“It’s too expensive.”
“I don’t have kids.”
“I’m young and healthy.”
“I have life insurance through my job.”
Have any of these thoughts crossed your mind when considering life insurance? If so, you are not alone. These are some of the top reasons people give for not having this important coverage.
While life insurance may not be fun to think about and might even seem like an unnecessary expense, it is a key element in your personal financial strategy. It is about providing protection and financial security for your loved ones in the event of your untimely passing.
Life insurance can be confusing, but here are some basics.
Types of Life Insurance
This is the simplest and generally the least expensive type of life insurance. With a term policy, you buy coverage for a specific time period. It can usually be renewed, but the cost (premiums) will increase based on your age and health factors. There is no cash value with a term life policy.
All other types of life insurance are permanent, but there are several varieties. They all include a savings element that builds cash value, in addition to the death benefit. Once that cash value accumulates, it is accessible to the policyholder tax-free. The following are some common types of permanent life insurance.
Whole Life: This type of policy will cover your entire life, as long as you keep paying premiums. Premiums remain constant throughout the policy, and the company invests a portion of your premium which becomes the cash value. A whole life policy is more expensive than a term policy in the early years, but it evens out in the long run since the whole life premium does not increase.
Universal Life: This policy is similar to whole life but has the potential for higher earnings on the savings component. It is more flexible in terms of changing premiums and face value throughout the policy. There is usually a guaranteed return on the cash value. Disadvantages include higher fees and the possibility of increasing premiums.
Variable Life: A variable life policy generally has fixed premiums, and you have control over the investment decisions for the cash value portion. However, this is a riskier type of policy because the cash value is not guaranteed.
How Much to Buy?
It can be hard to know how much life insurance to buy. One way to decide is based on an income replacement calculation. A good rule of thumb is to buy between 5 and 10 times the amount of your current income.
Think about your personal circumstances:
- Is yours the sole income in your household?
- How would your family support themselves if you passed away?
- Do you have a mortgage, college loans, or other substantial debt?
- Are there other expenses, such as college tuition, that may arise in the future?
Don’t forget to include potential medical and funeral costs. Above everything, you want to be sure your family does not get stuck with bills, debts, or expenses that they cannot afford.
Click here to download a life insurance planning checklist to determine how much life insurance you need. This is just a starting point, but it will give you a good idea of your individual and family needs.
Why It’s Important
It is important to consider your financial responsibilities and take action to protect your loved ones in the event of a catastrophic accident or illness. The passing of a loved one can be difficult to cope with, and the added financial stress can leave your family feeling overwhelmed. Life insurance is a helpful preparation for the unexpected. The right policy can help ensure financial security for your loved ones.
If you are considering purchasing life insurance or changing your current coverage, we would be happy to assist you. Contact your Leavitt Group insurance advisor today to discuss your life insurance needs.