September is National Life Insurance Awareness Month | Tips from our Financial Advisors
In this world nothing can be said to be certain, except death and taxes. -Benjamin Franklin
While this quote may be cliché and overused, it is interesting that we spend a lot of our time and energy think about one each year and avoid thinking about the other. Nobody wants to address the eventuality of our own mortality, so we put it off thinking about what financial products like life insurance. There is no such thing as being almost insured and many times the shift to being uninsurable or rates greatly increasing occurs in just a few moments.
Life insurance is an important part of any financial and protection strategy. We would like to provide beneficial information about life insurance, so you know what to consider before consulting a financial professional. We will discuss what it is, the right time to buy it, the difference between term and permanent life insurance, and how it can impact the ones you love the most.
What is Life Insurance?
According to Life Happens, a nonprofit dedicated to giving users unbiased insurance information, life insurance is an insurance policy that provides funds to your family or loved ones after your death. This "death benefit" helps replace your income and supports your loved ones also in non-monetary ways. Your family can use this payment for funeral expenses, mortgage payments, college tuition, and other bills.1
When is the Right Time to Buy Life Insurance
Buying life insurance is often pushed off to a point where it becomes more costly or impossible. Whether they are afraid to talk about mortality or think it is a waste of money, many people leave their families with significant expenses when they pass. The right time to purchase life insurance has many factors including age, debt level and income.
Age
The truth with life insurance is simple, the older you get, the more likely you are to become ill and the higher your risk of mortality, so as you age your rates for life insurance will go up. Policies can be locked in for significantly low rates for many years, so the simple answer is the best time is right now.
Debt Level
When a loved one dies their assets will be used to pay off the debt they have accumulated before any of it is disbursed to the surviving members. If your debts outweigh your liquid assets, your loved ones may be at risk of losing your car or your house. Many people think about the funeral expenses their loved ones may incur but forget the impact their debts may have, often at significantly higher costs.
Average Income
Many couples and families rely on a two-person income to maintain their current lifestyle. Life insurance policies can help cover that lost income. When determining the value of your life insurance policy, it is important to make sure that it will cover your salary at least for a five-year period.
Term Life Insurance vs Permanent Life Insurance
Term Life Insurance
Term life insurance policies cover the insured for a specific period of time, often between 5 and 30 years. Term policies will only pay the beneficiary if the insured person dies during this term. They don't carry any cash value, but generally costs less than permanent life insurance premiums. These policies tend to be more flexible as your needs, making them a popular choice. There are term life insurance policies where policyholders can get the full costs of their premiums back if they're still alive at the end of the coverage period, however, these tend to be more costly can the premiums can’t be used as a safety net in case of emergency.
Permanent Life Insurance
Permanent life insurance policies cover the holder for their entire life. These may also include a savings or investment component. According to US News, this cash value "grows tax-deferred over time and may be withdrawn or borrowed against while you're still alive." Obviously withdrawing these funds during your life will decrease the policy's death benefit (unless the funds are repaid).2 There are a few permanent life insurance options, including whole life (sometimes called "traditional" life insurance) and universal life.
Do You Need Life Insurance?
For most people, the answer to this question is "yes." A properly suited life insurance can help protect the people you care about most if something happens to you.
Ready to review (or begin) your life insurance policy for National Life Insurance Awareness Month? Speak with a financial professional to discuss what will suit your needs and means and what will protect the ones you love. There are plenty of websites where you can sign up for a policy, or you can talk to a financial professional for guidance. Our Metro Detroit financial professionals would be happy to help.
- https://lifehappens.org/life-insurance-101/
- https://www.usnews.com/insurance/life-insurance/term-vs-permanent
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.