Tim Dameron

Tim Dameron

Individual factors influence life insurance coverage

By Tim Dameron
Business Columnist

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For most people, it isn’t a question of whether to own life insurance, but what kind of coverage is most appropriate for your circumstances. Life insurance is available in a variety of different forms. There is no one-size-fits-all solution. You need to determine what works best for you.

There are two primary types of life insurance coverage:

  • Policies that provide a death benefit for survivors after you die. These are referred to as term life insurance.
  • Policies that combine a death benefit for survivors with a cash value that can be accessed while you are still living, often referred to as whole-life or permanent life insurance.

If keeping current premiums for life insurance as low as possible and replacing your income stream for a beneficiary are your priorities, term insurance can be a good option. This often is a choice people make as a first step into life insurance.

Also, the amount of coverage that seems sufficient early in life is likely to increase once you have children or as your income rises. Note that term insurance typically expires after a stated period of time or once you reach a specific age.

As an alternative you can choose from a variety of permanent life insurance policies, which could include traditional whole life, variable life, universal life or variable universal life. Like term policies, they pay designated beneficiaries at your death.

But an important difference from term life is permanent life policies don’t have a termination date. As long as adequate premiums are paid and the policy remains in force, beneficiaries will receive the death benefit. Note that there often are higher or additional costs for permanent life insurance.

Another important difference is that cash value is built up inside the policy as you add premium payments. Premium payments must be sufficient to avoid a policy lapse, but a portion of those payments accrue within the policy and can grow on a tax-free basis. The cash value is not guaranteed, but it can act as an asset to help fund needs while you are living. This is an important benefit that can give the policy owner much more financial flexibility.

Like anything else in your financial life, the need to protect loved ones requires that you assess what options work best for your circumstances and needs. Be sure to discuss your options with a financial adviser or insurance specialist before making decisions.

This column is provided by Ameriprise Financial Services for Tim Dameron, its financial adviser in Rocky Mount.