When you have a family that depends on you financially, a life insurance policy can provide a safety net for them in the event that you lose your life. Life insurance pays the people you designate as beneficiaries — usually children, a spouse or other family members, in the event of your death. The money paid to your beneficiaries can be used to pay expenses and debts such as a mortgage. It can also be used to replace your income and provide college tuition funds.
Term Life Insurance
Term life insurance coverage only covers a limited time period. Policies are available for terms such as ten, twenty or thirty years. The policy does not build a cash value. In the unfortunate event that you pass away within the term of your policy, your beneficiaries will receive a payout.
Permanent Life Insurance Policy
A permanent life insurance policy costs more than term insurance, but it offers some additional features like cash value that you can borrow against and the coverage grows over time. Whole life is the best-known form of permanent life insurance. There are other types including universal, variable and variable universal.
Who Needs It?
At Cliff Insurance we recommend life insurance for anyone who has loved ones who depend on them financially. This includes, but is not limited to parents, homeowners with a mortgage, business owners and others. For many people the best option is term life insurance, which lasts for a limited time. Others may need permanent insurance, which will not expire as long as premiums are paid.
In most situations term life insurance is right for families that need coverage. This type of coverage costs less than whole life and it can be tailored for a term that matches the years when people depend on you financially. This type of coverage is perfect in situations where if the term ends, you may no longer need life insurance. Examples of why you may not need coverage later on: your mortgage has already been paid in full, your children have grown to adult age and they are able to cover themselves financially, or perhaps your savings has grown to an amount that would cover what is needed for those you are leaving behind. It is important to note that whole life insurance and other forms of permanent coverage can be useful in some situations.
Term Life Insurance Explained
The two major factors that you must decide on in order to purchase term life insurance are the amount you want and how long you want the coverage to last. Term life insurance is easy to understand, and it is the least expensive way to buy life insurance. However, you must remember that you could outlive the term that your policy covers. If you still need coverage when the policy expires, you will need to buy another policy and will pay more based on your age and often, the current state of your health is considered.
What type of life insurance is best for you depends on a variety of factors, including how long you want the policy to last and how much you want to pay. Small term life policies are available with under $50,000 in coverage but is important to know that policy amounts can go into the millions depending on the amount of coverage you need.
Term life is typically sold in lengths of five, ten, fifteen, twenty, twenty-five or thirty years. Level premium term life is a term that means you are locking in a price for the length of the policy. In all cases you will either pay a monthly or annual premium. Another option is annual renewable term life, which is a one-year policy that renews every year with a price adjusted for how much the coverage costs since another year has passed and you have gotten older. This type of coverage is for someone who only wants to cover short-term debts or who expects to buy life insurance through work soon.
Whole Life Insurance
Whole life insurance does not expire according to a specific time period. It’s a policy that you typically will be able to buy once and know that you are covered without having to make changes. As long as you keep your payments current, you will not have to think much about the policy. Your payments stay the same throughout the life of the policy, and you can be confident that you will get a guaranteed rate of return on the “cash value” investment component of the policy. The death benefit amount is a set amount and does not change. The main advantage of this type of policy is that it covers you for your entire life. Everything in the policy is guaranteed, so there are no surprises. The down side is that the coverage is much more expensive when compared to term life insurance policies.
Guaranteed Universal Life Insurance
These types of policies promise a specific death benefit, and the payments for coverage do not change over time. The policy typically has little or no cash value within, and insurers demand on-time payments for coverage to continue. If you miss a payment for a policy like this it could mean forfeiture of the policy so it is important to ensure that payments can be made on time if you choose this option. Since there is no cash value in the policy, you can walk away with nothing if you forfeit the policy regardless of the number of payments you have made. If you are sometimes late with bills, this is not the policy for you. It must be taken into consideration whether future financial or health problems could cause you to miss a payment.
This type of policy is less expensive than whole life and other forms of universal life insurance. Also, you get to choose the age to which you want the death benefit guaranteed, such as ninety-five or 100 years old. It is important to remember the one negative of this type of policy, that you must make every payment on time or you could lose the guarantee and forfeit the policy;
Indexed Universal Life Insurance
How it works: Indexed universal life insurance creates a link between the policy’s cash value component and a stock market index like the Standard & Poor’s 500. Your gains are determined by a formula, which is outlined in the policy. One of the main benefits of a policy like this is that you can access cash value for the policy if needed, which grows over time. The cash value is linked to a stock market index, so when the stock market grows you get some upside, too. For this type of policy your payments and death benefit amount are flexible within certain limits. A negative for this type of policy is that your cash value may not take full advantage of stock market gains. It is important to understand the policy’s fees and participation rates and the cap on your return before you buy. We can help.
This type of policy will dictate how much your cash value is affected by any gains in the stock market. For example, if your participation rate in the policy is for 90%, and the S&P 500 goes up 10%, you get a 9% return. If the index goes down, you won’t lose cash value. However, you will get zero rate of return for that time period. Some policies do offer a small guaranteed interest rate in case the market goes down.
