Protecting your loved ones with life insurance
The purpose of life insurance is to help you protect your family financially when you aren’t around. It pays them money (called a “death benefit”) they need to cover funeral expenses, mortgage payments, car payments, and other monthly bills. Or to help with big, long-term expenses, like your kids’ education. The money your loved ones receive is almost never counted as taxable income. In other words, the payout is typically tax-free.
To decide what kind of life insurance you need and how much to buy, it’s good to start by thinking about your loved ones’ needs now and in the future, and about what, if any, additional income you would want them to have.
Questions to ask
- What immediate expenses—like funeral costs and the payment of debts—would your family face if you died?
- If you own a home, how would your family pay the mortgage without your income? What would they need to stay in the family home if you were to die?
- How much of your salary do you spend today on other monthly expenses and for future needs such as college tuition for kids and retirement for you and your spouse or partner.
- If you were to die tomorrow, how many years would the people who depend on you for financial support (such as a spouse, children, and other relatives) need to keep getting that support?
- How much money would you want to leave for other things that are important to you, like donations to a church or charity?
- In addition to covering your children’s support, do you want to leave them money—and, if so, how much?
- What other insurance policies and assets (things of value that could be sold or somehow converted into cash) do you already have?
- Do you run a small business? Protecting your loved ones and protecting your business might seem like two different things, but if your family members count on that business for the money they need to live, the two are connected. Life insurance can help your family keep the business going or replace the income it provided.
Understanding the different types of insurance
Most life insurance policies do the same thing—they help you protect your loved ones financially if you’re not around to do it. There are two basic types of life insurance.
Term Life Insurance helps provide protection for your loved ones for a period of time and then ends. It lasts a certain number of years—usually 10, 20 or 30—or until you reach a certain age—say 80 years old. If you pass away during the term, your loved ones get the money from your death benefit. People often choose term life so their family is covered during the period when they expect their bills and expenses to be at their highest—for example, while kids are growing up and going to school and college.
Permanent Life Insurance (which comes in a couple of different forms, including Whole Life, Universal Life, and Variable Life) never runs out as long as you keep paying your bill (or premium). Once a whole life policy starts covering you, it keeps on covering you for the rest of your life, even if your health changes. When you pass away, your loved ones receive the death benefit payment. People often choose permanent life insurance because they want to be certain their families will be protected no matter when they die, because the price they pay (the premium) usually doesn’t go up as they grow older, and because many permanent life insurance policies have a feature called “cash value” that lets them borrow money from the policy.
Choosing the right insurance for you and your loved ones
What kind of insurance should you buy to protect your family? The cost of a policy is obviously an important factor. In many cases you can get a term life insurance policy for less than a permanent life policy, basically because it covers you for a shorter period of time. But as the years pass, the cost of your term life policy can go up, while, typically, permanent life policies have premiums that don’t increase. If money is tight, term might be the way to go. If lifelong coverage and a premium that doesn’t go up are most important to you, you might want to take a closer look at permanent life, either in the form of a basic whole life policy or in one of its other forms, like variable Life.
Flexibility is key
For many people, “flexibility” is a key word. There are many life changes—like starting a family, changing jobs or careers, and buying a home—that may call for increasing your coverage or changing the kind of life insurance policy you have. A flexible insurance policy that lets you make changes or convert it to another kind of policy is one way to make sure your life insurance keeps up with your life. Check with your insurance company to see how flexible your insurance policy is before you purchase it.
Review your coverage
Getting life insurance can help protect your loved ones. But don’t just “get it and forget it.” Life insurance works best when you review your coverage on a regular basis. Make sure you keep your coverage up to speed with the needs of your growing family so that it will be able to help provide all the protection you want.
How to learn more about life insurance
Life insurance may seem complicated, but it’s not that hard once you know the basics. Of course, we are happy to help. You can also use the TruStage Life Insurance Calculator to compare different types of insurance and learn more about your options.
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