Life insurance is understandably a topic many people don’t want to think about. However, avoiding it altogether could potentially cause hardship for your family down the road. By taking the time to review and understand life insurance options now, you can help to ensure that your loved ones are financially prepared for the unexpected.
Let’s take a closer look at life insurance and how it can be helpful for many families:
A common misconception is that life insurance is just for older adults, but that’s simply not the case. Anyone can have life insurance, no matter their age. While many people don’t start thinking about life insurance until they have children, or they’re approaching retirement age, purchasing life insurance in your earlier years can allow you to lock in a much lower rate than if you were to wait.
Some employers offer basic life insurance coverage. If yours doesn’t, or if you’re looking to supplement your employer’s policy, you can buy life insurance directly through an insurer, much like you would purchase car insurance.
You’ll also need to consider how much you can afford to pay for life insurance. A life insurance premium is the amount you pay in order to have the coverage. The premium is typically paid monthly or annually. If you’re relatively young and physically healthy, you may pay a lower premium than someone who purchases a life insurance policy later in life. You’ll want to factor the cost of life insurance into your ongoing budget and ensure you can afford to maintain it. You don’t want to miss payments and run the risk of losing your policy.
Many people choose term life insurance because it’s typically less expensive than whole life insurance, and because they expect their needs to be different by the end of the term. For example, if the goal is ensure that your spouse has the financial means to pay the mortgage or care for your children if you pass away, then consider what life will look like 20 or 30 years down the road. If you expect the mortgage will be paid off by then, and your children will be grown and out of the house, you likely won’t need the same coverage in 20-30 years that you need now.
If however, your goal is to leave your children an inheritance or provide your beneficiaries with funds to pay taxes on your estate, you may want to consider a more permanent type of life insurance coverage. Before you choose, it’s always a good idea to consult an investment professional or a tax adviser to ensure you make an informed decision and understand all of the potential tax implications associated with it.
It’s important to keep in mind that if you list a minor as your beneficiary, they will not be able to receive the payout if they are under 18 when you die. Instead, the money will likely go to whoever has been named the child’s legal guardian. The good news is that in most cases you do have the ability to change your beneficiaries at will. So, you could initially list only your spouse as your policy’s beneficiary, but add your child as a second beneficiary once they turn 18.
Because your circumstances can change over the years, it’s always a good idea to periodically review your beneficiaries and make adjustments as necessary. This is especially important after major life events like getting married, getting divorced, or having a child.
Life insurance can help provide peace of mind and protection for those you love, but determining when, what, and how much to purchase is a unique and personal decision. It really comes down to your family’s current financial situation and future financial goals. If you’re interested in starting a conversation about life insurance, or if you’re looking to learn more about different investment options that might makes sense for your family, don’t hesitate to contact us today.
Let’s take a closer look at life insurance and how it can be helpful for many families:
What is Life Insurance?
Life insurance policies work similarly to other insurance coverage you may carry. You make payments toward your policy, and in the unfortunate event that something should happen to you, the policy provides your beneficiary with a lump sum payment. Life insurance often covers death from natural causes, accidental death, or terminal illness. Although there are usually no restrictions regarding what the funds can be used for, life insurance proceeds are commonly used to cover funeral costs and other death-related expenses. Life insurance payouts can also be helpful when it comes to keeping up with regular expenses such as mortgage payments, childcare costs, and medical bills.A common misconception is that life insurance is just for older adults, but that’s simply not the case. Anyone can have life insurance, no matter their age. While many people don’t start thinking about life insurance until they have children, or they’re approaching retirement age, purchasing life insurance in your earlier years can allow you to lock in a much lower rate than if you were to wait.
Some employers offer basic life insurance coverage. If yours doesn’t, or if you’re looking to supplement your employer’s policy, you can buy life insurance directly through an insurer, much like you would purchase car insurance.
How Much Life Insurance Should I Have?
