Simple and straightforward. Two words that don’t usually factor into my decision-making process when it comes to large purchases.
Earlier this summer, I agonized over what kind of paddler I would become. You read that right, I spent approximately 10 hours researching and comparing kayaks, canoes and stand-up paddle boards and I then spent about 5 more hours on the phone with the outdoor experts of REI before I finally made my decision.
Did I want to sit in, sit on top, or stand? Would I tour long distances or just recreate around the bay? Would I be able to lift 45 pounds, spread over 12 feet, above my head?
The decision to spend a couple hundred dollars just to paddle around was not an easy one for me.
In contrast to my own kayak-buying experience, my neighbors bought a stand-up paddle board/kayak hybrid (or “SUP-yak”) right around the same time. Theirs was a much simpler process; they wanted to float and didn’t want to spend a lot of money.
I ended up with a sit-in, 12-foot, 43-pound kayak that I can grow into for covering longer distances and can (just barely) tote down stair-access to the water.
While my neighbors do love their SUP-yak, they are already outgrowing it and are considering trading up to get floating equipment that allows them to benefit from other features the sport offers.
A less simple decision
Finding the right life insurance can often feel like tackling a big purchase decision and when I chose mine, I was just as diligent in my research.
Much like my processes with finding the best paddling equipment, I knew I needed research to confirm what life insurance would work best for me now while allowing room for growth and protection in the future.
I researched two kinds of life insurance “vessels,” term life insurance and permanent fixed universal life insurance.
Term life insurance—As simple and straightforward as they come
Fits a variety of budgets
With the ability to be designed to fit most budgets and a death benefit guaranteed for a fixed period of time, a term policy can give you the exact kind of protection you need—say, to cover the cost of the financial expenses your family might incur if you were to pass away while your children are young or if your mortgage isn’t paid off.
It can be an adequate right-now solution for someone looking for simplicity.
Is term my best choice for the long haul?
What happens when term coverage ends
Not dissimilar to the story of my neighbors and their affordable paddle solution, if you’ve found that you still have a need for more protection beyond the term of your life insurance policy, it may be time to trade up to something more permanent.
How to determine if you need permanent coverage
One easy way to gauge whether you’ll outgrow your term life protection is to ask yourself, how long do I need protection for? If you’re not sure, or if the answer is more complex than say, 10, 20 or 30 years, then considering a permanent policy may be worthwhile.
Fixed universal life insurance — simple, straightforward…and a type of permanent life insurance
A simple step up from term
As I mentioned before, simple and straightforward are two words that I don’t tend to associate with large purchase decisions. And we do tend to think about permanent life insurance as a large purchase or a big, long-term expense. A fixed universal life insurance (FUL) policy defies that misconception by its very nature. It’s simple, easy-to-understand, straightforward AND can be designed to last for your entire life1 and to also fit a variety of budgets.
Similar to a term life policy, an FUL provides death benefit protection, guaranteed for up to 20 years. It also provides the option of “living benefits,” money you can access—while you’re living—under certain conditions such as a critical illness2. Other optional riders (add-ons) to an FUL policy can help to keep the death benefit protection in place if the policy were to lapse under certain circumstances.
No high-cost renewals
Because a term policy is temporary, once it expires, renewing can be costly because you have gotten older. A permanent life policy means no renewals. Some FULs offer riders that let you lock in insurability, you have options to increase the amount of coverage without an additional medical evaluation process, you just elect the new coverage amount and pay the premium.
A key feature of universal life policies is flexibility. If there’s sufficient cash value3 you can skip some premiums if necessary and let policy expenses get paid from the cash value. You can also decrease the death benefit up to certain limits, or increase the death benefit with additional underwriting.
Growing your policy’s cash value
If growing cash value is part of your long-term goals, an FUL offers a simple way to grow the value of your policy, with a fixed annual interest rate when the policy is funded beyond the minimum premium amount. The policy policy guarantees4 a minimum interest rate will be credited, and the insurer can declare higher interest rates than the minimum if current rates allow. Because FUL credits a fixed interest rate, your cash value has no exposure to the stock market.
In light of my due diligence and anticipated future needs, I bought my first life insurance policy this summer. Choosing a permanent insurance solution was surprisingly the most simple and straightforward decision I’ve made all year long. Time to paddle.
1Level premiums assume all schedule premiums are paid and the policy performs as well as illustrated. For many permanent life policies the performance is not guaranteed and actual results may be more or less favorable than illustrated. It is possible that coverage will expire when either no premiums are paid following the initial premium, or subsequent premiums are insufficient to continue coverage.
2Living benefits are provided by no-additional premium accelerated benefit riders. These allow you to access the death benefit, while living, in the event of a qualifying, serious illness. Payment of Accelerated Benefits will reduce the Cash Value and Death Benefit otherwise payable under the policy. Receipt of Accelerated Benefits may be a taxable event, may affect your eligibility for public assistance programs, and may reduce or eliminate other policy and rider benefits. Please consult your personal tax advisor to determine the tax status of any benefits paid under this rider and with social service agencies concerning how receipt of such a payment will affect you. Riders are supplemental benefits that can be added to a life insurance policy and are not suitable unless you also have a need for life insurance. Riders are optional, may require additional premium and may not be available in all states or on all products. This is not a solicitation of any specific insurance policy.
3The ability to internally fund a life insurance contract will be dependent upon the performance of the contract. Using policy values and benefits to pay the premium will reduce the policy’s cash value and death benefit. If policy values are insufficient to pay the premium, additional out-of-pocket payments may be needed to keep the policy inforce.
4Guarantees are dependent upon the claims-paying ability of the issuing company.