Life insurance is one of those financial products that we put off thinking about. No one wants to talk about the eventuality of them passing away, and we especially don't like to talk about what would happen if we passed away suddenly.
But life insurance is an important part of any financial and protection strategy. For National Life Insurance Awareness Month, we wanted to share some helpful information about life insurance, including what it is, its different types, and how it can help protect your family in case something happens.
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 cash 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
Download our Checklist, “What Issues Should I Consider when Purchasing a Life Insurance Policy?”
The Different Types of Life Insurance
There are two main types of life insurance: term life insurance and permanent life insurance. Let's look at the differences.
Term Life Insurance
Term life insurance policies cover the insured for a specific period, usually between 5 and 30 years, depending on your policy. Term policies pay a death benefit only if the insured person dies during the coverage term. These policies don't carry any cash value, but the premiums are generally lower than permanent life insurance premiums. Furthermore, term life insurance policies may offer a greater level of flexibility because you can amend your policy as your needs change.
Permanent Life Insurance
Permanent life insurance policies cover the holder for their entire life. Some of these policies also carry 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 According to US News, this cash value "grows tax-deferred over time and may be withdrawn or borrowed against while you're still alive." But remember that withdrawing these funds 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. Each of these policies has its pros and cons.
When considering which life insurance policy is right for you, think about the following factors:
- Coverage duration
- Coverage amount
- Cash Value
Do You Need Life Insurance?
For most people, the answer to this question is "yes." Life insurance can help protect the people you care about if something happens to you. This could include a spouse, children, disabled family members, aging parents, or any other dependents. There are a variety of coverage limits, and depending on your household expenses, you may not have to purchase an enormous life insurance policy. Even modest protection could help your family pay the bills and make arrangements.
A simple way to calculate how much life insurance you need is to consider all your immediate, ongoing, and future expenses, as well as the financial resources that your loved ones already have. Then, subtract your financial resources from the anticipated expenses to obtain the difference. Forbes lays out the DIME method: debt, income, mortgage, and education.3
Ready to review (or begin) your life insurance policy for National Life Insurance Awareness Month? We can help! Contact us here to schedule a phone call or appointment to learn more.
Download this Checklist to help you understand life insurance, the purpose of coverage, appropriate amount of coverage, types of policies, and rider options.
Dan Miller, Kaleb Robuck and Marcus Taylor are investment adviser representatives of, and securities and advisory services are offered through, USA Financial Securities Corp. Member FINRA/SIPC. A Registered Investment Advisor located at 6020 E Fulton St., Ada, MI 49301. Miller Financial Group is not affiliated with USA Financial Securities.