What Kind of Life Insurance Should I Get?

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This is a question I get all the time. In my 34 years as an investment adviser, I have always given the same answer: “The best insurance to buy is one you can afford to keep!” It doesn’t matter what kind you buy if you can’t afford to keep it. That being said, the most common insurance for families is term insurance.

Term insurance

This is the lowest cost life insurance on the market. The word “Term” refers to the length of time you wish to be covered. It does not build any cash value and only pays a benefit on death (more on this later). Many people use it to cover the years with high obligations. Examples of this are income replacement, mortgage and other debts, college planning for children and retirement funding.

Living benefits

Recently, several companies have added “Living Benefits” to their term insurance policies. Living Benefits pay a cash benefit to the policyowner should the insured suffer a critical illness such as cancer, heart attack, stroke, or any other life threatening illness. They also have a chronic illness benefit to help pay the cost of long term care needs such as home care or nursing home care. They also have an accelerated death benefit if the insured has been deemed by a medical professional to have an illness that will cause death within 12 months of the diagnosis. These types of term insurance have a little higher premium than the policies that do not have these benefits.

Are they worth it? I would say “Absolutely.” For a few dollars more each month, you can have the peace of mind of knowing that if you did have a catastrophic event, you would have some financial benefit to help pay the costs associated with medical bills and lost income.

Index Universal Life Insurance

Index Universal Life (IUL) is another type of life insurance that has gained immense popularity due to the way in which the cash value grows. The cash value growth is based on the growth of various stock market indices, depending on which company you choose. I recommend this type of policy for people who are looking for a way to build an account they can later use as a tax free income source. Some companies also have the living benefit features on these policies.

When designed right with the proper funding, IULs can achieve similar results of a Roth IRA without the restrictions of a Roth IRA. It is very important that this type of policy be designed properly for your individual optimal cash building strategy. Tax deferred growth with tax-free withdraws can be a very powerful wealth-building strategy, but it must be funded properly.

Many clients have found this to be a better way to go than funding a 401k that will be taxed later at possibly a higher tax rate than they are today! And they still have the living benefits. I strongly recommend purchasing only policies with living benefits. Why? Because my family and I personally experienced the value of them last year when my wife got sick and could not work for over six months!

Of course, every individual has their own unique situation. If you have any questions about this topic please feel free to contact me at jim@wsagaz.com

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