The most common reason survey respondents gave for not purchasing life insurance was that it was too expensive, yet consumers tend to overestimate the cost.2 If you think you need more coverage or have no coverage at all, maybe it’s time for a life insurance checkup in order to determine the true costs, options and current needs.
Ten Good Reasons to get a Checkup
Life insurance can help meet a wide variety of financial goals. Based on the same 2016 survey, consumers shared their top 10 reasons for owning life insurance:
10. Make a charitable gift
9. Provide funds for college education
8. Tax-advantaged way to save and invest
7. Supplemental Retirement Income
6. Pay estate taxes or create estate liquidity
5. Pay home care expenses
4. Help pay off mortgage
3. Help replace lost income
2. Transfer wealth or leave an inheritance
1. Cover burial and final expenses
How Much Do You Need?
There is no universal formula, and the amount you need depends on your family’s living expenses and other sources of income. When determining life insurance needs you need to consider what would happen if death occurred today and what the financial ramifications would be to your family. A common general guideline suggests having a policy worth at least seven to ten times your annual salary, but individual circumstances will vary greatly. A comprehensive evaluation is essential in determining the correct needs assessment.
You may have group life insurance through work, FEGLI (Federal Employees Group Life Insurance), but unlike traditional group life insurance you have to pay 100% of the cost of the optional life coverages. Just as important as the amount of your coverage is the continuity; you might lose coverage if you change employers. An individual policy is yours to keep for as long as you pay the premiums.
Term vs. Perm
Two basic types of individual life insurance are available. Term insurance is generally the most affordable. As the name suggests, this type of coverage offers a death benefit if you die within the covered time period, which could range from one to 30 years. Premiums may adjust each year or remain fixed for the full term. You might be able to continue coverage beyond the original term at a higher premium, or possibly convert to a permanent policy (subject to age restrictions and policy minimums) while the policy is in force.
Permanent life insurance (also called whole life) offers lifetime protection and a guaranteed death benefit as long as you keep the policy in force by paying the premiums. Although the premium is usually higher than for term insurance, it typically remains level for the rest of your life.
A portion of the permanent life insurance premium goes into a cash-value account, which accumulates on a tax-deferred basis throughout the life of the policy. You might be able to borrow against the cash value during your lifetime to help pay for retirement, education, emergencies, or other needs.
Withdrawals of the accumulated cash value, up to the amount of the premiums paid, are not subject to income tax. Loans (as long as they are repaid) are also free of income tax. Loans and withdrawals from a permanent life insurance policy will reduce the policy’s cash value and death benefit, and may require additional premium payments to keep the policy in force. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing insurance company.
The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Policies commonly have mortality and administrative charges beyond the cost of premiums. If a permanent life policy is surrendered prematurely, there may be surrender charges and income tax implications.
If it has been more than 5 years since you reviewed your life insurance needs, or if you have had a change in your life, it may be time for a check-up. Keeping your insurance current will not only provide peace of mind; it also saves money. Your insurance agent can assist you, or contact us directly if you would like a no-obligation, complimentary life insurance check-up.
1–2) LIMRA, 2016