Term life insurance provides coverage for a specified term. With this type of insurance, your rate is locked in for a term which usually ranges from five to 30 years. Think of term life as renting life insurance rather than owning; many people use it as a short-term solution to cover a set amount of debt. For example, if you had a $100,000 loan that would take 10 years to pay off, you could get a low cost $100,000 life insurance policy for a 10-year term to cover that debt. If something happened to you before the loan was paid off, the $100,000 lump sum would be paid to your beneficiary, and they could use it to cover your debt. Term life insurance costs less than whole or universal life insurance.
Whole life insurance protects you for your entire life, provided your premiums are paid and remain up to date. To continue the analogy above, it’s like owning your insurance policy. One of the benefits of most whole life insurance is that along with a lump sum payment at death, after a waiting period, your policy has a cash value. You can “cash out” and get those funds by cancelling your policy, or you can use those funds to help pay your premium. There’s another benefit to whole life insurance: the option to invest a part of your premium. You can also choose to be a participating policyholder where you earn dividends on the investment portion of your policy. Non-participating policyholders forgo the option to collect any dividends. As a participating policyholder you can withdraw or borrow against your savings, or let your funds accumulate and grow.
Once you decide on which type of insurance coverage makes the most sense for you, you can purchase additional coverage – the insurance industry calls these riders – to further customize your protection. Here are explanations of the most common riders.
Critical illness insurance. If you were to get critically ill and couldn’t work, could you manage financially? Critical illness insurance protects you from the financial effects of a serious illness such as cancer, a heart attack, stroke or many other conditions. If you are diagnosed within your coverage period after you have completed the waiting and qualification period, you would receive a tax-free, lump-sum payment. You could use that amount towards treatments, to help your family financially, to pay off debts or anything else you like.
Disability insurance works a little differently than critical illness insurance. Should you become unable to work, this insurance replaces a substantial portion of your income. You would receive regular monthly payments while you recover or until the end of your coverage period – whichever comes first. Payments are made to you, to help you over the hump. Once you can return to work, benefits usually stop.
Guaranteed insurability is a rider included on some policies that allows you to increase your insurance coverage at certain times, without having to complete a medical questionnaire or medical test.
Waiver of premium is a clause included in some policies that allows you to skip premium payments if you become critically ill, seriously injured or disabled. Depending on your policy, you may need to meet certain health and age requirements.
A Licensed Life Insurance Advisor here at CAA can help advise you on what coverage makes the most sense for you, based on your protection needs and your financial goals. Connect with an Advisor by calling us at 1-888-444-6711 or by booking an appointment online.