NerdWallet – Insurance Help With Jim Ludwick

Jim Ludwick, CFP®
Contributor

Question: I’m really confused about what type of life insurance coverage to purchase for myself and for my husband. Any advice?People buy insurance to reduce or eliminate the financial risk of some event happening. In the area of life insurance you are addressing the risk of the premature death of someone that leaves others now missing their income.  How long that income will be missed will be answered whether the insurance is temporary (term) or permanent (whole, universal, or variable universal life insurance).Here are examples of each:Term: If my spouse dies prematurely before the couple pay off the mortgage, fund their children’s college education, other major bills, and fund their retirement, then they need insurance to age, say 65.  If they are 35 now, a 30-year term policy might be the right product.  The most typical rider on this kind of a policy can be called by many names ,but it means if the insured is terminally ill, part of the death benefit may be obtained before they die.  It is sometimes called a living benefit rider.  There are lots of other riders for different risks and this answer cannot go into them. Just suffice it to say the premium goes up along with the commission if you are adding riders using a commissioned agent. You can buy direct from companies, but they are hard to find.

Permanent: The spouse has selected a pension annuity (single life)  that dies with them.  They purchase a life insurance policy for less monthly premium than the difference between the reduced pension covering both lives and the single life annuity pension.  If the beneficiary dies first the life insurance policy can be cashed in (these policies usually have a cash value after some time period) or the beneficiaries can be changed to someone(s) like a child(ren). This reflects a permanent need that lasts the lifetime of the insured.

Most people buy term since their needs are temporary.  I hope yours are too.

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