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Life Insurance 101

Crystal Barrow

My work is starting to integrate people back onto the site since more people are Covid vaccinated now.  It is nice reconnecting with my peers. My coworker and I were having a pleasant conversation catching up on life and talking about her new baby.  As she was showing me pictures of her baby in cute outfits, she brought up the topic of life insurance and feeling the need to protect her child’s needs in the event of her demise.  She mentioned that she was feeling like she was starting to get older and that the insurance premium would be too much for the amount she wanted.  The desire to protect her family in the event that she and/or her husband would die is more of a priority in her life now.  

She said that she had talked to a couple of insurance agents but she hadn’t proceeded with anything because the premiums were so high!  I asked her how much she was trying to get covered for. She wants a permanent policy for her and her husband with a high death payout.  I had briefly worked in the insurance industry, so I used the knowledge from that to set up a plan for myself and family that has really worked for us without losing an arm and a leg concerning premiums.  

1. Use Term and Permanent Insurance. 

  • My husband and I make sure that we utilize the benefits of both insurance policy types.  With the term policy, we factored in coverage of large expenses that would need to be covered within the next 30 years such as the mortgage, our car payments, children’s expenses and other expenses that would be higher in the short term.  With permanent insurance, we utilize the cash growth opportunity of an index life insurance policy. 

2. Determine your insurance needs. 

  • The DIME method is utilized to ensure that you are getting the appropriate amount of life insurance.  DIME stands for: D is Debt/Death expenses; I is Income; M is mortgage; and E is education.  Being able to know these different needs in advance before going to an insurance agent gives you the upper hand at determining what your needed coverage may be.  In an upcoming post, I will dive deeper into details concerning these different categories.  

3. Building Cash Value in a Permanent Policy 

  • In some permanent life insurance policies, the policyholder is able to grow cash value in their policy.  For a permanent life insurance policy, the premium that is paid by the policyholder is broken up into a death benefit pool, a cost pool which is paying the insurance to the insurance agency, and the cash value pool.  In the cash value pool, the policyholder is able to increase their cash value by participating/allowing their money to mirror the S&P 500.  Because the money is included in a life insurance policy, the money will never have a negative decrease in value due to a 0% floor. There is a cap that the money can grow when mirroring the market which changes on an annual basis. 

4. Shop Around.

  • Make sure to do your research! I am not a licensed insurance agent and the information below is based on personal experience and knowledge.  It is always a great idea to research before making a purchase such as life insurance and make sure to consult several different agents before settling on one.  There is a lot of information out there!

5. Determine what is important to you.

  • Even though life insurance can be used in some cases while the individual is still alive, such as pulling money out of the cash value of a permanent policy or utilizing the health coverage for serious illnesses for some policy holders, it is important to keep in mind what is important to you. You are able to add different beneficiaries on the life insurance policy and heaven forbid that something happens to you will be able to leave behind something that can take care of your grieving family.  Life insurance has many different features that can be added to such as the health coverage for a serious illness or long term care policy additions.  The important part is to look ahead and determine what you will need in the future. If you have a family, determine what they may need in the future if you are not there.  

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