Life Insurance - Is it in Your Financial Plan?

In response to COVID-19, life insurance applications are steadily increasing. Many have witnessed first-hand how quickly life can change and perhaps are realizing the importance of having financial security.

Life insurance can provide potential financial stability to a surviving spouse, children or other family members in the event of your passing. Sadly, many Americans have no life insurance coverage whatsoever, and of those who do, many don't have enough.1

Appreciating the importance of having adequate life insurance is one step, while assessing your own unique needs is quite another. As a starting point, determine your net earnings after taxes as well as your routine living expenses. Then take into account any outstanding debt - such as a mortgage, education loans, or other loans - as well as future tuition bills and how much a surviving spouse might need to adequately fund a retirement nest egg.

You may want to consider a benefit that will cover all of these expenses. We generally recommend ten to twenty times your annual salary for breadwinners and special considerations for stay at home parents and care providers. That standardized approach may work for some people, but in reality, your decision may not be that simple.

Term Life vs. Permanent Life Insurance
Once you have an idea of the coverage you need, evaluate whether Term Life or Permanent Life insurance is more appropriate for you. Term Life is the more basic and less expensive (in the short run) form of life insurance. A term policy generally provides a specific amount of coverage for a predetermined period of time, typically 10 to 30 years. Premiums increase at the end of each term and can become prohibitively expensive. Benefits are paid only if the insured dies during the policy's term.

Permanent Life is intended to last your entire life and it may have a savings component. As the policy gains cash value, you may be able to borrow against the cash value tax free. (loans reduce the policy's death benefit and cash value, and may trigger a taxable event if the policy lapses). Permanent Life insurance includes different policies such as Whole Life and Universal Life insurance.

Potential Uses Throughout Life
While ensuring the financial security of loved ones is a critical use of life insurance, there are other ways it might be used to meet planning goals throughout the stages of one's life. Individuals might consider using life insurance as an integral part of an estate planning strategy designed to pass wealth to future generations. It can be used to equalize inheritances among heirs. Furthermore, life insurance can also be used for charitable giving purposes. Business owners may even want to consider having life insurance for liquidity purposes.

Determining the right type and amount of life insurance coverage you need is easier said than done. To make the most accurate assessment, we encourage you to contact our office to speak with one of our advisors who are glad to discuss your unique needs.

1Life insurance policies are subject to substantial fees and charges. Death benefit guarantees are subject to the claims-paying ability of the issuing life insurance company. Loans will reduce the policy's death benefit and cash surrender value and have tax consequences if the policy lapses.

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