forget, employer-sponsored life insurance usually ends when you change jobs or retire. Insurance you buy for yourself can see you through all kinds of life changes and may give you more options for continued coverage during your retirement years.

Whatever you do, please don't leave your family unprotected. For a free consultation on what will work best for your family, call us at 877-297-9235 or Contact Us conveniently online to learn more.