How Do I Understand My Life Insurance Policy?

The need for life insurance is obvious, but the details can be a little hazy. What are the distinctions between coverage types? How much do you require? When will you require it?

“Understanding the various types of coverage available and when they are necessary can be daunting,” said Debbie Cecil, Unum’s director of product and market development. “However, knowing what you need and when you need it is an important part of making decisions that can help safeguard a family’s financial future.”

We’re just getting started.

Term life insurance is usually adequate and affordable for young, single workers with few financial obligations. The policy is valid for a set period of time known as the term, and it remains in effect as long as premiums are paid. A term life insurance policy does not accrue cash value.

Married couple with a mortgage

Employees’ need for life insurance grows as they get older and their financial obligations grow. People in this stage of life should consider adding either interest-sensitive whole life or universal life coverage to their term life coverage. Both policies build up cash value. Interest-sensitive whole life insurance has fixed premiums that will not change as long as premiums are paid. Universal life premiums are adaptable and can be tailored to the insured’s changing financial circumstances.

Increasing family size, increasing costs

Aging parents, college costs, and retirement savings are all common concerns for established families. At this stage of life, life insurance is critical for protecting assets that have taken years to accumulate. Term life insurance, combined with universal or interest-sensitive whole life insurance, is essential, but so is coverage equal to at least five years of income.

You’re on your own once more.

Term life insurance provided by an employer or for a set period of time may no longer be available during retirement, but interest-sensitive whole life or universal insurance purchased independently can protect your family from unexpected expenses. If the policies have been in place for a number of years, they will have accrued cash value and may even include riders to help cover the costs of long-term care.

Employer-sponsored group life insurance plans are typically tied to the workplace and are no longer in effect if the insured leaves the job. Voluntary plans purchased through the workplace and individual advisers are owned by the individual and can be maintained regardless of employment.

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