Life Insurance

How Can Individuals Protect Their Financial Future?

Life insurance is primarily designed to provide a death benefit to the people or organizations you choose. While the basic purpose is straightforward, different policy types and optional riders can allow life insurance to address a variety of financial needs.

For many Americans, life insurance can help protect a family's lifestyle, support long-term financial goals, protect a business, cover final expenses, and create a legacy.

An independent life insurance agent can help you understand your options and determine what type and amount of coverage may fit your circumstances.

Income Replacement

For many families, losing an income earner or primary caregiver can create a significant financial challenge.

Mortgage or rent payments, utilities, groceries, car expenses, childcare, education, and other household costs do not disappear when someone dies.

Life insurance can provide funds to help a family maintain its financial stability after a premature death.

When determining how much coverage you may need, consider your current income, household expenses, future financial goals, existing assets, and the needs of financially dependent family members.

A commonly used guideline is approximately 10 to 15 times annual income, although the appropriate amount varies from one household to another. The value of unpaid household responsibilities, such as childcare, should also be considered.

Life Insurance for Businesses

Life insurance can also play an important role in business planning.

If a business owner, partner, or key employee dies unexpectedly, the business may face challenges involving management, revenue, debt, or ownership.

A buy-sell agreement funded with life insurance can provide money to purchase a deceased owner's business interest from their heirs. This can help provide liquidity and establish a plan for transferring ownership.

Businesses may also use life insurance to help address financial obligations associated with key employees.

Estate and Tax Planning

When properly structured, life insurance death benefits are generally paid to beneficiaries free of federal income tax.

Life insurance may also be used as part of an estate plan for individuals with significant assets or assets that may be difficult to sell quickly, such as real estate, farms, or closely held businesses.

Permanent life insurance and structures such as an irrevocable life insurance trust may be considered for certain estate planning needs. Because these arrangements can have legal and tax implications, coordination among an attorney, tax professional, and insurance professional is important.

Final Expenses and Legacy Planning

Life insurance can also provide funds for expenses that arise after death, including funeral costs, burial expenses, and certain final medical bills.

For families and individuals who want to leave money to children, grandchildren, charities, universities, or other beneficiaries, life insurance can also be used as part of a legacy strategy.

Types of Life Insurance

Life insurance generally falls into two broad categories: term insurance and permanent insurance.

Term insurance provides coverage for a specified period, often 10, 20, or 30 years. Permanent insurance is designed to remain in force for life as long as the policy requirements are met.

The right type depends on the purpose of the coverage, your financial situation, and how long you expect the need to continue.

Term Life Insurance

Term life insurance provides a death benefit for a specific period.

For example, a policy may provide $500,000 of coverage for 20 years. If the insured dies while the policy is active, the beneficiaries generally receive the death benefit according to the policy terms.

Term insurance typically does not build cash value and is often used when someone wants substantial coverage at a lower initial premium.

It can be useful for needs such as income replacement, mortgage protection, or providing financial support while children are dependent.

Whole Life Insurance

Whole life insurance provides permanent coverage as long as premiums are paid according to the policy terms.

In addition to the death benefit, a whole life policy builds cash value based on the guarantees stated in the policy. The cash value may be accessed through policy loans or other options, subject to the policy terms.

Whole life premiums are generally higher than term insurance premiums because the policy provides permanent coverage and cash value features.

Whole life insurance may be used for estate planning, business planning, legacy goals, and other long-term needs.

Universal Life Insurance

Universal life insurance is a form of permanent coverage that can provide flexibility in premium payments and death benefit options, depending on the policy.

Cash value growth may be tied to interest rates or other policy assumptions. Because of this, policyholders should understand both the guaranteed values and the assumptions used in policy illustrations.

Universal life may appeal to individuals who want permanent coverage with more flexibility than traditional whole life insurance.

Variable Life Insurance

Variable life insurance combines life insurance protection with investment subaccounts.

The cash value and potentially other policy values can be affected by investment performance. If investments perform poorly, additional funding may be required to keep the policy in force, depending on the policy design.

Variable universal life combines features of variable life and universal life.

Because these policies involve investment components, buyers should carefully review both guaranteed information and projected illustrations. Variable life products also involve securities licensing requirements for the professionals who sell them.

Consider the Insurance Company's Financial Strength

Life insurance is a long-term financial commitment, so the financial strength of the insurance company matters.

Independent rating agencies evaluate insurers based on their financial condition and ability to meet their obligations. Consumers can review ratings from organizations such as A.M. Best, Moody's, Standard & Poor's, and Fitch Ratings.

Comparing ratings from multiple agencies can provide additional perspective when evaluating an insurer.

Life Insurance Riders

Many life insurance policies offer optional riders that can add additional features to the basic coverage.

Depending on the policy, riders may include:

Waiver of premium: May waive premiums if you become disabled under the policy's definition.

Disability income: May provide a monthly benefit during a qualifying disability.

Accelerated death benefit: May allow access to part of the death benefit after qualifying medical circumstances.

Long-term care rider: May provide benefits for qualifying long-term care expenses.

Critical illness rider: May provide a lump-sum benefit after diagnosis of a covered illness.

Guaranteed insurability: May allow additional coverage to be purchased later without new medical underwriting, subject to the policy terms.

Return of premium: May return qualifying term premiums if the insured outlives the policy period.

Accidental death and dismemberment: May provide additional benefits for qualifying accidental death or injuries.

Riders vary by insurer and policy, so review the specific terms, costs, and eligibility requirements before adding them.

Keep Your Beneficiaries Updated

Your beneficiary designations are an important part of your life insurance plan.

Review them regularly, particularly after major life events such as marriage, divorce, the birth of a child, or the death of a beneficiary.

If your life insurance is part of an estate plan, coordinate your beneficiary designations with your attorney and other financial professionals to make sure they align with your overall objectives.

Don't Wait to Review Your Coverage

Life insurance eligibility and pricing can be affected by factors such as age, health history, and other underwriting considerations.

Waiting to purchase coverage can sometimes result in higher premiums or different policy options if your circumstances change.

Your life insurance needs can also change over time. A new child, home purchase, career change, business ownership, or change in financial responsibilities may create a need for additional coverage.

Review your coverage periodically to make sure it continues to reflect your financial goals and family needs.

If you need help understanding your life insurance options, contact us today. We can help you review your needs, explore available coverage, and take the next step with confidence.