No one can predict the future, but we can plan for it. One way to prepare for the unexpected is to periodically review your insurance options to make sure that you have the right coverage. You have auto insurance to protect your vehicle and homeowner’s insurance to cover your home in the event of a disaster or accident. Your health insurance helps you save on medical costs. But one type of insurance that’s often overlooked is life insurance.
Understandably, no one wants to think about what life would look like in the event of an accident, illness, injury, or loss of life. But unfortunately, these events happen. However, insurance can lessen the financial impact of the unexpected. And life insurance is no exception. So, we sat down with the Lake Trust Financial Life Planning team to learn more about this insurance option that’s often overlooked.
What is life insurance?
When you take out a life insurance policy, you’re taking out a policy on, well, your life. You’ll pay a monthly, quarterly, semi-annual, or annual premium. The amount you pay is dependent on several factors including, (but not limited to) your age, your health history, your coverage, and the type of policy.
In the event of your death, a payment is disbursed to the beneficiaries you name on your policy. The disbursed payment can help your loved ones pay for expenses after you pass away or serve as a replacement for your income.
Do I need life insurance?
Remember, the purpose of all insurance is to transfer risk. Anyone can benefit from life insurance. But if you have a family or someone else who relies on your income, it’s a good idea to consider a policy. If you’ve already retired, a life insurance plan can help preserve some of the retirement assets that your spouse may need to rely on after you're gone.
Life insurance can help:
- Supplement your lost income, lessening the financial impact on your family
- Cover the costs of funeral expenses
- Pay for other outstanding debts
- Establish an inheritance for beneficiaries
- Allow you to leave a donation to charity
- Pay for estate or inheritance taxes
The amount of life insurance you need depends on your age, income, debts, and family situation. Typically, you’ll want to get a plan equivalent to 7-8 times more than your annual gross income.
If I have life insurance through work, do I need an additional policy?
Yes, it’s a good idea to have a life insurance policy outside of the coverage that’s offered through your work. Many employer-based life insurance plans become invalid once you leave your place of employment, retire, or if you lose your job. Some employers do not offer this benefit, so you don’t want to rely on your next job to offer the insurance you need. And if something happens to you between jobs, you won’t have any coverage. Also, shopping for a plan when you’re nearing or in retirement can be very costly.
Instead of solely relying on your employer-sponsored life insurance coverage, consider taking out your own plan. The coverage through your employer can be used to supplement your personal plan.
What types of life insurance are available?
There are several different types of life insurance, but today we’re going to focus on the two most common plans: Term and whole life insurance.
With a term life insurance plan, you’ll take out a plan that is valid for a certain number of years (or a term) as long as you pay your premiums and the plan is active. Term plans are usually cheaper than whole life plans and are best for people who want some coverage for a limited time. This type of life insurance plan does carry some risk. If you live past your plan term, you’ll have to renew your policy (if your policy allows this) or take out a new policy. Both of these options can be very costly.
Whole life insurance plans offer coverage for your entire lifetime, whether that be 10 years or 60 years, as long as your policy stays active. Though these plans may be more expensive than term life plans, many whole life policies also include a cash value benefit. This means that a portion of your premium payment is set aside in an interest-bearing account. These funds are available if you want to borrow from the account or cash it out. Be aware that taxes and interest charges may apply if you draw or borrow from your life insurance.
How can Lake Trust help me?
As with all insurance, it’s a smart idea to review your policy every few years to be sure that it still meets your needs. If you recently got married, had a child, bought a home, or went through another major life event, you may want to consider increasing your life insurance coverage. By shopping around, you might be able to save on your premiums or even extend the timeframe of your policy.
Through Lake Trust Financial Life Planning, our team can help you determine how much life insurance coverage you might need. Then, we’ll shop around and find a plan that meets your needs and your budget. We’ll guide you through the process of signing up too.
Let’s can find a plan that works for you. And that takes care of your family too. Let’s create a brighter future. Together.