What Is Life Insurance?

If you’ve never carried life insurance, you may be wondering whether you need it. While you’re young and single and have no dependents and no mortgage, it’s not unusual to skip purchasing a life insurance policy. Many workers get small policies through their employers. 

But if your circumstances have changed – you have a spouse or a partner, or a child, you have taken on a mortgage or started a small business – you will probably want to purchase a policy to protect your loved ones and their inheritance. 

At its most basic, life insurance is a contract between an insurance policyholder (you) and an insurance company. In the contract, you promise to pay a pre-set monthly premium for a certain amount of coverage, and the insurer promises to pay a designated beneficiary a sum of money in the event of your death. In some cases, you can receive funds before your death (in the event of a terminal illness). Once the payment is made, your beneficiaries (the people you name in the policy such as a spouse or children), can use the funds for whatever they wish. 

What Are the Basic Types of Life Insurance?

There are three common types of life insurance: term life insurance, whole life insurance, and universal life insurance. There are also many variations of each of these policy types and almost limitless riders available, but here is a general description of how they function and differ from one another. 

Term life insurance. A term life policy is one that lasts for a specified period, such as five or 10 years. Life insurance coverage ends when that set period expires, and payouts are possible only if the insured person’s death occurs during that specified period. It is possible, in some cases, to carry the term for longer than the set period of time, but premiums may greatly increase. Because roughly 2% of term insurance policies actually pay out, they are almost always the cheapest way to obtain a straightforward death benefit. 

Whole life insurance. As the name implies, whole life insurance offers coverage for the insured person’s lifetime as long as the insured person’s premium payments are in good standing. Unlike term life, these policies can build cash value like an investment. If you reach your later years when there are no minor children to care for or no mortgage to pay off, you can often get back a portion of the money you paid into the policy. In some cases, you can even borrow against this money in the form of policy loans. The downside is that premiums tend to be higher than for term life policies. 

Universal life insurance. Universal life insurance guarantees a death benefit, and the premiums remain level, or unchanged. Unlike whole life insurance which has fixed premiums over the life of the policy, Universal Life can offer flexible premiums. As long as the cost of insurance is paid for, either through the policy cash value, or premium payments, the policy will remain in force. However, policyholders must remain cognizant of premium payments, as the cost of insurance increases as you age, and accessing/reducing the cash value may result in policy lapse. 

What Type of Life Insurance is Right for You?

There’s no easy answer to this, as everyone’s circumstances differ. It will depend on your age, your health, your obligations, your lifestyle, and your budget. It’s a good idea to consult with a firm like Toomey Investment Management that will independently broker out your options to find the policy that is the best fit for you and your family. 

At Toomey Investment Management, Inc. (TIMI), our business model is designed to treat all of our clients equally and fairly. We realized long ago that the financial industry dedicated many resources to capturing money from prospective clients but much less on service and accountability for existing clients. At Wallingford, Connecticut-based TIMI, we listen carefully, keep in touch, and return your calls and communications quickly, so you can count on us. We will work effectively to optimize your life insurance options and solve your problems. Call us at 203-949-1710 or visit our website for more information. 

 

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Manage Your Risk with Insurance

Many people don’t think about how their family would get by if they experienced a sudden loss of income due to a disability or an untimely death. Even those who have insurance may be underinsured, which can leave their loved ones at risk.

Let’s take a look at how you can prepare for these future circumstances without leaving yourself, your heirs, or your family in difficult situations.

First, keep in mind that the insurance that employers offer is often not enough to fully cover a family’s needs. The good news is that you can have one or more forms of additional insurance coverage to make sure that you and your family will be able to cover the bills if something unfortunate occurs.

Types of Insurance to Consider

Disability insurance is one type of insurance that can provide financial protection if you are unable to work or if you experience a drop in income due to a disability. It’s important to note that disability insurance will only cover a portion of the amount you earned prior to becoming disabled.

Oftentimes, it is higher earners that need disability insurance the most. This can be due to a number of factors like higher living expenses or massive student loan debts that will need to be satisfied regardless of your ability to earn. Making sure you understand the cost-to-value and the number of different options available usually serves as a good starting point.

Long-term care insurance can be very expensive but can cover a significant chunk of costs incurred in a long-term care facility. Like most insurance products, the sooner you inquire, the more affordable it is likely to be. You should always read policy documents carefully before choosing a plan or work with a trusted adviser who can consult and recommend the best options. Before making a decision on insurance, you should understand the exclusions, waiting periods, and other provisions.

Life insurance is another common type that provides financial support for your family if you pass away. With this insurance, they will be able to cover the mortgage and other living expenses. A financial professional can help you figure out how much money your loved ones would need so you can purchase adequate coverage.

Umbrella insurance  Another thing to consider is if you’re found liable for an accident that injured someone. Often times your homeowners or auto insurance policy may not fully cover the medical bills and other expenses incurred. If the injured party begins a lawsuit over the incident, it may subject your home, retirement savings, and other investments to great risk.  As UMBRELLA insurance can protect you by providing extra coverage that goes beyond the limits of your homeowners or auto policy, it is a wise plan to consider.

Get Help Choosing the Right Coverage to Protect Your Income and the Future of Your Family

TIMI advisers have been insurance licensed for over three decades. We will provide a comprehensive in-house analysis to identify household vulnerabilities and piece together a plan to reduce your risks. Once we’ve reviewed your existing annuities, medical, and life insurance policies, we can work with our network partners to help you find the combination of insurance policies that will provide your family with financial protection.

If you’d like to discuss your current financial situation, future needs, potential risks, and available options for one or more types of coverage, give us a call!

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