Life insurance is an essential aspect to consider in your overall financial planning, but it is often the component missing in many plans. Some people are not comfortable discussing the topic of life insurance which can be confusing as well as emotionally overwhelming. To help you better understand life insurance, we’ve pulled together answers to some frequently asked questions to help you make an informed decision about whether it’s time to consider a policy for your financial strategy.
Do you need life insurance?
If you are single and have no dependents, you may not need life insurance - just yet. However, if you are married or the parent of dependent children, it is important to consider whether you need this type of insurance. It is also possible to have people financially dependent on you who are not your spouse or children. For example, may be you are the guardian of a sibling, niece or nephew, or perhaps you are the primary caregiver for a parent – these are also reasons to consider life insurance. A life insurance policy is designed to protect the people in your life who are financially dependent on you and help ensure they can be financially secure in the event of your passing.
How much life insurance do I need?
This is not a one-size-fits-all option. The amount of coverage you need is dependent on your life style and personal financial situation. The standard rule of thumb is to purchase a life insurance policy that is 5-10 times your income to better help ensure your family and loved ones can live comfortably and will be able to manage future expenses. Using your salary as a base factor, the amount of coverage you select should also be determined by your family’s annual cost of living, any current debt like a mortgage and future expenses such as healthcare costs, college education, funeral expenses, etc.
Try out this helpful calculator: How much life insurance do I need?
What type of life insurance is right for me?
Once you determine how much life insurance you need, the next step is to decide which type of policy is the best fit for you. There are two options for a life insurance policy: term non-cash value or cash value policies such as whole, universal and variable life.
- Term life insurance can be purchased for a specific number of years with rates that are significantly lower than whole life insurance. This insurance plan can be purchased at different amounts for a set amount of time. Typical lengths of time include 5, 10, or 20-year policies. Term life insurance is usually the most affordable policy option.
- Whole, universal or variable are cash value insurancepolicies which are typically purchased for the remainder of your life. With this type of policy, you pay a premium, which makes it the more expensive option. It is typically sold as an investment because it offers cash value and can be drawn from or borrowed against. Whole life insurance includes a constant premium, lifelong coverage with no future medical benefits (if no changes are made to the policy), and tax savings opportunities.
Who should I name as a beneficiary?
Deciding who to name as your life insurance beneficiary may be a difficult decision and one that should be made with careful consideration. What is the driving factor behind securing your life insurance policy? If it’s to take care of your family, then typically your spouse or children are designated as beneficiaries. If you’re a business owner and want your company to move forward, then a business partner could be named a beneficiary. When choosing a beneficiary, there is no rule that only one person can be named. Maybe you want to equally split the payout among your children or perhaps you decide to follow the lead of Warren Buffett and name a non-profit or charity has the designee to be the recipient of the policy. There are many options to consider when choosing your beneficiary and it is important that it be done thoughtfully.
Important tip: Make sure you review your beneficiary designations frequently, especially in the event of major life events. For instance, if your ex-spouse is named the beneficiary and you do not update the policy after the divorce, this would be the person to receive the payout upon your passing.
Why is it important to have a life insurance policy?
The primary reason for a life insurance policy is to protect your spouse, children and any other loved ones in your life who depend on you financially. Having a policy in place will give you peace of mind that they would be in a better position to sustain their standard of living, pay off any debts, and plan for future expenses. No one can predict the future, making it all that much more important to have a plan in place to protect everyone you care for by providing the financial security they may need.
Ready to have a conversation with a Lakeland Financial Services professional? You can count on us to help you find the life insurance and long-term care insurance products that are best suited for you and your family. Contact an advisor today!
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These policies have exclusions and/or limitations. The cost and availability of life insurance depend on factors such as age, health and the type and amount of insurance purchased. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition if a policy is surrendered prematurely, there may be surrender charges and income tax implications. Guarantees are based on the claims paying ability of the insurance company. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy selected.
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