Life insurance is an important safety net for families, but studies show that many people don’t have the coverage they need.
For parents of young children, it can be easy to feel overwhelmed by the process. You might be unsure where to begin, assume it will be too expensive or simply feel you don’t have the time to figure it out along with everything else you’re juggling.
But getting life insurance isn’t as complicated or expensive as you might think, says Jessica Pepple, an agent with life insurance brokerage company Michigan Term in Troy.
Term vs. Permanent Insurance
The first thing parents should know is that there are two main types of life insurance: term and permanent.
Term insurance offers coverage for a limited amount of time – usually between 10 to 30 years – and is less expensive.
At Michigan Term, which offers a unique “sold locally online” approach, term policies are the most popular choice among young families. Term insurance offers the “most bang for your buck,” Pepple said, since it provides the highest amount of coverage at the lowest cost.
“You really need to have that extra coverage while your kids are young,” she says, pointing out the high cost of things like child care. “Chances are you will outlive the term policy, but it’s better to be safe than sorry.”
Permanent life insurance, such as universal life and whole life policies, offer a guaranteed benefit that can last a lifetime and build cash value, which means you can borrow from your policy if you need to.
“It covers you your whole life and you may have policy loans and cash value, but it’ll be more expensive,” Pepple says.
As an example, a 20-year term policy with a $250,000 benefit for a healthy 30-year-old man would cost less than $15 per month, she says. A universal life insurance policy with cash value under the same conditions would cost around $84 per month.
“If you’re a young couple and you’ve got kids in elementary school, term insurance will cover you until the mortgage is paid off and the kids are out of school, and you can reevaluate your needs at that point,” Pepple says.
If you decide on term life insurance, look for a policy that can be converted to a permanent policy once the term period ends – an important consideration as people get older and sometimes develop health issues.
“It can be helpful to have a term policy you can convert without going through medical underwriting again,” she says.
You might also consider adding riders to your policy. Options include an accidental death benefit rider, children’s term life insurance rider and coverage for long-term care or chronic illness.
You should also know that death benefit proceeds from life insurance are completely tax-free, Pepple says. Even permanent policies with cash value build value on a tax-deferred basis.
A needs-based approach
The right life insurance option will be different for everyone. In fact, some people choose to purchase a mix of policies – 75 percent term insurance and 25 percent permanent, for example.
“It’s important to talk to somebody who can walk you through what the right mix is for you,” Pepple says. “When we sit down and advise a client about insurance, we always start with a need-driven approach. What are you protecting against, what are your needs and are those short-term needs or long-term needs?”
Your needs will drive the decision you make, she says.
The best way to get started is to work with a reputable agency such as Michigan Term, where a local agent can talk you through the process and you can compare quotes from multiple big-name companies like Prudential and MetLife.
A medical exam will be required and can be completed in your home at no cost to you.
“The best time to buy insurance is when you’re young and healthy and it doesn’t appear that you need it,” Pepple says. “If you wait until you’ve had a scare, you may not get it at a good rate.”
Even if you have waited too long, Michigan Term has had success finding coverage for people who don’t have perfect health.
“We’ll fight for the best offer,” she says.
For more information, visit michiganterm.info or call 888-242-9644.