Life insurance 101: Is Life Insurance a waste of Money?

What is life insurance, anyway?

It’s the greatest gift you can give your family. Life insurance is more than a policy with a payout—it’s peace of mind, financial security for the future, and reassurance that the people you love most will be taken care of when you are no longer there to provide for them. Life insurance is highly customizable, and policies offer different benefits and coverage amounts to meet your unique needs.

Why do I need life insurance?

Getting clear about your motivation is an important part of finding the policy that’s right for you. Here are some of the most common reasons why people invest in life insurance.

I have a mortgage.

I have a child, or one on the way.

I have outstanding loans or debts.

I want to make sure my family can continue to live their lifestyle.

I care for someone with a disability.

I’m self-employed.

I own a business or have a business partner.

I want to cover my final expenses.

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What are the different types of life insurance?

Life insurance policies fall into two major categories: term and whole life. The one you choose will depend on your needs, goals, and financial situation.

What is term life insurance?

Term life policies provide a guaranteed benefit and offer coverage for a designated time period—typically 10, 20, or 30 years. These policies are a great entry-level option because they include lower premium costs and flexible coverage amounts. If your needs change or your term is coming to an end, you can convert your policy to a more permanent option.

Here are some real-life examples of customers who chose term life policies.

Sam, 30, decided to get life insurance when he got engaged. Because he was in the process of saving for a home, he didn’t have a lot of money for monthly premiums, but he also wanted to be certain that his fiancée (and their dog!) would be secure if something happened to him. Sam chose a $100,000 20-year term policy that fit his budget, and says he plans to switch to a more permanent option when he has more assets to protect, like a home and kids.

Mila and her spouse recently bought their first home. They’re both employed and contribute to the monthly mortgage payments, but they realized that if something happened to either one of them, the other would not be able to make those payments on their own. Mila began looking into term life insurance, taking their mortgage amount and budget into account. She determined that a $250,000 30-year term policy for herself and her spouse would protect their home and provide peace of mind.

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What is whole life insurance?

As the name suggests, whole life insurance policies never expire—they remain active for your entire life, no matter how long you live. A whole life policy provides a guaranteed death benefit that can vary depending on how you contribute to it. They also accumulate cash value, so you can think of a whole life policy as something like a savings account. Your premium payments contribute to the policy’s cash value, so that value grows over time and can be drawn upon as needed before you die. The cash value offers a guaranteed rate of return, which is tax-deferred until withdrawal.

Universal life insurance is a type of whole life insurance. The big difference is that the policy’s cash value is tied to current interest rates, and you can make adjustments to both the death benefit and the policy limits. With a universal life policy, you can use your cash value to make premium payments as long as minimum requirements are met to keep the policy active.

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Why should I get a separate life insurance policy? I have one at work.

Employers may offer life insurance through the company’s group plan. These policies usually provide a fixed amount of coverage based on your salary—and that amount is almost always insufficient to cover your family’s long-term needs. Furthermore, most employer-sponsored life insurance policies are not portable: If you retire or change jobs, you lose your coverage. Since most of us plan on surviving past our current job, it’s important to choose a policy that will remain active no matter where your career takes you. Also, if you pursue life insurance after retirement, it may be expensive or harder to obtain because of advanced age.

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What do the policy types mean and which one is right for me?

Life insurance is broken into two major categories, term and whole life.

Term life insurance is simple coverage that offers a straightforward payout and expires after a set period of time (or term) such as 15, 20 or 30 years. Term life insurance is the most affordable option and often provides you the flexibility to convert to a more permanent option (whole life) when the time is right. There are many reasons why you would get a term life insurance policy, read more on that above in our “life insurance 101” section.

You will see different insurance companies brand their products with proprietary names such as level, vantage or protection term policy. This is then followed by the number of policy years you are quoting. Depending on the carrier, each company names their policies differently. We only work with top rated carriers, however, you can see the insurance company’s credit rating (which indicates their financial strength and stability) right alongside the coverage amount and term length.

Term policies could come with rider options as well. A rider is an additional life insurance benefit that generally requires additional premium. The addition of riders allows your policy to be customized to your specific needs. Common term life riders are:

Waiver of Premium Rider which provides an additional layer of protection that waives your policy’s premium if you become totally disabled (as defined in the rider) so your policy will not lapse. Accelerated Death Benefit Rider (which often is included at no additional cost). This protects you if you become terminally ill by allowing you to receive an advance of the policy’s death benefit.

After you apply and submit your application, feel free to contact one of Surevested’s experts to discuss rider options or let us know you are interested in adding one.

When it comes to permanent life insurance policy options, there is a bit more complexity because they can offer benefits far beyond a simple payout. Read more about what a whole life policy is above.

When comparing permanent life insurance options you will see policies such as Whole Life, Universal life (UL), or Indexed Universal Life (IUL and IUL2).

Whole and universal life policies are typically made up of two components: an insurance portion and an investment/savings portion, so you will find information within the quote pertaining to both.

Whole life policies are the most stable with guaranteed cash value amounts and fixed premiums. These policies will last, you guessed it, for your whole life. As long as premiums are paid, your beneficiary will receive the death benefit amount upon your passing. In terms of the savings portion of this policy, the company you choose will take a portion of your premium payments and put them into an investment or high interest account. These accumulated funds are called cash value and over time they accrue on a tax-deferred basis.

The cash value of your whole life policy gives you the option to borrow against it, like a loan, in case you need funds in an emergency. Also, if you choose to surrender your policy for whatever reason, you will receive your accumulated cash value back less any surrender charges.

On some whole life policies, you could also be offered something called a dividend. This is the portion of the insurance company’s profits that are paid to the policy holder, generally on a yearly basis. This is common among mutual insurance companies rather than publicly traded insurance companies. When you’re on the quote page, if the policy you are quoting offers a dividend, you can see it’s historical rate of return.

Universal life or Indexed Universal Life are a bit more complex because they combine some of the features of both term and whole life and their options are variable and adjustable.

Universal Life (UL) gives you the option to increase or decrease your death benefit over time and pay premiums on a less predictable basis. This means you can change how much coverage you have if your needs change. Additionally, Universal life policies can allow you to pay premiums over time using the money that has accumulated in your cash value. In a nutshell, UL policies offer some of the guarantees of a whole life policy with the flexibility of coverage change.

An Indexed Universal Life (IUL) policy offers the same benefits as a UL policy except your cash value is tied to various well known indexes such as the S&P500 (not to be confused with investing money directly into the stock market). These policies are a bit riskier as interest based performance is not guaranteed.

Although many companies offer the same types of policies, each company names their policies differently. We only work with top rated carriers and you can see the insurance company’s credit rating (which indicates their financial strength and stability) right alongside the coverage amount and term length in all the quotes we provide. In order to better understand the savings portion of whole, UL and IUL life policies, you will be able to compare on the quote page how the savings portion of these policies performs compared to other investments like a savings account, a treasury bond and more.

If you click on the advanced analytics portion of the quote you can see graphs on the carriers risk and volatility compared to the market, the risk adjusted return and how your premium contributions would compare on a term vs. whole life option.

All life insurance quotes come in a full illustration form. These documents are comprehensive overviews of the policy values broken down year to year, possible rider options and information regarding it’s possible performance. If you are interested in your quote’s illustration, simply click on the “View Illustration” button. This can be downloaded and printed if you would like to review it more thoroughly.

Life insurance 101

What is life insurance, anyway?

Why do I need life insurance?

What are the different types of life insurance?

What is term life insurance?

What is whole life insurance?

Why should I get a separate life insurance policy? I have one at work.

What do the policy types mean and which one is right for me?

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