Life insurance awareness month may have been in September, but with open enrollment quickly approaching, now is a great time to arm yourself with the knowledge you will need to determine what amount of coverage, if any, is right for you.
Your employer may offer you the opportunity to obtain, increase, or decrease your life insurance coverage. Which option makes the most sense? Here is a breakdown of what some common options mean.
It‚Äôs no mystery that the biggest asset a young earner has is there potential for income. However, it‚Äôs also no secret that many young earners are saddled with copious amounts of student loan debt, which puts a squeeze on their monthly budgets. This is where term insurance comes into play. Term¬†life insurance pays a benefit in the event of the death of the insured during a set period in the in the insured’s life. Permanent insurance provides lifetime-long coverage with a fixed premium and an investment component, therefore making it more expensive.¬†Whether an individual has dependents or not, buying term insurance while healthy means it will be as cheap as it will ever get.
Why term life insurance?
Now let‚Äôs talk about the different types of term life insurance and what to know about each.¬†
Sample of MetLife‚Äôs group term insurance rates. Notice that the cost of coverage (quarterly) increases in five-year increments. – (Submitted)
What to know:
I hear it all the time: “I have life insurance through work! I‚Äôm good, right?” Maybe. Having some life insurance coverage is better than having none at all. I often advise clients to get what they can, but not to depend on it. Why? In the event that you retire, become disabled and are forced to leave your job, or change jobs, your term insurance policy is probably staying behind.
Why consider term life insurance beyond what you have through your job? There is power in ownership of a personal policy. Not only can it not be changed without your permission, but the coverage you get is often cheaper over a long period of time because it‚Äôs based on your health.
Another thing to consider is that change is inevitable. If you think there‚Äôs a possibility that you may one day work somewhere else, remember that that employer might not offer you insurance coverage at all.
Here are two examples of types of individual term insurance policies that you can keep, regardless of where you work.
Lion Life’s rates per $1,000 of an annual renewable term policy issued on a 22-year-old. – (Submitted)
Annual renewable term life insurance:
What to know:
The biggest lure of an annual renewable term policy is its price. When it comes to owning an individual term insurance policy, annual renewable term policies are often the most inexpensive way to go in the beginning. However, with a price that increases every year, it may not be the best type of policy to own over a long period of time.
This cost of this 20-year level term policy through Penn Mutual remains stagnant for 20 years but then jumps up dramatically in the 21st year. – (Submitted)
Level premium term life insurance:
What to know:
Level premium term insurance is cheap when bought as a young person and stays that way for many years, sometimes up to 30. It‚Äôs for this reason I’m a big fan of level premium term insurance and favor it over annual renewable term insurance.
Scot Whiskeyman is a partner and Certified Financial Planner at Providers & Families Wealth Management, LLC in Camp Hill. His primary focuses are retirement planning for young and established professionals and estate planning for seniors. Scot lives in Carlisle, Pennsylvania with his girlfriend and business partner, Lindsey. He can be reached at¬†[email protected].