Life Insurance for Teachers
If you teach, I understand how hard it is to find time to sit down and review what type of life insurance would be best for you and your family. Most school systems give you some life insurance for free, usually up to 1 years’ salary, and you have an option to purchase more. But is this a smart move?
Well that depends on few factors, such the amount you need, how long you need the coverage, and most importantly what is it going to be used for. In this article we will go over the types of life insurance available, different ways you can use life insurance, mistakes you should avoid.
Do I need Life Insurance?
The short answer to this is most likely yes. Being married, have kids, a mortgage or other debt are all obvious reasons to own life insurance.
If you are teaching, then most likely your income means something to your household. Life insurance helps replace that income. Life insurance helps your loved ones financially if you pass away unexpectantly.
Life insurance for teachers can also be used to help supplement your retirement or to maximize your pension when you do retire.
What if I get coverage from my school system or associations that I am a part of?
That’s is great if you have coverage from school or associations, such as NEA. The problem is most school systems only offer up to $50,000. Also, this $50,000 goes away when you retire.
If you are a member of NEA or another association there is an option to buy term life insurance but only around $100,000. If you have any of the reasons above to own life insurance, then you will need more than $150,000.
How much life insurance do I need?
The question we get most is, how much life insurance do I need? This all depends what stage of life you’re in, how old your children are if any, and what your goals are.
The general rule of thumb is 10x-15x your yearly salary. Many professionals use financial calculators to show just how you should own based on you and your family’s needs. Here is one that we provide.
After you have an idea of the amount of coverage you should have, the cost of life insurance will vary depending on what type of life insurance you buy.
Types of Life Insurance for Teachers
There are two types of life insurance to choose from; Term Life Insurance and Permanent Life Insurance.
What is Term Life Insurance?
When most consumers start looking for life insurance, cost is the most important. This is where term life insurance comes in. Term life is the most basic and inexpensive life insurance available.
Term life offers coverage for certain period (10,15,20, or 30 years). The premium is guaranteed for the time period chosen and they build up no cash value. The major downside to term life is at some point it will expire, leaving you without any life insurance.
You do have some options when your term life is about to expire. You can covert your term policy to a permanent policy or if you are healthy you can reapply for a new term life policy. Whichever you choose is going to come with a higher premium than you were originally paying.
What is Permanent Life Insurance?
Permanent life insurance is just like it sounds, Permanent. Unlike term life, permanent life insurance will last the insureds lifetime. These policies are more expensive than term life, but they also have more benefits. Permanent life insurance builds up cash value and you can make withdrawals tax free if necessary.
There are 2 types of permanent life insurance:
What is whole life insurance?
Whole life insurance comes with a guaranteed premium and guaranteed cash value accumulation. Some whole life policies, called participating whole life, also has a dividend option. This dividend option allows you to earn a dividend or extra cash value based on how the life insurance companies portfolio performs. It’s important to understand that dividends are not guaranteed!
What is universal life insurance?
Universal life is a permanent life product also. They build up cash value but not all come with a guaranteed premium. Universal life insurance comes in 3 variations:
- Guaranteed Universal Life– This universal life policy is most like whole life. Premiums are guaranteed to age 120 and they build up some cash value.
- Indexed Universal Life– Cash value accumulation is based on the performance of the market but comes with a floor of 0% so you can’t lose money. There is also a cap on interest earned also, which is usually around 10%. These policies usually don’t come with a guaranteed premium.
- Variable Universal Life– These are the riskiest of the universal life portfolio. Cash value is invested 100% in the stock market. Market losses and gains can be expected and should be bought only by seasoned investors. Premiums are not guaranteed.
Which Type of Life Insurance is best for Teachers?
In most cases, term life insurance is going to be the best option and cheapest. With that said, life insurance can be used to maximize you pension at retirement, and you would need permanent life insurance for that. Therefore, it’s important to work closely with an independent insurance agent, like us, who can help you decide what best fits your situation.
You Said Something about Maximizing My Pension?
You read that correctly above, life insurance is used to help maximize state pensions.
How does this work?
In most states, when teachers have worked for a certain number of years (usually 30), they are able to retire and receive a monthly income for the rest of his or her life. Seems easy enough right? Well it is until it comes to picking which option you want when you retire. We know that each state differs in what their options are, but most if not all have the 2 options that we will discuss. The 2 main options offered are:
- Maximum Option
- Family Option
What is the Maximum Option?
The maximum option if chosen will allow you receive the highest monthly income available based on your salary and years worked. The downside is by choosing this option you are not allowed to name a beneficiary. The benefit ceases upon your death.
What is the Family Option?
The family option allows you to name a beneficiary, but your monthly benefit is reduced. The reductions are usually around $300-$500/month depending on the age of your beneficiary. Also, if your beneficiary predeceases you, in most states you are not allowed to name a new one.
How Can Life Insurance Maximize my Pension?
Buying a life insurance policy can help maximize your pension by putting you in control. Instead of giving up $300-$500/month to be able to name a beneficiary, take the maximum option and use the extra money to purchase enough permanent life insurance to replace your pension. With life insurance you get to name your beneficiary, and if that beneficiary predeceases you, you get to name a new one. It’s a simple concept that many teachers have been using it for decades.
Mistakes to Avoid
- Not buying enough to replace income
- Waiting to long to get coverage
- Not buying a long enough term policy
- Adding to many riders
- Failing to review your policy annually
Our Thoughts
The one thing we can agree on is that life insurance for teachers is a must. Figuring out how much coverage you need and what type of life insurance will be the hard choices and we hope this article helped with those decisions. Here at EasyQuotes4You.com we specialize in helping teachers understand why they need life insurance and how if planned properly could mean more income when you retire. If you have any questions please don’t hesitate to give us a call.
What are the types of life insurance available for teachers?
There are two types of life insurance available for teachers; term life and permanent life insurance.
Do teachers need life insurance?
If your income is vital to your household, then life insurance is needed to replace lost income due to your death.
What is the best life insurance for teachers?
This all depends on what the purpose of the life insurance is. Term life insurance is going to fit the needs of most teachers, but it’s best to consult with an agent before making a decision.