How life insurance impacts your finances
Many people don’t think about life insurance until they’re older. But consider this: Most families would have trouble paying everyday living expenses if the primary earner passed away. A life insurance policy can provide peace of mind and help protect your loved ones financially. Here’s what you need to know, and how to select the right policy and coverage for your needs.
How does life insurance work?
In the event of your death, a life insurance policy can protect your loved ones by covering expenses from lost income and providing for the future. Don’t have any dependents? An insurance policy can cover your funeral expenses and medical bills, or provide financial support to next of kin. A life insurance policy may also allow you to leave a legacy to a loved one or a favorite charity.
As you enter new life stages and take on more responsibilities — such as getting married, buying a home and starting a family — a life insurance policy can help protect your assets as well as those who depend on your income. A life insurance policy can also be used to help you build assets as part of long-term retirement planning.
How to choose the best life insurance policy for your needs
There are several types of life insurance; all have their own unique benefits, depending on your goals and financial situation. Here are a couple of the most popular types:
Term life insurance provides protection for a specific period of time that you select (for example, 10, 20 or 30 years). Your premiums remain the same during that time period. A term policy is usually the least expensive type of policy. It may be a good option for a family breadwinner, a stay-at-home parent or a homeowner.
Permanent life insurance provides coverage for the entire life of the insured. In addition to death benefits, a permanent life insurance policy can double as a savings plan since a portion of your premiums can build cash value. While more expensive than a term policy, a permanent policy may be a good option if you want to leave a financial legacy.
Life insurance policy premiums are based on factors like the amount of coverage and type of policy you choose, as well as your health and age. You’re more likely to lock in a lower premium when you’re young and healthy. In general, term insurance is less expensive than permanent life insurance.
How much coverage do you need?
Many experts recommend having an insurance policy that’s equal to six to 12 times your annual salary. Keep in mind that if you have life insurance through your employer, it may not be enough and is not typically portable if you leave your employer.
Think about who will benefit from the policy and how long you’ll need it. If you have young children at home, you may want a policy for the primary income earner that can cover housing, monthly bills and future college expenses. Consider adding coverage for a stay-at-home parent who provides valuable services — like childcare, cleaning and cooking — that would cost money to replace if that person was to pass away.
As your life changes, it’s a good idea to review your life insurance policy annually to ensure you have the right amount of coverage in place, as well as confirm that beneficiaries are up-to-date.
Life insurance and long-term financial planning
A life insurance policy can be an important asset now, and in the future, by providing peace of mind and financial protection for the people you love. For more information about life insurance policies, coverages and finding the best option for your needs, contact us today or request an instant quote online.