Ultimately, the purpose of life insurance is to make sure that your family can continue to be financially stable without your income, and that they can cover any death-related expenses. So, the amount of life insurance you need, will depend on your personal financial situation. One common tip is to multiply your yearly income by 10 to determine how much life insurance to take out, but this isn’t a foolproof plan. The “10 times your income” method doesn’t take into account any savings you may have accumulated, whether you have an outstanding mortgage or other debt to pay off, or if you have children to send to college. You’ll want to consider all of your family’s financial needs, and current financial picture before determining an appropriate coverage amount.You’ll also need to consider how much you can afford to pay for life insurance. A life insurance premium is the amount you pay in order to have the coverage. The premium is typically paid monthly or annually. If you’re relatively young and physically healthy, you may pay a lower premium than someone who purchases a life insurance policy later in life. You’ll want to factor the cost of life insurance into your ongoing budget and ensure you can afford to maintain it. You don’t want to miss payments and run the risk of losing your policy.
What Kind of Life Insurance Should I Purchase?
Another consideration when purchasing life insurance is whether to go with a term life insurance policy, or a whole life insurance policy. The main difference is that term life insurance covers you for a specified period of time, while whole life insurance has no end date. For example, if you take out a 20-year term life insurance policy, the policy will expire in 20 years, even if you’re still alive. And, there will be no payout when the policy expires. At that time, you’ll typically have an option to renew the policy, but the new premium will likely be a lot higher than it was when the original policy was purchased.Many people choose term life insurance because it’s typically less expensive than whole life insurance, and because they expect their needs to be different by the end of the term. For example, if the goal is ensure that your spouse has the financial means to pay the mortgage or care for your children if you pass away, then consider what life will look like 20 or 30 years down the road. If you expect the mortgage will be paid off by then, and your children will be grown and out of the house, you likely won’t need the same coverage in 20-30 years that you need now.
If however, your goal is to leave your children an inheritance or provide your beneficiaries with funds to pay taxes on your estate, you may want to consider a more permanent type of life insurance coverage. Before you choose, it’s always a good idea to consult an investment professional or a tax adviser to ensure you make an informed decision and understand all of the potential tax implications associated with it.
How to Designate a Beneficiary
You can choose anyone you’d like to be the beneficiary of your life insurance policy. In many cases, you can even designate multiple beneficiaries, whether they be people, or a trust, estate, or organization. If you’re listing multiple beneficiaries, you’ll typically designate a percentage of proceeds that each beneficiary should receive. If you have multiple beneficiaries, you might divide the payout evenly amongst them, or you may choose to leave a larger percentage to certain beneficiaries – it’s completely at your discretion.It’s important to keep in mind that if you list a minor as your beneficiary, they will not be able to receive the payout if they are under 18 when you die. Instead, the money will likely go to whoever has been named the child’s legal guardian. The good news is that in most cases you do have the ability to change your beneficiaries at will. So, you could initially list only your spouse as your policy’s beneficiary, but add your child as a second beneficiary once they turn 18.
Because your circumstances can change over the years, it’s always a good idea to periodically review your beneficiaries and make adjustments as necessary. This is especially important after major life events like getting married, getting divorced, or having a child.
When Will the Beneficiary Receive Money?
Another important thing to consider is that the benefits from your life insurance policy are not paid out automatically when you die. Rather, your beneficiary (or beneficiaries) will have to submit a claim with the insurance company. They’ll typically need to provide documentation, such as proof of their identity and a death certificate, before a payout is approved. Most states allow 30 days for the insurer to review the claim. If the claim is denied for some reason, they will often provide an explanation of why, as well as what additional information they need to approve the claim. Some policies may also have a waiting period for certain causes of death. In these cases, the life insurance company may need to wait for medical verification before they can approve the claim.Life insurance can help provide peace of mind and protection for those you love, but determining when, what, and how much to purchase is a unique and personal decision. It really comes down to your family’s current financial situation and future financial goals. If you’re interested in starting a conversation about life insurance, or if you’re looking to learn more about different investment options that might makes sense for your family, don’t hesitate to contact us today.