What Are Life, Term, Disability, and Umbrella Insurance?

How do you weed through the wide variety of insurance options and determine what is necessary for you? There are many different types of policies covering just about anything you can think of, from cars and homes to fantasy sports betting and spoiled food due to power outages. No joke, you can even get yourself insured against being abducted by aliens.

Leaving those more exotic policies aside, we’d like to quickly review some of the most common and important basic forms of insurance. These are types of insurance everyone should at least have a nodding acquaintance with.

– Life insurance.

Nobody enjoys contemplating their mortality, but as a responsible adult, life insurance is something you should consider getting if you aren’t already covered. Knowing your loved ones won’t be left in dire financial straits if you suddenly pass provides great peace of mind. Permanent life insurance policies, such as whole life and universal life, cover you for the rest of your life as long as you pay your premiums. With whole life, benefit amounts and premiums stay the same and you get a guaranteed rate of return on the policy’s cash value. Universal life is typically cheaper and you are often allowed to adjust your premiums, but premiums still tend to increase over time, and cash value growth isn’t guaranteed. Aside from permanent life insurance policies, there is also…

– Term life insurance.

Term life insurance provides guaranteed death benefit protection for a set number of years at a competitive rate that won’t increase during your term period. Plus, when you have a convertible term policy, you have the option to upgrade to a permanent life insurance policy for lifetime protection, generally without having to answer any health questions. Term life is generally more affordable than whole and universal and is typically sold in lengths of one, five, 10, 15, 20, 25, or 30 years. It’s usually intended to cover your working years so your family isn’t financially devastated by the sudden loss of your income. They can still meet their mortgage payments and the kids don’t have to miss out on college.

– Disability insurance

provides coverage in the event that the policyholder becomes disabled and can no longer work or earn money—it basically prevents you from losing income. It can be obtained either from the Social Security system or through private insurance companies. In general, it’s harder to satisfy the conditions to receive payments from social security than from an insurance company policy. Social security will make you jump through seemingly endless hoops to prove that your disability renders you absolutely unable to do any sort of work at all. The process can take months or even years. In contrast, private plans usually just require you to show you can no longer do the specific type of work you had been doing. As is the case with insurance in general, the amount of your benefits and the length of time you receive them depends on how much you’re willing to pay—the more expensive the policy, the better the payout if and when you become disabled.

– Umbrella insurance

provides an extension to your liability coverage. Say you’re responsible for an accident that causes injury to others or damage to their property. If the liability insurance you already have in your homeowners, auto, or watercraft policies isn’t sufficient to cover medical bills or the cost of repairs, the umbrella policy will cover the additional expenses. Typically, you must have a certain minimum level of liability insurance before you can buy umbrella insurance. This type of policy can also cover you against lawsuits and legal costs.

Consult one of our financial professionals to get more details about which policy can best suit your needs.

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The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure you are insurable. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges; if a policy is surrendered prematurely, there may be surrender charges and income tax implications. You should consult a qualified tax professional for tax advice on your own personal situation.  All guarantees are based upon the claims-paying ability of the issuer.

Accessing cash values may result in surrender fees and charges, may require additional premium payments to maintain coverage, and will reduce the death benefit and policy values. Excess policy loans can result in termination of a policy.  A policy that lapses or is surrendered can potentially result in tax consequences. You should consult a qualified tax professional for tax advice on your own personal situation.

Optional riders and benefits may be subject to eligibility requirements, additional premium requirements and/or minimum or maximum coverage amounts.  Availability and rider provisions vary by each state.

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