Life insurance is one of life’s least understood financial necessities. By design, it is intended to provide security for people in one of life’s most difficult emotional and financial situations: the passing of a loved one. Yet, too often, people view paying for life insurance as an unnecessary precaution or expense.
This misconception is largely due to the lack of American consumer education about life insurance as well as an antiquated industry burdened by outdated processes. The typical process of getting life insurance takes between 10 and 15 weeks and requires in-person medical exams and meeting with a commissioned salesperson incentivized to sell you on a more expensive policy. It’s no wonder Americans don’t understand life insurance.
But the reality is that life insurance can be a lifesaver in hard times. Here are four reasons to add life insurance to your financial resolutions:
You care about your family.
Life insurance is a must when it comes to protecting your family. With the average American’s debt totaling upward of $137,000, it’s important to consider how your family may pay off debt if something unexpected happened to you.
A term life insurance policy can provide replacement income, ensuring your beneficiaries are financially supported through a policy benefit.
The policy benefit is a lump-sum payment made to an individual’s beneficiary at an exact point of need, such as the death of the policyholder. As this payment is generally not federally taxed, if the insured intends to leave $500,000 for their family, their family will receive that exact amount of money upon the insured passing. A life insurance policy with a death benefit guarantees your beneficiaries will be financially sound according to the amount you determine will be best.
You have a mortgage.
A mortgage is likely the largest of your personal expenses. It’s important to think of who would have to pay it off if you were no longer around. A life insurance policy can help provide your family with the money needed to pay off mortgage debt, helping to relieve financial stress and the possibility of a loan default or foreclosure.
Mortgage life insurance is a life insurance option that’s specifically designed around your mortgage debt and typically offered by a mortgage company. The policy payout is often payable to your mortgage company for the outstanding balance of the mortgage if you pass while the policy is in effect.
With the mortgage company named as the life insurance beneficiary and a coverage amount that decreases as your mortgage balance does, mortgage life insurance protects the lender as opposed to a policy that adequately provides for your family’s future. This specific type of coverage should be supplemental to your overall coverage plan.
You own a small business.
Small business owners may not realize the financial impact their death could have on their partners and employees. Life insurance can help lessen that impact. There is actually a specific type of insurance policy for this purpose called key person insurance.
Key person, or key man, insurance is a life insurance policy on the primary people involved with the business. For small businesses, this typically means an owner or founder but can include a key employee as well. Think about it this way: The people who are covered under this policy are those whose departure would leave the company inoperable. With key person insurance, the company is the recipient — the beneficiary — of the insurance payoff when that critical policy owner passes, so the company can continue to survive.
Business partners should discuss life insurance policies just as any other important financial decision in building a business. Having the right policy in place could very well determine the survival of your business.
You started a new job.
The start of the year is the busiest time of year for job seekers, and one of the key deciding factors for candidates is employer-sponsored benefits. While any growth in the number of Americans with life insurance is encouraging, many only have employer-sponsored life insurance. The issue: this typically isn’t enough coverage.
Commonly referred to as group life insurance, this employer-sponsored benefit is attractive because it’s affordable, often discounted and easy to qualify for. But what is easy and free rarely is the best option. Group life insurance only covers a fraction of what most people actually need.
To best determine what’s right for you and your family, try the DIME method — debt, income, mortgage and education — to calculate expenses and get a starting amount. The total could include paying off the aforementioned debts, such as covering childcare expenses, college education or even your family’s entire cost of living.
Life insurance provides security in areas so that should something happen to you, your family is shielded from a substantial financial blow to their daily lives. As many of us are reflecting on 2018 learnings, adding life insurance to your 2019 financial plan is something you and your family will be glad you considered.