Life insurance is a form of protection. It’s a tax-free cash payment that goes to your loved ones in the event of your death, allowing them to continue pursuing their dreams without an additional financial burden, and providing you peace of mind.
Life insurance is not required like some other forms of insurance, but if you have someone who relies on you and your income, it’s a necessity.
The vast majority of life insurance is purchased individually, directly from a life insurance company. Fortunately, it’s never been easier or less expensive to get life insurance.
Not all life insurance is the same. Policies vary based on length, cost, and what they cover, but at a high level, there are two types of life insurance: term and permanent life insurance.
Permanent life insurance is more expensive than term insurance. Unlike term life insurance, it lasts for your entire life.
Term Life Insurance
Term life insurance is the simplest, easiest to understand, and least expensive type of life insurance. A term life policy costs just a few dollars per month and covers you and your loved ones for a period of time - the term - should anything happen to you during that period. When the term is up, you can choose to renew, apply for another policy, or let it expire.
If something happens to you during the term, your beneficiaries, which are the people you designate to receive the lump sum payout, will receive a tax-free payment. The payout can be used to cover living expenses, debt, a mortgage, or anything else the beneficiaries choose.
A term policy consists of a coverage amount. Put simply, the coverage amount is the size of the payout your loved ones would get should something happen to you. Term policies also consist of a term; the term is the number of years you want the policy to last.
If you can’t afford to buy as much coverage as you’d like right now, you can always buy more later. Even a small policy can make a huge difference in your loved one’s lives and be a great benefit to them.
Permanent Life Insurance
There are two types of permanent life insurance: universal and whole. Unlike term life insurance, it’s good for the entire life of the insured person, and has both a cash accumulation value and a death benefit. However, this type of policy can cost up to 20x more than a term life insurance policy, and can take weeks, or even months, to purchase.
Universal Life Insurance
With universal life insurance, you can increase or decrease your premium payments according to your financial needs, but even the lowest payment is more expensive than a term life insurance policy payment. In fact, despite this “flexibility,” 87 percent of permanent life insurance policies are canceled, leaving no safety net for the beneficiaries.
However, universal life insurance can be useful to those who have maxed out their 401(K)s and all other retirement plans. It can be used to transfer wealth without having to pay estate taxes. It can also be used as a source of income later in life even though it is expensive.
Whole Life Insurance
Whole life insurance has a lot in common with universal life insurance, but the premiums are fixed throughout your lifetime. Those who buy these types of policies usually use whole life insurance as a tax-deferred way to grow their money. Unfortunately, they are often left disappointed as their money doesn’t grow nearly as quickly as it might have through other investments.
Some whole life insurance policies include a guaranteed minimum rate of return; however,. keep in mind that this rate is pretty low. For many freelancers, whole life insurance doesn’t make sense unless you have a multi-million-dollar estate to protect.
Term life insurance is great for:
Permanent life insurance is great for:
If you have someone who depends on you, life insurance is a necessity. Freelancers aren’t offered policies through employers, so life insurance is especially important. Make sure to take the time necessary to research your options and remember: there’s no better time than right now to buy life insurance.
Ethos specializes in term life insurance, which is temporary life insurance coverage. When you get a policy, you will choose a coverage term of 10, 15, 20, or 30 years in addition to your coverage amount. During that term, you will pay premium payments to maintain your coverage. If you happen to pass away during that term, the entire policy coverage amount will be paid out to your beneficiary. If you survive the term, you will need to apply for a new term policy when it expires if you wish to maintain coverage.
Mind you, these examples are hypothetical. The cost associated with term life insurance coverage depends on factors such as your age, coverage amount, and general health, to name a few.
How much coverage you need depends on a variety of factors. There are a lot of myths surrounding life insurance that just aren’t true. For example, some people believe life insurance is too expensive or that a high amount of coverage is unnecessary.
Others might steer clear from insurance because they believe having a policy is only worth something if you die. This isn’t entirely true.
Some term policies come with Accelerated Living Benefit or Long-Term Care options. These are two different riders that can be added to some term policies. The Accelerated Living Benefit rider allows an early payment of a portion of the death benefit if the insured has a terminal illness, a medical condition that requires an extraordinary medical intervention (such as an organ transplant), or cannot perform activities of daily living on their own (such as bathing, eating, toileting, and dressing).
The Long-Term Care rider allows payment of part of the death benefit to the insured in order to help them pay for health care expenses incurred in a nursing home or similar facility. With both the Long-Term Care and Accelerated Living Benefit riders, early payment of the death benefit will be deducted from the amount payable to the beneficiary upon the insured’s death. This allows you to spend a portion of your death benefit or coverage amount before you pass away if you become sick or disabled.
To determine how much life insurance coverage you need, consider the following:
The average rule of thumb is to obtain enough life insurance coverage to equal 10x your income, but that can be more or less than what you truly need. You want to weigh all of these factors carefully when determining your needs.
Life insurance riders are added to a policy to modify provisions that already exist. If we were talking about food, your life insurance policy would be the burger, and riders would be all the toppings.
Some riders provide benefits in the event of the insured’s disability, while other riders provide for the partial payment of the death benefit while the insured is still alive (like the Accelerated Living Benefit mentioned earlier).
The ‘Other Insureds’ rider provides coverage for one or more of your family members in addition to yourself. The rider keeps your coverage and premium payment the same throughout your term. It’s called a family rider when you also cover a child. You can include coverage for your children with this rider, and it won’t expire until they are 18 or 21 years old, depending on the policy you have. If you only want to have joint coverage with your spouse, you can do that too.
When it comes to getting a life insurance policy, Ethos makes the process easy. You only need to follow a few steps.
Getting life insurance doesn’t have to be confusing or a hassle. The process can actually be clear and concise. Term insurance is an affordable means to protect your family’s financial future in the event of an unexpected passing. Riders allow you to add components to your policy such as insuring your spouse or children along with the option to receive a portion of the death benefit early for medical reasons.
Ultimately, you’ll have more peace of mind knowing your loved ones are taken care of—no matter what. Take the first step to getting covered by getting a quote today.