September marks Life Insurance Awareness Month, so we at MGM would like to celebrate this month with you! Life insurance is one of THE most important benefits you can enroll in, but navigating the different types of life insurance can be overwhelming and confusing. Think of it as buying your first car: you want to make sure you get the best one for you and your needs, but you might be unsure of where to start. As someone who is new to the benefits industry, I knew life insurance existed, but I didn’t know there was more than one type of life insurance available. Let me share my knowledge of the different types of life insurance we work with at MGM.
- Basic Life Insurance
More than 50% of Americans think that life insurance is more expensive than it is.1 Basic Life Insurance is here to prove them wrong. Basic Life Insurance is a group rated and employer-provided benefit in which the employer pays the premium, meaning it is of no cost to the employee. Because the employer pays the premium, they are the policyholder of this form of life insurance. Because of this, employee participants will receive a certificate of insurance. Additionally, the employee is the only eligible individual that is allowed to be covered.
Just like any form of life insurance, Basic Life Insurance requires that you select a beneficiary when electing the benefit. A beneficiary is the person you’d like to leave a cash benefit with when you pass away. The beneficiary can be your spouse, child, or even a friend. It is essential that you select your beneficiary immediately upon electing the benefit. You can have Basic Life Insurance in addition to other forms of life insurance offered by your employer.
- Voluntary Term Life Insurance
Voluntary Term Life Insurance is another form of group rated insurance, but the employee pays the premium through payroll deductions. This form of coverage is especially helpful, as it can extend to your spouse and children. The rate for VTL are based on group activity and are “age banded”, which means your rates can change as your age increases.
One unique feature about Voluntary Life Insurance is that it is portable or convertible. Portable VTL means that if you were to leave your job, you can still maintain coverage. While you will keep the same group rate, you will have to pay for the benefit directly instead of it continuing to be taken out of your paycheck. If the VTL is convertible instead, the policy will convert to an individual policy with different rates should you leave your job. Another unique feature for VTL is that life services such as financial planning resources are available to you when you elect this benefit.
- Individual/Permanent Life Insurance
Permanent Life Insurance differs from the other two forms of life insurance as it is individual instead of group. The owner of the insurance is the policyholder. While it’s a no-brainer to elect group life insurance since it’s cheap, it’s also important to purchase an individual policy (especially because it’s tax free when the death benefit is paid out). There are three different individual policies to know about:
- Whole Life Insurance: this is typically the most expensive, but it does offer the highest cash value in addition to the death payout. It also lasts for the longest amount of time, typically 120 years. Whether you pass away at 30 years old or 100 years old, your beneficiary will receive the same amount. The premium is based on the age you were at the time of purchase and remains the same for as long as you have it. Additionally, the policy never expires.
- Universal Life Insurance: the cost for this insurance is average, and the same goes for the cash value. Just like Whole Life, the coverage of Universal Life lasts for the entirety of the insured’s life. This form of permanent life insurance is flexible with its pricing. Unlike Whole Life, you’re allowed to adjust your premium price and death benefit. If you wanted to adjust your benefits so that your minimum premium payment needed to keep the policy is lower, you can. The policy can suit your current financial situation.
- Level Term Life Insurance: this is the cheapest form of individual insurance, but it does not offer a cash value. This policy only lasts for a specific term; the terms are 10, 20, or 30 years. Once the term is up, the policy will expire as it will need to be changed to fit your new life insurance needs.
The truth of the matter is that final costs can be expensive. We’ve all seen families scrambling to raise funds on crowdfunding platforms to pay for a member’s sudden death; it’s heartbreaking. Luckily, you can prevent your family from being in a sudden financial bind by having a life insurance plan. It’s equally as important to make sure your life insurance plan best suits the needs of you and your loved ones. Double check the plan(s) you are enrolled in and contact a broker for specific plan information.