Life insurance is not the mysterious unknown some people may look upon with fear and dread. Rather, life insurance is simply a contract between you (the insured) and an insurance company, in which you agree to pay the insurance company the premiums according to the terms of your policy. In return, upon your death, the insurance company agrees to pay the amount you chose as the death benefit to the person you designated as your beneficiary.
The old saying goes “Life insurance is for the living,” and it’s true. Beyond possibly a sense of satisfaction at having taken a step toward looking after the financial welfare of loved ones in the future, there may be no other benefit to the insured at all. The purpose of life insurance is to help protect the financial wellbeing of loved ones or those who would be adversely affected by your death. Financial uncertainty alone is bad enough, but grieving loved ones certainly don’t need it added to their burden during one of the worst times in their lives.
Life insurance is not one-size-fits-all
Those who are unfamiliar with life insurance may tend to think it’s just one certain thing, but it’s not. There are two basic kinds of insurance, whole and term life, and there are variations within those categories; not all whole life policies are the same and not all term life policies are the same. Both whole life and term life may play a role in your long-term financial plan.
Term life insurance
Term Life is designed to help provide financial protection for a specified period of time, for example 10 or 20 years. If you die before the term of that coverage ends, the death benefit, if payable under the terms of your policy, is paid to your beneficiary. If you are still alive at the end of the term, depending on the type of policy you bought, the coverage ends or you may be able to renew the policy for another term.
Whole Life Insurance
With whole life insurance, you continue to pay the premiums on your policy until you die, at which time the insurer pays the death benefit (if payable under the terms of your policy) to your beneficiary. Some whole life policies have a cash value or additional features.
You may be asking yourself which type of life insurance you need or how much of which one or both you need, but these aren’t really the questions you should be asking. The important question is: What are your financial needs and goals?
There are four basic financial needs families may face upon the death of an income earner:
Final Expenses —Helps cover funeral and burials costs, but may also help pay outstanding debts such as medical bills or other debts the deceased may have accrued.
Income Replacement —When a family income earner is no longer there, a family may struggle to meet the ongoing, every day expenses the deceased handled.
Mortgage —The home is typically the greatest asset and the largest expense most families have.
Education —We all want the best for our kids. Life insurance can help you set aside funds to cover the high cost of a quality education if you aren’t here.
Life insurance is not all-or-nothing.
Right about now, you may be wondering how much all this is going to cost. You may have already decided you can’t afford it before you even know the actual cost! Well, you’re not alone. People tend to think it costs a lot more than it actually does. In fact, people tend to estimate the cost to be more than three times what it actually is.1 When you consider the top reason for not purchasing life insurance is that it is too expensive, overestimating the true cost of coverage may deter many from purchasing it.1 Having insufficient coverage can have severe consequences for many American families. Four in 10 households without any life insurance say they would have immediate trouble paying living expenses if their primary wage earner died.1
There will never be a better time than the present to buy life insurance. The two biggest factors that determine the cost of life insurance are your age and the state of your health. All of us have grown a bit older in the time it took you to read the preceding sentence, and good health is guaranteed to none. Talk with a licensed insurance professional about your current circumstances, your needs, budget, and your goals. Your agent can help you choose the type(s) of life insurance coverage that matches your needs and budget.
If it does turn out that the coverage your agent has proposed is more than you’re comfortable with, your agent can help you put at least some coverage in to help protect your family. You can always start small and add additional coverage later as you are better able to afford it.
Make the call. Get a life insurance plan in place today to help protect your loved ones.
Life Happens, 2019 Insurance Barometer Study: Nearly Half of Americans More Likely to Buy Simplified Underwritten Life Insurance (August 5, 2020)
Categories: Insurance, life insurance, term life insurance