The Importance of Life Insurance
Many Allegiant Financial Planning clients are currently pregnant or are looking to start their families soon. One conversation that keeps coming up focuses on life insurance.
There are so many questions that people have about life insurance and it’s no wonder! Life insurance can be incredibly complicated and confusing. There are “sales people” out there who try to trap consumers in a life insurance policy they don’t want or need, and it can be stressful to try and discern what, exactly, you need to purchase. So, let’s dive right in and talk about all things life insurance.
What is Life Insurance?
Life insurance is a type of protection you can purchase to help loved ones financially if you die. The insurance is paid out to a beneficiary (or beneficiaries) to replace your income, cover savings, afford future expenses, and more.
Why Get Life Insurance?
Life insurance as a single, or newly married couple, is often put on the back burner. It doesn’t feel necessary to financially take care of your parents, or your spouse - especially if you both have booming, fulfilling careers. But when you have kids, things change. Those little ones can’t financially take care of themselves, and as parents, it’s your responsibility to protect them even beyond the end of our lives. By purchasing life insurance, you’re setting your family up to be cared for, relieved of financial stress, and happy even if you’re not there to care for them yourself. Having life insurance is also an easy option to financially protect your family in a way that other assets don’t. Typically, it’s paid quickly and avoids probate, so you can get your spouse, significant other, and kids the money they need to navigate life immediately after you pass away ASAP!
What Kinds of Life Insurance Are There?
There are several different types of life insurance. A few common options are:
Term life insurance
Permanent (or whole) life insurance
Permanent life insurance isn’t typically the best option for people. As you age, your insurance needs are going to change. By buying a permanent or whole life insurance policy you’re locking yourself into one kind of insurance that may or may not be too expensive down the line. Permanent life insurance has a unique investment component, which can be a valuable financial tool in some cases. However, leveraging a permanent life insurance option as a strategic tool in your financial plan isn’t necessarily the same thing as finding a life insurance policy that’s intended to protect your family in the event of your death.
The two serve different purposes. Permanent life insurance may have a use in your financial life, but for providing actual benefits to your young family if you pass away, you may look toward term life insurance as a better option. (Please note: if you’re considering permanent life insurance, you should contact a financial planner to discuss the option in more detail. It’s not always the best option out there!).
For most people, term life insurance is the insurance “option” they choose. You pick term life insurance for a set period of time - usually between 10-30 years. If you purchase term life insurance, the premium is typically paid annually or monthly and lasts for the length of the term. If you die during the term, the full amount of the policy is paid out to your beneficiaries. Once the term is up, your insurance expires, and you’ll need to re-enroll or purchase another term policy.
How Much Should You Buy?
There’s no “right” amount of life insurance to buy. Life insurance covers a large range of future expenses for your spouse or partners and your kids. It might cover:
Your income for a set period of time
The expense of a nanny or consistent caregiver if your spouse has to go back to work
The funds for your spouse to potentially stay home if you pass away to care for your kids
College education expenses
Funds to pay off any debt you and your spouse or partner have accumulated
Life insurance can be as big, or as little, as you want it to be. If you’re expecting a bundle of joy in the near future, you have a much broader insurance need than you may have before your family started to grow. It’s important to sit down with your spouse and partner to talk through what you’d want to happen if one, or both, of you passed away. These decisions will guide the “how much?” question as you look to purchase life insurance.
Setting Up Beneficiaries
Don’t forget to set up beneficiaries on your new life insurance policy. Listing your spouse or partner, as well as your kids, as beneficiaries can help to ensure that your policy goes to exactly who you want to be able to help care for if you pass away. Do you need help setting up your life insurance policy? Do you want some guidance on what type of policy is right for you? Let’s talk! Contact me today to set up a consultation.