For most people, it isn’t a question of whether to own life insurance, but what kind of coverage is most appropriate for their circumstances. There is no “one-size-fits-all” policy. You need to determine what works best for you.
Choosing life insurance involves finding the right balance between the cost of insurance and the most appropriate coverage for y our family.
Two Basic Life Insurance Options
Policies that provide a death benefit for survivors after you die, but no other features, for a specified period of time. These are typically referred to as term life insurance.
Policies that combine a death benefit for survivors with a cash value that can be accessed while you are still living, often referred to as whole-life or permanent life insurance.
Term insurance — cost effective coverage
If keeping premiums as low as possible and replacing your income stream for your family are your priorities, term insurance can be a good option. The younger and healthier you are when first purchasing a policy, the less it will cost. Newly married couples may buy this type of policy to provide a financial cushion in the event one spouse dies. Your employer may offer term insurance as part of your employee benefits plan.
The amount of coverage that seems sufficient early in life may not be enough to protect your family later on when you have dependent children, aging parents to support or when your income rises. Term insurance typically expires after a stated period of time or once you reach a specific age. After the term policy expires, you must reassess your insurance needs.
Permanent life insurance — coverage beyond death benefits
You may choose from a variety of permanent life insurance policies, such as traditional whole life, variable life, universal life or variable universal life. Like term policies, they pay designated beneficiaries at your death. Unlike term policies, they do not have a termination date. As long as adequate premiums are paid and the policy remains in force, your beneficiaries will receive the death benefit. Premiums or additional costs are generally higher than term insurance.
Another important feature of permanent life insurance is that a portion of your premiums accrue within the policy on a tax-free basis; over time, the policy builds a cash value. Some forms of this type of insurance give you the ability to make investment choices within the policy. The cash value is not guaranteed, but it can act as an asset while you are living. This is an important benefit that can give the policy owner much more financial flexibility.
Like anything else in your financial life, the need to protect your loved ones requires that you carefully assess which available options work best for your circumstances and needs. When insuring your life, be sure to discuss your options with a financial advisor or insurance specialist first, before making any decisions.
Michael W. K. Yee, CFP
1585 Kapiolani Blvd., Suite 1100, Honolulu
808-952-1222 ext. 1240 | michael.w.yee@ampf.com
Michael W K Yee, CFP®, CFS®, CRPC®, is a Financial Advisor and CERTIFIED FINANCIAL PLANNER practitioner™ with Ameriprise Financial Services, Inc. in Honolulu, HI. He specializes in fee-based financial planning and asset management strategies and has been in practice for 30 years.
Ameriprise Financial and its representatives do not provide tax or legal advice. Consult your tax advisor or attorney regarding specific tax issues.
Life insurance benefits are subject to the claims paying ability of the issuing insurance company. Ameriprise Financial Services, Inc. Member FINRA and SIPC.
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