Life Insurance

Life Insurance can be used to pass down Generational Wealth. Imagine if a loved one passed away and you received a lump sum of money to add to your families wealth. When you pass away you can also leave a lump sum of money to your family members to add to your future families wealth. Life Insurance is a product that pays your or a family member out a lump sum of money when the person that is covered on the life insurance policy passes away. You can only get that lump sum of money if you make the monthly policy premium payments and never miss a payment. So basically you have to make the monthly premium payments every single month for every single year that the covered person remains alive.

Types of Life Insurance

  • Term Life Insurance

    • Gives you life insurance for a set period of time. (e.g., 10 year term, 20 year term, 30 year term)

    • If you outlive that term, then you basically just threw away all that money for the past 10, 20, 30 years.

    • If you do pass away within that timeframe, then your benefactor can make a claim to collect your death benefit (which is however much you signed up for at the beginning)

  • Whole Life Insurance

    • The most expensive

    • a type of permanent life insurance (meaning the coverage does not expire as long as you continue to pay your monthly premiums on time...until you die).

    • Comes with a cash value

    • can withdraw from the cash value while you're still alive, but that will decrease your death benefit

    • Your policy will be in effect as long as you make the regular (e.g. monthly) premium payments

    • Your policy accumulates a cash value that can be withdrawn or used as a loan

    • You only need to pay premiums up to a certain age

    • Your policy's cash-value interest can be added to the death benefit

      • So any dividends gained from the cash value of your life insurance can get reinvested into the policy.

    • Paid with after-tax dollars, meaning that the cash value is tax-free

    • Example:

      • A Whole life policy taken out at age 30 - might cost $125 per month up until you are 65 years old, and you won't have to make anymore monthly premiums after that. So that's a total of $52,500 paid over a 35 year period, or $1500 paid a year. If you pay your premium until age 99 then your monthly premium may drop by $25 a month. If you pay until you are age 121 then your monthly premium pay drop by $40 a month

      • Average costs of monthly premium to pay for whole life until your 65

        • Age 20 - $90

        • Age 30 - $125

        • Age 40 - $200

        • Age 50+ - Ineligible

    • Note: Once you get closer to retirement age, you may have enough other savings or investments to not need life insurance anymore. So the term policy can be ideal for you in this case.

  • Universal Life Insurance

    • a type of permanent life insurance (meaning the coverage does not expire as long as you continue to pay your monthly premiums on time...until you die).

    • The cash value accumulates interest based on the current market rate. This impacts how much you pay for your monthly premiums because it is based on the interest rate at the time that you signed up for your policy.

    • Your policy accumulates a cash value that can be withdrawn or used as a loan

      • Cash value typically takes 5 to 7 years to accumulate and can be accessed in the form of a loan after paying a cash surrender fee. -- The loan must be paid back with interest or the death benefit will be reduced.

      • The value of your investment depends on how the market performs. Most policies underperform.

    • Your monthly premium rates can change.

        • Premiums can increase as you get older

        • If interest rates are higher, you pay lower premiums.

          • Interest accrued rolls into your monthly payments which can reduce how much you pay each month.

        • If interest rates are lower, you pay higher premiums.

    • If you stop paying your premiums, the death benefit will still be supported by the cash-value component, but your death benefit amount could continue to decrease until there is no more left. So if you do stop paying your premiums, you should not do this for too long.

    • Typically less expensive than whole life insurance.

    • Typically more expensive than Guaranteed policies

  • Guaranteed Universal Life Insurance

    • a type of permanent life insurance (meaning the coverage does not expire as long as you continue to pay your monthly premiums on time...until you die).

    • Your policy will be in effect as long as you make the regular (e.g. monthly) premium payments

    • You only need to pay premiums up to a certain age

    • Your monthly premiums stay the same

    • Interest accrued does not offset your monthly payments, but it can increase your cash value.

    • Monthly costs is similar to term life insurance rates

    • Your monthly rate and coverage is guaranteed regardless of how the market performs.

    • Coverage can last until age 90, 95, 100, 105, 110, or 121

What impacts your life insurance policy?

  • age

  • gender

  • extreme sports/hobbies (skydiving, scuba diving)

  • Health conditions

Tips:

  • It's best to buy a life insurance policy when you are young and healthy to save on the monthly costs over the long run.