There are many different life insurance policies available. Some are straight forward with premiums and payouts and others include investment, annuity, and other features for retirement planning. It’s easy to get overwhelmed. Sometimes the best solution is the simplest one. Here’s why term life insurance may be the best solution for estate planning.
What Is Term Life Insurance
Term life insurance is, by far, the easiest to understand. Your policy has a specific payout, lasts for a certain number of years, and has an annual premium. For example, you might have a 30-year policy for $500,000 that costs $600/year. Basically, as long as you pay the premium every year for the length of the policy, it remains active. If you die while it’s active, your beneficiary will receive the payout. After the 30 years, the policy ends and there are no more premiums or payouts.
Why Term Life Insurance May Be the Best Solution
Most people don’t like the thought that a term life policy simply ends, and that certainly doesn’t work for everyone. But for many, it comes down to affording a term life insurance policy or nothing at all. Some coverage is definitely better than none!
Other types of life insurance policies, such as Universal Life Insurance, are often much more expensive. Families who are stretching to afford more expensive options can face cancellation when they miss a payment, leaving them with no insurance at all. This is why a simple, cost-effective term life policy may be the best solution or at least a good supplement to other policies.
Is Term Life Insurance Sufficient
For most families, a term life insurance policy is actually sufficient. Here’s an example from one of our clients. They are a married couple in their early 40’s with children ages 7 and 10. They each have a life insurance policy for 35 years and a million dollars in coverage. It costs them roughly $1,000 each per year. When this policy ends, they will be 75 years old. More importantly, their children will be 42 and 45 years old.
While their children are young, they have sufficient coverage for the mortgage and to provide financial assistance for the children. By the time the policy ends, their mortgage will be paid off and their children will be working adults. The lack of life insurance at that time will be less of an issue. This same couple was quoted a much higher amount for permanent insurance that they could not afford, despite its many other benefits. Thus, a term life insurance policy was the best solution for them.
This is, of course, a very simplified example and the analysis may not be as straightforward for other families. If you would like the peace of mind of a life insurance policy and are debating the options, speak to a life insurance consultant, your financial advisor, and your estate planning attorney. Although we’re providing information about why term life insurance may be the best solution in some cases, that may not necessarily be true for you and your family. Understanding your options and how they fit into your overall plans is essential to making educated decisions about you and your family’s future.