No matter what your net worth or income level is, the road to financial wellness can sometimes seem full of obstacles and detours. Including life insurance in your financial plans may provide you with greater confidence along the journey.
Life insurance can fill a wide variety of needs, from providing funds for a high net worth individual’s heirs to pay estate or inheritance taxes to ensuring financial support for a child with special needs should a parent die. Working with a trusted financial or other professional can help you understand how life insurance works and which type, if any, is right for your situation. You can also take advantage of the resources available as part of Life Insurance Awareness Month.
Each year the nonprofit organization, Life Happens, coordinates Life Insurance Awareness Month in conjunction with more than 100 of the nation’s leading insurance companies and industry groups. The initiative is intended to educate Americans about the importance of life insurance and the role it plays in protecting their loved ones’ financial security, and to help them get the coverage they need.
Regardless of the avenue you choose for information about life insurance, the following are a few things you should know to help determine how life insurance can fit into your plans.
1. If someone counts on you for financial support, you probably need life insurance.
Life insurance is typically recommended if anyone is reliant on you for financial support, such as a spouse or dependent children. It may also be a good idea if you have a life partner, ex-spouse, a sibling or parents who are dependent on you financially. If no one would suffer financially if you were to pass, you don’t necessarily need life insurance. However, it could still be a strategic financial tool.
2. Life insurance reduces financial burdens and provides a confident mindset.
Life insurance lessens the financial burdens on the people you leave behind when you die. It has the potential to provide funds to your loved ones to cover the costs of things such as final expenses, outstanding debts, planned educational expenses, and lost income. It also provides you, as the policy holder, with confidence knowing that your loved ones are covered — at least to some extent — after you’re gone.
3. There are different types of life insurance.
There are two basic types of life insurance that you should know about: term and permanent.
- Term life is typically the most cost-effective type of life insurance. A life insurance company bases the term life policy premium on the probability that the insured person will die within a stated period or “term,” such as 20 or 30 years. If the insured dies during the term, the death benefit will be paid to the beneficiary. If the term ends and the insured person is still alive, the insurance coverage ends. Coverage may be continued but will likely be at a higher rate based on the insured’s current age and health status.
- Permanent insurance includes whole life, universal life, and variable life policies. Permanent insurance provides coverage for the duration of the insured’s lifetime, provided premiums are paid to keep the policy in force, with the benefit paid upon the insured’s death. Unlike term life, permanent insurance offers the potential to build cash value in the policy.
4. Different factors affect your insurance policy premiums.
Age and health status are typically the most important factors in calculating your premium, or how much you pay for insurance. Generally speaking, the younger and healthier you are, the less your life insurance premiums are. Other factors that may affect your premium rates include your marital status, where you live, your family medical history, and your lifestyle.
Also affecting your premiums is whether your policy is simplified issue or fully underwritten. A simplified issue policy only requires you answer questions about your health when completing the insurance application. This kind of policy can cost more because the insurance company has less proof about your health. Fully underwritten policies require that you undergo a medical exam and complete lab work. You usually get a lower premium with these policies if your results show good health.
5. You can cancel an existing life insurance policy, but exercise caution when doing so.
If you have a policy that doesn’t meet your needs, but you still need life insurance, don’t cancel the wrong policy until the right one is in place. With an existing term policy, you can simply quit making the premium payments and it goes away. With a permanent policy that has a cash value, don’t cash it in without considering its present and expected future value, any surrender charges or penalties for canceling the policy, and possible tax implications.
Work with a professional
There are many online tools available to help you assess your insurance needs. However, it may be beneficial to work with a trusted financial professional with experience in the insurance industry. LPL financial professionals have access to a wide selection of well-known insurance companies offering a variety of term and permanent coverage to address your life insurance needs. Because LPL doesn’t have proprietary products, our financial professionals are able to make informed recommendations based on objective research and your individual needs.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.