Life Insurance

Life Insurance = Financial Protection for Your Family

Families have all types of expenses: mortgage payments, utility bills, school tuition, credit card payments and car loan payments, to name a few. If something were to happen and your household unexpectedly lost your income or your spouse’s income, your surviving family might have a difficult time covering expenses. Funeral expenses and other final arrangements could further stress your family’s financial stability.

That’s where life insurance comes in. A policy acts as a financial safety net for your family by providing a death benefit. If you die while covered by your life insurance policy, your family receives a payout, either a lump sum or in installments. This is money that’s often tax-free and can be used to meet things like funeral costs, financial obligations and other personal expenses. You get coverage in exchange for paying a monthly premium, which is often decided by your age, health status and the amount of coverage you purchase.

Don’t know how much to buy? A good rule of thumb is to multiply your yearly income by 10-15, and that’s the number you should target. Companies may have different minimum and maximum amounts of coverage, but you can generally find a customized policy that meets your coverage needs.

Pros to Term Life:

  • Comparably lower cost: Term life is usually the more affordable type, making it the easiest way to get budget-friendly protection for your family.

  • Good choice for mid-term financial planning: Lots of families take out a term life policy to coincide with major financial responsibilities or until their children are financially independent. For example, if you have 20 years left on your mortgage, a term policy of the same length could provide extra financial protection for your family.

  • Upgrade if you want to: If you take out a term life policy, you’ll likely also get the option to convert to a permanent form of life insurance once the term ends if your needs change. Just remember to weigh your options, as your rates will increase the older you get. Buying another term life policy at 50 years old may not represent the same value as a whole life policy at 30.

Pros to Whole Life:

  • Cash value: When you make a premium payment on your whole life policy, a portion of that goes toward an account that builds cash up over time. Your family gets this amount in addition to the death benefit when their claim is approved, or you can access it while living. You pay taxes only when the money is withdrawn, allowing for tax-deferred growth of cash value. You can often access it at any time, invest it, or take a loan out against it. However, be aware that anything you take out and don’t repay will eventually be subtracted from what your family receives in the end.

  • Dividend payments: Many life insurance companies offer whole life policyholders the opportunity to accrue dividends through a whole life policy. This works much like how stocks make dividend payments to shareholders from corporate profits. The amount you see through a dividend payment is determined by company earnings and your provider’s target payout ratio—which is the percentage of earnings paid to policyholders. Some life insurance companies will make an annual dividend payment to whole life policyholders that adds to their cash value.