Mackay Insurance Blog
Life insurance is not the cheeriest topic in the world. No one loves to spend their weekend poring over pamphlets about death benefits and future payout potential.
But we do it because of them – our partners, our children, our parents, even our pets.
We do it because we don’t want to lie awake at night worrying about what will happen to our loves when we aren’t there to care for them. We do it because the unexpected is a smart thing to expect in today’s day and age.
Learn about your life insurance options as we move into the holiday season – perhaps this is the year you give this gift for the living to those you love!
Two Basic Types of Life Insurance
Despite what you may have heard or read, there are really only two basic categories of life insurance: term and permanent.
Regardless of which type of life insurance you select, you can expect to make a premium payment (typically remitted monthly or annually) to keep your policy active.
In exchange for your premium payments, your loved ones can expect protection in the form of a death benefit payout should the unfortunate occur.
What Is Term Life Insurance?
This is the simpler of the two options. Term life insurance is more affordable, faster and easier to apply for. It is a popular choice for singles, young couples and young families.
Term life insurance is designed to provide protection for a specific date range, or term.
After the selected period of time has expired, the insurance product also expires, whether there has been a death payout or not. If you continue to need protection, it is then necessary to purchase a new term life insurance policy.
What Is Permanent Life Insurance?
The second type is permanent life insurance. Here is where confusion often sets in, because permanent life insurance goes by lots of different names.
Some common names for permanent life insurance include whole life insurance, universal life insurance and even term to 100 life insurance. But basically, these are all just types of permanent life insurance with different benefit structures.
Permanent life insurance is also designed to provide protection in the form of a death benefit payout. But rather than having an expiration date, permanent life insurance endures until the policyholder passes, so there is never a need to purchase a new life insurance policy.
There is also an additional benefit in that the policy itself can function as a type of retirement investment product. It can be used in multiple ways while the policyholder is alive and passes the benefits on to designated beneficiaries when the time comes.
Why Choose Term Life Insurance?
Term life insurance is designed to be simple, although we realize it may not seem that way at first glance!
Term life insurance is a great fit if you are single, coupled or starting your family. This is the most popular type of life insurance with these three categories of shoppers because the basic goal is simply to protect dependents in case a primary income stream suddenly disappears, through death.
There are different protection periods to choose from. Term-10 is a policy that lasts for 10 years from the date of issue. Term-20 lasts for 20 years. Term-30 lasts for 30 years.
The premium you pay is calculated based on an average risk over the term you choose. Say you choose a term-10 life insurance policy. On the date your policy starts, the risk of death is probably low. But it will increase slightly every year for obvious reasons.
The premium you pay each year will be an average of all 10 years’ worth of risk. For this reason, your premium will not increase during the course of your policy term.
This is what makes longer-term periods attractive to term life insurance policyholders – you get a locked-in rate that includes the lower risk cost of your younger years.
However, when your policy expires after 10, 20 or 30 years, there is no cash value to you (no payout—payouts are not made unless in the case of death) and you will then need to purchase a new policy.
Why Choose Permanent Life Insurance?
Permanent life insurance is by necessity a more complicated type of life insurance product. This is because it is designed to do more than simply provide protection in the form of a death benefit payout.
The first difference is found in the cost of your premiums. This is because permanent life insurance does not have an expiration date. Your premium costs are calculated based on risk of death from now until you actually do pass, whenever that may be.
So the premium payments you make will be higher than they ever will be for term life insurance right from the start. As well, to keep your payments from skyrocketing later in life, premiums start out higher than they would be in a term life insurance policy and stay that rate.
This is important because your policy actually accrues cash value over and above any future death benefit. Each year, your premium payments are held in reserve and appreciate in value.
If you choose to cancel your permanent life insurance policy, you will then receive a refund based on how much you have paid in over and above what your actual risk to date has been.
Get in Touch
Is it time to think about giving your loved ones the gift of protection through taking out your personal life insurance policy? Our friendly, experienced Mackay insurance brokers are happy to help you choose the policy type that meets your needs!
Contact us online or give us a call at 888-853-5552.