A life insurance policy protects your loved ones against the loss of your income after your death, and helps preserve their standard of living. You'll name a beneficiary to receive the proceeds, and in exchange, you'll pay premiums as outlined in the policy terms.
Once you've determined how much you need, factoring in future expenses and current debts, you need to decide on the four types of life insurance: term, whole, universal, or variable.
Term life insurance covers you for a specific period of time, like one, two, ten, or twenty years and the death benefit is paid only if you die within the term. It is usually the best option for teachers to get the most coverage for the lowest premium. Premiums generally start out lower and go up as you age, but can be designed to be level over the entire term.
Whole life, or "permanent" insurance covers you as long as you pay your premiums. The policy accrues a cash value that you collect if you terminate the policy. It pays a fixed amount on death and premiums are usually higher than term insurance. These policies are sold to many teachers who may not actually need them and they usually will not provide enough coverage at an affordable premium. They are most appropriate for teachers who want to lock in life insurance eligibility for life or who have a special needs or other situation where they will truly need coverage for life.
Universal life insurance is also "permanent" but this option offers greater flexibility than whole or term. You can increase or decrease the cash value and death benefit if your needs change, with a rise or drop in premium. For most teachers, these policies are similar to whole life and usually not the best option, unless you have a special situation.
Variable life insurance is another type of permanent life insurance, but with an investment component. The cash value is invested in sub-accounts similar to mutual funds. Unfortunately, these too are often unnecessarily sold to many teachers instead of something that would serve them better. These policies are inherently less efficient investment vehicles compared to Roth IRAs, 403(b)s, and other options.
If you would like to learn more about the pros and cons of different insurance policies, the best way to get a policy, and how life insurance affects your finances as a teacher, give us a call or send us an email and we'll be happy to have a conversation with you.
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