This year has been a little bit of a roller coaster for our insurance agency. In March of 2021, our then owner passed away after a brief 28-day battle with cancer. In the midst, of such turmoil we were surrounded by grief and the questions of who picks up the pieces after someone dies.
This isn’t something uncommon in our office. The question of whether or not life insurance is a necessary expense is a question that comes up often when we’re discussing plans with clients…it just so happens this time it hit a little closer to home.
Especially in the middle of a world wide pandemic, we understand that it can be a little overwhelming to looking at your budget and considering adding one more thing to it. Fortunately, after watching what life insurance could provide on the backside of a tragedy, our entire team has experienced first-hand what a blessing it can be. Curious if it’s something you can afford? Keep reading to find out.
What Is Life Insurance?
Imagine having something that will provide a source of income to the people you love if you pass away suddenly? I’d like to have that.
Life insurance does just that. It’s just an insurance product that pays money to whomever you choose if you pass away or even on some policies, become disabled. It can bring peace while estate planning knows that the people you love most in the world are taken care of. In exchange for the insurance company promising to pay a benefit if you suddenly pass, you pay premiums to the company for the product.
Do I need life insurance?
The most practical way to answer this question is to ask yourself a couple of questions-
Would your death financially impact the people in your life?
If the answer is yes, then you should consider life insurance. If not, then perhaps not.
Would it make sense for me to have life insurance?
If you die unexpectedly, and your death would leave important people in your life on the hook for debt, or unable to pay their bills like their mortgage or buy groceries, life insurance can make sense for you.
Curious what those situations might look like? Here’s a couple of common ones that might mean life insurance is a good fit for you.
- Someone would inherit your debt. Your debts don’t simply disappear when you die. Co-signers on a loan, joint owners or account holders, spouses in community property states such as California and Texas, and people tasked with settling your estate’s debt who didn’t comply with probate laws are all possibly on the hook to pay your debts.
- Your partner or spouse needs your income to survive-If you’re building a life with a partner, and that partner counts on your earnings to pay things like household expenses, the loss of your income could be devastating for them.
- Your children depend on your income. Your minor children, unable to provide for themselves, would almost certainly be put at a major disadvantage if your income disappeared. The same is true if they will rely on you to help cover college costs or provide support for a disability.
- Your heirs would owe estate taxes. If your estate is large enough, your heirs could be subject to an estate tax upon your death. In 2021, the federal estate tax kicks in if you leave behind assets totaling more than $11.7 million.
- Your funeral would be a burden on those you love. In 2021, the median cost of a funeral with viewing and burial is $7,640 according to the National Funeral Directors Association. Depending on what your desire is for end of life, this could cost more. Life insurance can be a vehicle used to pay for those expenses while keeping the financial pressure off those left behind.
- Your business, and the people it employs, might otherwise fail. This one hit close to home for us. If you own a business, your business partners and/or employees also depend on you. Life insurance can provide assistance to these people after you’re gone.
Other examples of financial burdens that you might leave behind include student loan debt (if the loan is from a private company and someone, such as a parent, is a co-signer), the costs of elder care that your family incurs while caring for you and the mortgage on a jointly held property.
Who does not need life insurance?
If no one in your life would be financially harmed by your death, you can likely put off investing in a life insurance policy. For now, you may find that taking that money you might have used for life insurance and investing it in assets — stocks, bonds, your retirement funds or real estate, perhaps — is a better move.
Keep in mind that the younger and healthier you are, the more affordable your life insurance policy will be. For example, I recently purchased a $3 million-dollar 30-year term policy for less than $100 a month. I chose to purchase while I was younger knowing, that we’ll have a family in the future. If you see major life changes on the horizon, it may be worth exploring your options to lock in a good price at the right time.
What is the right type of life insurance for me?
Typically, life insurance falls into two categories:
- Term Life is temporary — it can last for five, 10, 20 or another set number of years and is usually the most affordable and flexible option.
- Permanent Life insurance covers the insured person until the end of their life. While it may cost a little more, this policy actual builds equity you can cash out later on in life.
Both come in different forms, with different benefits and levels of coverage.
You can tailor term life insurance to cover the years of your life when your death would most impact your loved ones, and then reassess when they are able to support themselves without your life insurance.
There are some situations where permanent life insurance makes more sense, particularly if you want to transfer your wealth to the next generation. That’s because the payout of life insurance is usually non taxable to the beneficiaries.
There is a lot of interplay here between the assets you currently own — your home, your investments, and so on — and factors such as your age, health and who you’re looking to insure so it’s important to look to a financial advisor, estate planner, lawyer, or experienced life insurance agent to help.
What about life insurance through work?
You may be lucky enough to receive life insurance through your employer, known as group life insurance. If your employer offers this coverage for free or minimal expense as a benefit, there’s little reason not to accept it, even if the coverage isn’t as robust as you would like. Keep in mind though, that some of those policies may only apply to on the job and you may lose it if you leave their employment. It’s important to talk to your benefits administrator to find out the details.
Life insurance can be confusing, but it doesn’t have to be expensive to know you’ve left your family in a safe financial condition if you pass. ECI can help with you comparative quotes and guide you on the best fit for you. Call or text 1-405-373-2977 for a quote of multiple companies or email for more information at firstname.lastname@example.org.