The right life insurance can be a comfort.
By Robin Jones
Individual life insurance? I don’t need that. That’s what many people think, especially if they’re covered by a group policy at their workplace.
But for most people–for example, anyone who has or will soon have dependents or large financial obligations–a group life policy isn’t enough. For one thing, most group life insurance plans end when the the employee leaves the company, and increasingly, companies are dropping their group plans. Individually owned life insurance provides the policyholder with control. No matter what happens at work, your coverage remains intact.
If you plan to supplement your group life insurance coverage with individual coverage, what kind of policy is right for you? Here’s a rundown of the main types of individual life insurance policies.
Term Life Insurance
How it works: Term life insurance is temporary insurance that covers you for a set period of time, say, 10 years. If you die during that period, your beneficiaries receive the death benefit you’ve established in the policy. Premiums are based on the amount of coverage and length of term needed; coverage amounts range from $100,000 to $1 million. Term lengths are generally in five-year increments, from 10 to 30 years. Term policies generally have a conversion option that allows people to convert their term policy to a whole life or universal life policy without having to prove they are in good health.
Who might want it: Those looking to cover temporary expenses for a specific time period, such as the length of a home mortgage or until the family’s last child graduates from school. This helps ensure that a family will be able to stay in their home at the current standard of living or that a child’s college education expenses will be covered. Generally, term life is the lowest-cost type of life insurance available.
Whole Life Insurance
How it works: Whole life insurance is permanent life insurance. Typically, it covers you for your entire life, and you pay a set premium in return for a set benefit.
Who might want it: People who like predictable fixed payments and a fixed death benefit.
Universal Life Insurance
How it works: Universal life also is a permanent life insurance policy that typically covers you for a lifetime, but a portion of your payment funds an interest-earning account that accumulates a cash value over the policy’s lifetime. Generally, universal life is more flexible than whole life: You can increase your payments to add funds to the accumulated cash value, up to a specified limit. (The growth in cash value is tax-deferred under current federal income tax law.) You also can reduce or stop paying premiums as long as you maintain certain minimum cash value levels. If you need additional coverage, you can, with approval, increase the amount of coverage to suit your current needs. Coverage amounts range from $100,000 to more than $1 million.
Who might want it: Those who need a life insurance policy that will last a lifetime but value flexibility. When an insured dies, a universal life policy can be used to help replace the insured’s income stream or pay for things like a college education, a mortgage balance or estate taxes. During the insured’s lifetime, you can access the accumulated cash value to help pay for college expenses, for emergencies or to pay off a mortgage.
Robin Jones is a contributor from Long Beach, Calif.
Your insurance agent can help you determine which type of policy and coverage amount is right for you. Stop in at your local AAA office, call (855) 558-5433 or go to AAA.com/insurance.