Life policies are a tricky subject when you get into the details. They have several features and add-ons that many people will overlook when deciding which policy to get. Here are a few things to look into on your existing or future Life Insurance Policy:
- Accidental Death Benefit: As the name suggests, this endorsement broadens coverage to include an accidental death. Frequently, this may be lumped in with other broadening coverages on your life policy, like dismemberment coverage. For most people, this is likely an unnecessary coverage option, however if you are frequently exposing yourself to risky situations or are more clumsy than most, then the small additional cost may be worth adding to your policy.
- Waiver of Premium Rider: This is a very important addition to look into. It is designed to keep your policy in force in the event that you are disabled for any length of time and cannot pay the policy premium due to your inability to work. Depending on the policy, this missed premium may have to be paid later, but the policy will not lapse while you are incapacitated.
- Accelerated Death Benefit: Especially in cases of cancer, people may often find out early about terminal diseases. This addendum to your policy will allow anywhere from 50% to all of your policy death benefit to be paid out prior to your death if you are diagnosed with a terminal illness. This may be automatically included in your policy or may need to be added, but be sure to look into how much can be paid early as well as the limitation on life expectancy; often the payout is limited to within one year of the remaining life expectancy.
- Guaranteed Insurability Rider: This is a rider that is specific to renewable Term Life Policies. What it does is guarantee that you will be able to extend your Term Policy once the policy period expires regardless of your insurability. It does not, however, guarantee a set premium. Premiums would be expected to be very high upon renewal, but the policy would provide coverage for someone who is other-wise uninsurable due to health issues or age. This would be applicable to older people who may outlive their current Term Policy and need to add a few years after the policy, when they are at an age where Life Insurance is no longer available.
- Payout Options: How you designate your policy payout is crucial to avoid having the death benefit taxed excessively. Depending on your policy type, the amount paid in premium, who is designated as the beneficiary and owner, and the accumulated cash value of the policy, your benefit payout could be taxed heavily. Some alternatives to a lump sum payment would be to pay out a portion of the benefit in installments, directly placing the money to a college savings account for the benefit of your children or grandchildren, or, similarly, rolling the money to an IRA set up in your beneficiary’s name. These last two options are very attractive if the money is not needed immediately, as both of these account types are tax-deferred. Each option changes the way the benefit is taxed and the tax laws can get a bit complex, so check with a financial advisor before designating a payout method.
- Multi-Policy Discounts: On a slightly different note, when buying a Life Policy, be sure to look into each company’s discount offers. If you buy a Life policy with the same company that provides your home and auto coverage, you can often get about 5% off of your other policies, which could save you hundreds of dollars per year. Commercial policies can work the same way, depending on the company, and can offer the business’s policy a discount of about 3% with the purchase of certain Life products by the owner or company officers. What this means is that if you match a level-premium Life Policy with the amount of discount you receive for adding it, then you get Life Insurance at a zero net cost.
Life Insurance may be a tough topic, but the need to provide for your loved ones after you are gone is inevitable. Be sure that you are preparing for this eventuality by investing properly and building assets in savings, but also be prepared if something happens earlier than expected and find a life insurance policy that will meet the financial needs of your family.