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Choosing the Best Type of Life Insurance for You

Kenneth McCreery • Mar 12, 2019

Choosing the Best Type of Life Insurance for You

Life insurance is one of those things that most of us know we need, but we don’t really know what kind to get, how much we should get, when we should get it, or how long we should keep it. Fortunately, it’s not really that complicated. If you understand the options, many times the solution presents itself.


There are two principal types of life insurance:


1. Term life insurance provides a death benefit for a predetermined number of years. The term varies but is usually between 5 and 30 years. The premiums are fixed over the lifetime of the agreement. The premiums are calculated based on a variety of factors, but age and current health have the biggest influence. It all comes down to life expectancy.


• Obviously, a 10-year term policy for a 70-year old will be more expensive than the same policy for a 30-year old, all other things being equal. Similarly, two people of the same age and gender will pay different rates if one is obese and smokes.


• Term life insurance is the least expensive type of life insurance.


2. Whole (permanent) life insurance has a death benefit and combines it with an investment or savings account. But this policy covers you until your death; there is no set expiration date. The premiums are fixed or can vary, depending on the details of the policy.


• The premiums are dependent on your age, gender, health, medical history, and more, similar to a term-policy.


• Whole life isn’t the optimum choice for most folks. While it does accumulate a cash value through the investing/savings aspect, the premiums are several times more expensive that comparable term life insurance coverage. It isn’t the best tool for saving.


• Whole life insurance does allow the policyholder to borrow against the current cash value. But this diminishes the value of the policy until the money is paid back. Most financial experts consider whole life insurance to be a poor choice.


In between term and whole life insurance, there are several different styles, including universal life insurance, last-to-die and first-to-die policies that cover both spouses, and more. However, if you understand the concepts of term and whole life insurance, it will be easy to understand any other type of life insurance your insurance professional might recommend.


Consider your life circumstances:


1. Single and no dependents. Most people in this category do not need life insurance. One of the few exceptions might be if you’re parents are not financially well off; you might want to get a small policy to pay for your funeral / burial costs.


2. Recently married. Consider how your spouse would fare without you. If you don’t have children, you probably don’t need life insurance, yet. However, if your spouse is not well employed and likely to struggle long-term without your salary, it is worth considering.


3. Expecting a baby. Now is the time most responsible future parents will purchase life insurance if they are able to do so. Consider how much coverage it will take to cover your take home pay until your children are at least 18. You might want to consider the cost of college as well. 


• Remember that life insurance payouts are not normally taxed. You don’t necessarily need to cover your entire salary, just the take home portion. This will allow your family to maintain the same standard of living. If you already have life insurance, you should revisit your amount of coverage anytime a new child is on the way.


4. Retired. Your term insurance has probably run out by now. Ideally, you would also have a healthy nest egg, your house paid off, and all your kids out of your hair, reducing your need for life insurance. Life insurance premiums at retirement age get very expensive, too.


• If you do decide to get permanent insurance, now might be the time to cancel it and get the cash value out of the policy. You probably don’t need the policy any longer anyway.


For financial security, you’ll most likely need some life insurance at some point in your life; however, very few people need it throughout their adulthood. 


The easiest way to determine if you need it is to consider the financial impact your family would have endure if you were gone. You want to be able to eliminate that impact to the best of your ability.


LKN Financial

Creditor Protection in Retirement Planning

By Kenneth McCreery • 20 Sep, 2021
Are your retirement assets are protected from creditors? Just like anything with retirement planning, it depends on the circumstance. Consider a few things to consider while planning for your retirement. Articles about retirement planning typically discuss saving for the future and using different investment vehicles to help grow savings. You also may encounter articles about distribution methods for tax efficiency and longevity in retirement. How about protecting investments? No, not protection from the market, inflation, or other retirement risks, but protection from outside parties such as creditors. Here are a few things to know: Employer-sponsored plans covered by the Employee Retirement Income Security Act of 1974 (ERISA) are pr otected from creditors under federal law (certain exceptions apply). Simple IRAs and SEP-IRAs, though considered ERISA, are not covered under federal law. Non-ERISA employer plans are not protected under federal law; however, they may be protected under state law. IRAs and Roth IRAs may be covered under state law. Each state has different thresholds of protection and exemptions vary. These are just general items to know regarding asset protection. The plan is to get ahead of a situation before it happens with the hope it doesn’t happen at all. It is also wise to seek legal advice in their specific states so there are no surprises in the long run. Retirement planning is a process. A good plan does not mean just protection just from the market, but also from creditors and third parties. Laying out a plan and understanding your risks could lead to success in retirement.

Is Your Income Protected if You Become Disabled?

By Kenneth McCreery • 25 Aug, 2021
You likely have life insurance. You know that your family will be okay should your life end prematurely. But what if you become disabled? There’s a good chance that you don’t have sufficient resources or insurance to replace lost income if you find yourself unable to work. Most Americans fail to consider the ramifications of short or long-term disability. If you’re self-employed, the likelihood that you have sufficient disability protection is even less. Disability insurance is pricey, yet imperative, unless you have the financial resources to survive without an income for an extended period of time. Avoid financial disaster by preparing yourself for the possibility of disability: 1. An emergency fund offers short-term protection against income loss. An emergency fund isn’t just for replacing a broken refrigerator or paying the bills after the loss of a job. Your emergency fund can replace wages lost due to disability. Unless your emergency fund is substantial, it will be insufficient if you’re disabled in the long-term. 2. A few states have disability programs. If you’re lucky enough to live in Rhode Island, California, New York, New Jersey, or Hawaii, you might be already covered for short-term disability. 3. Social Security can provide disability assistance. However, the definition of disabled isn’t easily met. Your disability must be expected to last for at least 12 months or likely to result in death. You must be unable to do your current job and unable to adjust to other employment. • Roughly only 30% of applicants are approved. The monthly payment is based on a percentage of your usual pay. Only around $1,200 each month is the average amount. 4. Your employer may offer disability insurance. The limits of group disability insurance plans are normally up to 60% of your salary or $5,000 per month, whichever is less. If you’re used to going through life with a $150,000 salary, a few changes might be in order if you ever have to use your disability insurance. 5. Purchase your own disability policy. Disability insurance is expensive to acquire on your own, but there are many options available. Keep in mind that there is a waiting period, typically 90 days before the policy goes into effect. • Pay attention to the definition of “disabled.” It might mean you’re unable to work at your current job. It might mean that you’re unable to work any job. The cost of the policy is largely dependent on the definition of “disabled.” • The benefits period can vary. It might end at a certain age, or only be in effect for a set number of years. • The elimination period is the amount of time after your disability before the policy begins to pay. • The monthly benefit amount can be chosen. You might need more or less than someone else. • While life insurance costs around 25 cents per $1,000 of coverage, disability insurance is around $20 per $1,000 of coverage. That’s 80 times more expensive! However, if you’re under 65, you’re much more likely to become disabled for at least 90 days than you are to die. 6. Worker’s compensation. If you’re injured at your place of employment and unable to work, you’re covered under workers’ compensation. However, you’re three times more likely to receive an injury outside of work that limits your ability to work. You don’t receive workers’ compensation if that happens. Review your financial situation and decide if you’re adequately covered should you be unable to work for an extended period of time. Your income is your most important asset. It’s important to protect it. For your financial security, ensure that you and your family will have a sufficient income if you can’t work.
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