Life insurance is usually for the purpose of protecting your family in the event of your unexpected death. In Separation/Divorce, the purpose of life insurance is to secure your obligations under the terms of the Settlement Agreement. Should anything happen to you, life insurance will pay out the promises you’ve made in your Agreement, child support, spousal support, college obligation, etc.
Life Insurance 101
- Term Life Insurance – Low cost. Does not build cash value. Premium rates can increase.
- Level Term Insurance – Low cost. Does not build cash value. Premium rates stay the same over the life of the policy.
- Whole Life Insurance – Moderate cost. Builds cash value. Premium rates may rise over the life of the policy.
- Universal Life Insurance – Generally costs less than whole life. Builds cash value. Be careful of the 8% assumed interest rate they often use. It’s not likely to happen.
The younger you are when you get a policy, the lower the rates. Get it young. Get a lot.
Is it as simple as that? No!
I recently had a client who not only had life insurance policies in effect, but turned out to have six life insurance policies, some term insurance, some whole life insurance, and some universal life insurance.
So this couple wanted to commit to paying for life insurance policies which would make each other the beneficiary for the term of the policy. The terms can be 20-30 years. I asked them to bring in projected rate tables to see what the costs would be because in some life insurance policies, at the age of 57-58, the cost skyrockets. They could go from several hundred a year to several thousand. And sure enough, when the couple brought in the projected rate tables, that is exactly what happened. The cost of the insurance literally increased 10 times (from $300/year to $3,000/year). Most people do not review their policies.
Life insurance. I’m young. I’m healthy. Why do I need it now?
Life insurance companies don’t want to insure old people, so they charge much higher rates. Get it while you are young and all your moving parts are still working!!