Knowledge about life insurance can go a long way

One’s destination is never a place but rather a new way of looking at things.—Henry Miller, Anonymous

How awful is it when a spouse dies? So awful that it often takes years to recover, and some people never do. There really aren’t words to describe it, I’m sure. Those of you who have experienced it don’t need those of us who haven’t telling you how to handle the whole thing. You’ll be pleased to know that’s not the intent of today’s column.

Today’s focus is on understanding one of the vehicles commonly used to prepare for the death of a spouse—life insurance. We all understand it in a broad, general sense. The surviving spouse receives money at the death of their spouse because of a previous purchase of life insurance. And, although money can’t buy happiness, I have a theory that it may go a long way toward helping to ease sorrow. In other words, when your spouse dies, it might ease the pain if you were left enough money to buy the Hope diamond, for instance. Well, it might ease some of the pain. It’s better than grieving while very poor and with a mountain of financial problems, wouldn’t you think?

In the olden days, small policies were often purchased as a way of being able to pay for one’s funeral service. A lot of people had them, and the insurance man came around once a week and collected 37 cents (or some such sum) to pay the premium. In our office, we still see those policies today. The old policies read the same, but the world is now vastly different.

Now we have term life, variable life, whole life and universal life as just the beginning. What do these terms mean? Would any of them be right for your personal situation? Keep reading for the Senior Moments Life Insurance primer.

The twomost  main types of life insurance are term life and permanent life. These alternatives are different depending on the duration of the coverage and whether the policy includes a cash value.

Term life insurance is probably simplest to understand. You buy a policy for a set number of years and a set death benefit. In general, your premiums will remain level for the term. If you die before the end of the term, your beneficiaries will receive the death benefit. However, when the term ends, your insurance coverage ends. Some term policies are guaranteed renewable. This means you can renew the policy for another term without having another medical exam, but your premiums will most likely increase. Some term policies also allow you to convert them into permanent insurance.

Term insurance is often purchased to cover a short to medium term need, such as a mortgage or a child’s education. Options include a level term policy where the premiums and death benefit remain the same throughout the term, a decreasing term policy in which both the premiums and the benefit decrease over time and an increasing term policy in which the premiums and the benefit rise over time.

On the permanent life insurance side, there are many different types. The most familiar are whole life, universal life, variable life and, heaven help us, universal variable life. All permanent life insurance policies provide coverage for life, or for as long as you pay premiums. The really important feature of permanent insurance is that, in addition to paying a death benefit, the policy builds cash value that can be withdrawn from the account, or even used as collateral for a loan. Remember, though, that these actions reduce the death benefit.

With whole life insurance, you pay a set premium and receive a set death benefit. In addition, the cash value is guaranteed. Whole life insurance may be a good option if you are looking for stability in premium payments, cash value and death benefit.

Universal life insurance gives you the option of flexible premiums, cash value and death benefit. The main feature of this type is that you can use accumulated cash value to pay your premiums. But be careful. If you skip too many payments, and run out of cash value to pay them, the policy will lapse. This type is appropriate if you are worried about the ability to pay premiums in the future and want to be able to change your premiums and your death benefit.

With variable life insurance, cash value can be invested. Premiums are level, but cash value payments may be directed into sub accounts similar to mutual funds. Cash value and death benefit vary according to the performance of the accounts, though some polices provide guaranteed minimums for each. This type is usually better for younger buyers who can afford to take more risks.

Variable universal life insurance combines the flexible premiums of the universal type, with the investment choices of the variable type. Most policies have a minimum guaranteed death benefit provided you pay the premiums for a set number of years. This may be a good option for young purchasers who want an investment option and flexibility with premium payments. And that’s enough for now. Hope you know more than when you started.

Thanks for reading. Stay well. See you next week.