Life insurance, for example. Is that what you hear when it's mentioned in the employee benefits package at your new job, or when you see it on TV or social media? Not to worry: we've got all the inside information you need. And it's not as frightening (or underwhelming) as you might think.
1. It is part of a sound financial plan. You are familiar with the concepts of saving and retirement. You may be familiar with long-term financial planning and investing for your health and happiness. In the event that you die, life insurance can assist you in planning for the long-term health and happiness of your loved ones, particularly those who rely on your income.
2. Life insurance comes in a variety of forms. In addition to work-based life insurance, there is term and permanent life insurance (which often only lasts as long as your employment at your employer).
Term life insurance typically has lower premiums but only provides coverage for a set period of time, such as 20 years. Your insurance coverage expires at the end of the term.
Permanent life insurance (whole, universal, variable) typically has higher initial premiums, but these policies typically allow you to accumulate cash value over time. Your coverage will last as long as you pay your premiums.
3. Life insurance is surprisingly affordable for the majority of people. Certain types of life insurance do become more expensive as more features are added, and the cost increases if you smoke or have health problems. According to Life Happens and LIMRA's Insurance Barometer Study, most people believe life insurance costs three times as much as it actually does. A healthy nonsmoking 30-year-old male can get a $250,000 20-year level term insurance policy for about $16 per month.
4. Major life events are frequently ideal times to join. Are you planning a wedding? Do you have any kids? Are you thinking about changing careers? Have you bought a house? Significant life events are frequently the catalysts that make you realize you need life insurance—and while we're on the subject...
5. You can make changes to your life insurance policy. Perhaps your parents bought you a life insurance policy when you were a baby. Maybe you had a term policy when you bought your house, but now you have a larger family and are concerned about paying for everyone's college education. Perhaps you want to increase your coverage because your overall cost of living has risen. On that note...
6. You might need more coverage than you think. Some people believe that life insurance is only for paying off personal debts and funeral costs. However, purchasing life insurance ensures that those who rely on you will be able to meet their current and future financial obligations if you die. Do you need help calculating the amount? To use this online calculator, go to www.lifehappens.org/howmuch.
7. Life insurance payouts are made on time. Because life insurance is unaffected by estate disputes, it usually pays out quickly, sometimes in days or weeks, and usually within a month.
8. Life insurance proceeds are usually tax-free. Consider crowdfunding platforms like "GoFundMe," which have grown in popularity while causing tax consequences for the people they're supposed to serve (to say nothing of fees and the lack of guaranteed benefit). It's also useful when leaving an inheritance to a beneficiary.
9. If you allow it, life insurance can protect your family. Keep your premiums, beneficiaries, and the door to your agent open so that your loved ones know who to contact if the need arises. Keep your documentation alongside your other important documents.
10. Life insurance can be much more than that. By using "riders," or an addendum to a life insurance contract or even a special type of policy, you can convert life insurance benefits into "living benefits," or money you can access before you die or use to pay for long-term care.
Contact an agent if you still require assistance with any of this. They can help you understand the nuances as well as the best policy for your budget and requirements. The most important thing to understand about life insurance, of course, is that it exists to help those you care about the most.
5 Reasons to Increase Your Life Insurance Coverage
Depending on whether you have term or permanent life insurance, you could be covered for one year or the rest of your life. However, if you've had a policy for a while, it may not be sufficient.
Your insurance requirements change as your life changes. It may be a good idea to double-check your coverage depending on what has happened and how your thinking has changed since you first purchased insurance. Here are five red flags to look out for.
1. You've got a child. According to USDA data from 2015, the cost of raising a child until the age of 17 is $233,610—and that doesn't even include college expenses if you plan to assist.
If you've recently expanded your family, your spouse or partner may be unable to cover those costs if you die. This is especially true if you are the primary breadwinner in your household.
2. You've just bought a new house. According to Life Happens and LIMRA's 2018 Insurance Barometer Study, two of the top five reasons people buy life insurance are to cover mortgage debt and to pay for house expenses.
The last thing you want is for your family to be evicted from their home because they are unable to make their mortgage payments. So, if you've just bought your first home or a new home with a larger mortgage, make sure you have enough coverage to cover the monthly payments.
3. Your earnings have increased dramatically. According to the same Barometer Study, two-thirds of people who own life insurance did so to replace lost income in the event of their death. If you've recently received a significant raise or your income has gradually increased since your last insurance purchase, make sure your coverage is still adequate to replace it.
4. Your lifestyle has changed. While salary increases are frequently accompanied by lifestyle changes, you can also obtain a lifestyle upgrade after paying off debt or increasing your cash flow in another way. If you've noticed that you're spending more per month than a year or two ago, your current life insurance policy may be failing to meet the needs of your loved ones.
5. You're thinking about estate planning. Another top five reason people purchase life insurance is to transfer money or leave an inheritance. As you get older, you might start thinking about what kind of legacy you want to leave behind.
If you've been focusing on other life insurance needs, it may be time to take another look to see if you'd owe any estate taxes or what other liabilities your estate would have to pay if you died. You should also consider whether you want to leave money to your children or a specific charity.
If you have experienced one of these events and are unsure whether you need to increase your coverage, use a comprehensive life insurance calculator to determine how your needs have changed.
In most cases, you will not be able to increase the coverage on your current insurance. Instead, you will buy a replacement to supplement the original. You can do this by contacting your insurance provider or shopping around to see if another insurer can provide you with a better rate.
Whatever you decide, make sure to check in on a regular basis to see if your life insurance policy is still adequate for the people you care about.