Caleb Meriwether, Haven Insurance Partners, visits with Dan Reaves, host of ‘The Dan Reaves Show,’ today and each Wednesday at 3:30 p.m., to discuss all things insurance.
Life insurance is one of the most important—and most misunderstood—financial tools available. At its core, life insurance exists to protect the people who depend on you financially. If something happens to you, life insurance provides money to your family to replace income, pay debts, and maintain their lifestyle.
This article explains the main types of life insurance, common options and riders, and whether coverage should come from your employer or be purchased personally.
Why Life Insurance Matters
If you have any of the following, life insurance is worth serious consideration:
- A spouse or children who rely on your income
- A mortgage or other significant debt
- Business ownership or financial obligations to partners
- Plans to pay for college or provide financial support to others
Life insurance provides cash directly to your beneficiaries, usually tax-free, to help them cover:
- Mortgage payments
- Living expenses
- Education costs
- Debt repayment
- Funeral expenses
Without life insurance, these financial burdens can fall directly on your family.
The Four Main Types of Life Insurance
There are two broad categories: temporary insurance and permanent insurance.
- Term Life Insurance (Most Common and Most Affordable)
Term life insurance covers you for a specific period—usually 10, 20, or 30 years.
Key characteristics:
- Lowest cost option
- Fixed premium for the term period
- No cash value
- Pays only if death occurs during the term
Example:
A healthy 35-year-old might purchase a $1,000,000 30-year term policy for a relatively low monthly premium.
This is ideal for:
- Income replacement during working years
- Protecting a mortgage
- Protecting young families
Most financial professionals recommend term life insurance as the foundation of coverage.
- Whole Life Insurance (Permanent Coverage)
Whole life insurance lasts your entire life and includes a savings component called cash value.
Key characteristics:
- Coverage lasts for life
- Premiums are higher than term
- Builds guaranteed cash value over time
- Cash value can be borrowed against
This is sometimes used for:
- Estate planning
- Long-term wealth transfer
- Permanent protection needs
However, it is significantly more expensive than term insurance.
- Universal Life Insurance (Flexible Permanent Insurance)
Universal life insurance is similar to whole life but more flexible.
Key characteristics:
- Permanent coverage
- Flexible premiums
- Cash value component
- Adjustable death benefit in some cases
There are several versions, including:
- Traditional Universal Life
- Indexed Universal Life (IUL)
- Indexed Universal Life (IUL)
Indexed Universal Life ties the cash value growth to a stock market index, such as the S&P 500.
Key characteristics:
- Permanent life insurance
- Cash value grows based on market index performance
- Has limits (caps and floors) on gains and losses
- More complex product
This can be useful for certain high-income individuals but is not necessary for most people.
Convertible Term Insurance (Very Important Feature)
Many term policies are convertible, meaning you can later convert them into permanent insurance without a medical exam.
This is valuable because:
- Your health may decline later
- Conversion guarantees future insurability
- You can lock in permanent coverage if needed
Most advisors recommend choosing a convertible term policy whenever possible.
Common Riders (Optional Add-Ons)
Riders enhance your policy by adding additional protections.
Disability Waiver of Premium
If you become disabled and cannot work:
- The insurance company pays your premium
- Your coverage stays active
This is highly recommended.
Long-Term Care Rider
This allows you to use your life insurance benefit to pay for long-term care if needed.
This can help cover:
- Nursing homes
- Assisted living
- In-home care
Any unused portion still goes to your beneficiaries.
Other Common Riders
- Accelerated death benefit (access funds if terminally ill)
- Child rider (covers children)
- Guaranteed insurability rider (buy more coverage later)
Should You Buy Through Your Employer or Personally?
Many employers provide life insurance. This is a good benefit—but usually not sufficient.
Employer life insurance typically provides:
- 1–2 times your salary in coverage
- Often free or very inexpensive
However, there are important limitations:
- Coverage ends if you leave your job
- Coverage amounts are usually too low
- Limited flexibility
Personal policies provide:
- Much larger coverage amounts
- Portability (you keep it regardless of employment)
- More customization and riders
Best practice is usually a combination of both.
Employer coverage is a good base, but personal coverage provides the real protection.
What Most People Should Consider
For most individuals, the recommended approach is:
- Purchase a 20- or 30-year convertible term policy
- Supplement with employer coverage
- Consider riders like disability waiver and long-term care
- Evaluate permanent insurance only if there is a specific long-term need
Term insurance provides the most protection for the lowest cost.
How Much Life Insurance Do You Need?
A general guideline is:
10–15 times your annual income
Example:
If you earn $150,000 per year, consider $1.5M–$2.5M in coverage.
Factors that affect this include:
- Debt
- Mortgage balance
- Children’s education costs
- Spouse’s income
- Lifestyle goals