Your gains in cash value will also be limited by your cap, which is the maximum amount of return you will receive no matter how high the market goes. For example, your cap might be 10%. If the index goes up 30% and your cap is 10%, you’ll get only 10%. Only a portion of your payments are going into the cash value component to begin with.
There are additional moving parts to keep track of, such as your payments and death benefit. Within limits, you can decrease your premiums or skip a payment, as long as the cash value of your policy covers the insurance costs. You must keep track of this. If you choose to skip payments when you don’t have enough cash value to cover the costs, your policy could lapse. Some policies will allow you to let you adjust your death benefit, too, as your family’s needs change.
Variable Universal Life Insurance
Variable universal life and variable life insurance tie your cash value to investment accounts such as bonds or money market or equity accounts. There can be high risk to the investment account value based on the market, but if you do have cash value you will be able to take partial withdrawals or loans against the coverage.
With this type of policy there’s a chance for a large gain in cash value if your investment choices do well. You are able to take partial withdrawals from the cash value or loans against it in a time of need. It is important to note that this type of policy requires you to be hands-on in managing it. The cash value on the policy changes daily taking into account market performance. There are fees and administrative charges that are deducted from your payment prior to any amount going toward cash value on the policy. Another nice part about this type of policy is that you can vary your premium payments, within certain minimums and maximums. It is also an option to change the death benefit.
About Middleton, Wisconsin
Middleton has become a thriving and vibrant community and a vital commercial and business center. The city is now home to more than 17,000 residents. The area prides itself on the fact that it is regularly recognized as one of the best places to live in the United States and the origin of the city is a humble story.
In 1848, The Township of Middleton separated from the Township of Madison, just months before Wisconsin became a state. The first postmaster in the new township suggested the name Middleton after a community in his home state of Vermont. He went on to become the first chairman of the Township of Middleton. The township grew and settlers continued to move in.
With the railroad that runs through the township many economic opportunities arose. Businesses and people constructed stores and homes near the first railroad depot, enjoying that it provided a connection to the rest of the country. To identify the rail stop, a sign was erected on top of the depot with the name Middleton Station. Because this is the same year that the first plat was registered in Middleton, 1856 has been traditionally recognized as the year when Middleton was established.
Middleton was a work in progress throughout the early 20th century, just like other cities and towns in the Madison metropolitan area. Middleton became a city in 1963 and this served as the foundation for modernization and progress in the area. In the 1980s, the grain elevators that had dotted the “skyline” and other memories from the old railroad days were replaced by a downtown renovation project.
In the coming years residential developments in Fox Ridge, Stonefield, Orchid Heights, and other areas of the city added thousands of new citizens. Residential development continued in the 1990’s with the addition of North Lake and Middleton Hills. This area features homes inspired by famous architect Frank Lloyd Wright, giving it a special character and feel. Middleton has sustained its well-planned growth with continued downtown renovations and the addition of the Greenway Station retail center. Commercial offices have been added just east of the beautiful city-owned Pleasant View Golf Course.
What If Your Term Life Expires?
Term life insurance policies ideally last as long as your principal financial obligations are present, such as paying your mortgage or the costs of raising children. But sometimes life events occur and things don’t work out the way you may have expected.
If your term life policy is ending, you may still need life insurance protection if you:
Have not paid off your mortgage
Have children who still depend on you financially
Have significant debts other than a mortgage
Have a significant other who depends on your income
Want to leave money to your heirs through life insurance
Another Term Life Insurance Policy?
If your term life policy expires and you still have significant financial obligations such as mortgage payments or dependents, the best option for most reasonably healthy people is to secure a new term life policy. You might have to pay a higher price now that you’re older, but buying a shorter term policy — such as five, ten or twenty years — will help lower the cost.
When you work with Cliff Insurance we do all of the “shopping around” for a policy for you. Even if your former insurer offered you the best deal when you were searching for your previous policy, we can help you determine if another option is available that works out for you better this time. Keep in mind that when you renew you’ll probably have to answer health questions and take a life insurance medical exam during the application process.
Take It Year By Year?
Rather than buying a new term life policy for five or more years, another option is to opt for annual renewable term life insurance. With this type of policy you get to decide whether or not to continue your coverage once a year. This may be a good choice for you if you anticipate only a few more years of major financial obligations. The main drawback to this type of policy is that rates can jump quite a bit each year, making a level term policy a better choice if you know that you will require coverage for at least five years.
As an alternative to annual renewable term life, ask us if it makes sense to extend your current term policy one year at a time. This would let you avoid a new medical exam, but the price jump may be prohibitive. This is an option for people with terminal medical conditions who need life insurance at any cost.
At Cliff Insurance we stand ready to answer any questions you have, and we are experts at finding and providing the best coverages available for our customers. Contact us today to learn more!