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  • Writer's pictureMark Roberts

That's Life!

Welcome to Life Insurance Awareness Month! Every September, the life insurance industry designates time to make people aware of the need to have coverage in place in the event of your passing from this life to the next. Most Americans recognize the importance of life insurance: About 70% of Americans say that they need coverage, and the number of people who intend to buy a policy reached all-time highs during the pandemic.

Life insurance typically isn’t top of mind for most Americans, and it may seem like an unnecessary expense at the moment. There are many reasons to buy life insurance, but they all come down to one thing: protecting your loved ones. We all set different goals for ourselves in life. One goal that remains consistent with most people is the goal to leave their families taken care of and protected. If you have people who depend on you for financial support, life insurance is really about protecting them in case something happens to you.

But even though plenty of people understand the value of life insurance, there’s still a big gap between how many need coverage and how many actually have it. That’s why Life Insurance Awareness Month exists. Just like home or car insurance, life insurance requires planning in advance—once you need it, it’s too late. Even before the pandemic began, one third of all families reported they would have financial issues within a month if the primary wage earner died. Yet nearly half (46%) of people are uninsured, and even among those with life insurance, many say they don’t have enough coverage.

Raising awareness is important - 106 million adults in the United States believe their life insurance coverage is inadequate, yet misperceptions may be keeping them from getting proper levels of coverage, according to Life Happens, the organization that began LIAM twenty years ago this month. Around 80% of consumers overestimate the cost of life insurance, for example. If someone depends on you financially, life insurance is essential.

Many common consumer objections to purchasing adequate life insurance coverage are either inaccurate or easily surmountable. These include:

  • It’s too expensive. A professional life insurance agent can help most consumers find life insurance solutions to fit their budget.

  • They will buy it later. Purchasing life insurance early is often a good decision. Young and healthy people are generally able to get less expensive coverage. An industry survey found that nearly 40% of people who have purchased life insurance wish they had done so earlier.

  • They don’t understand the products. Life insurance agents are licensed and are trained to understand the products they sell. They are obligated to follow a code of ethics and undergo strict training on products and compliance.

  • They are covered through work. While workplace plans are often an excellent benefit, many are not intended to provide long-term financial protection for an employee’s family, and the benefits almost always end if the employee should lose his or her job, get a new one, or retire.

  • It's depressing. Many people are uncomfortable talking about providing for their families after they are gone. Experienced agents and advisors know how to have these sometimes-difficult conversations. In fact, knowing that they are providing financial security for their loved ones can put many consumers at ease.

  • They don't want to take a medical exam. There are options. Some policies require only limited evaluations or do not require exams. Trends favoring accelerated or automated underwriting have grown in recent years. When exams are still needed, your agent can shed light on the underwriting process. They can help you feel more comfortable, and medical exams can be made convenient for the client.

Life insurance can’t wait, and there’s no time like the present to buy. If you’re thinking about getting covered, deciding how much you need is a good first step. Every family’s needs are different, so think about how much yours would need to stay financially secure if you died. As a general guideline, you should consider 8 to 10 times your income, but it’s best to consult with a licensed life insurance agent who can calculate your individual requirements. Here are a few questions to consider:

  • How much debt do I have?

  • How much do I have in savings?

  • Who do I want to protect?

  • How long would they need financial support?

  • Are you the sole income provider in your household?

  • Are there other expenses, such as college tuition, that may arise in the future?

  • Do you have money set aside for potential medical and funeral costs?

  • Do you have bills, debts or expenses that would be passed on to your family?

Depending on your answers to the above, you may want to consider buying supplemental coverage.

About 41% of policyholders say that they either don’t have enough life insurance coverage or don’t know. As your life changes, you should make sure that your life insurance policy changes with it if needed. Check your beneficiaries regularly to make sure the right people are set to receive the payout. For example, if you get divorced and remarried, forgetting to update your plan can mean your ex-spouse ends up receiving the policy.

If you have term life insurance, make sure to keep track of when your coverage ends to avoid any gaps. And if you experienced any major life changes since you bought your policy, like getting married, changing jobs, buying a house, or having children, you might consider making changes to your policy. Research shows owning life insurance increases feelings of financial security. Finally, make sure that your loved ones know where to find your life insurance policy and what they need to do to collect their death benefit.

No matter what your net worth or income level is, the road to financial wellness can sometimes seem full of obstacles and detours. Including life insurance in your financial plans may provide you with greater confidence along the journey. Life insurance can fill a wide variety of needs, from providing funds for a high net worth individual’s heirs to pay estate or inheritance taxes to ensuring financial support for a child with special needs should a parent die. Working with a trusted financial advisor or insurance agent can help you understand how life insurance works and which type, if any, is right for your situation.

Regardless of the avenue you choose for information about life insurance, the following are a few things you should know to help determine how life insurance can fit into your plans.

1. If someone counts on you for financial support, you probably need life insurance. Life insurance is typically recommended if anyone is reliant on you for financial support, such as a spouse or dependent children. It may also be a good idea if you have a life partner, ex-spouse, a sibling or parents who are dependent on you financially. If no one would suffer financially if you were to pass, you don’t necessarily need life insurance. However, it could still be a strategic financial tool.

2. Life insurance reduces financial burdens and provides a confident mindset. Life insurance lessens the financial burdens on the people you leave behind when you die. It has the potential to provide funds to your loved ones to cover the costs of things such as final expenses, outstanding debts, planned educational expenses, and lost income. It also provides you, as the policy holder, with confidence knowing that your loved ones are covered — at least to some extent — after you’re gone.

3. There are different types of life insurance.

There are several types of life insurance that you should know about:

  • Term: This is the simplest form of insurance to understand, and the type most financial experts recommend because it allows you to purchase the most coverage for the least amount of money. Term policies are purchased for a specified period of time, so be sure to choose one that provides you with the coverage you need.

  • Whole Life: You purchase this policy to cover your entire life, as long as you keep paying premiums. Premiums remain constant throughout the policy, and the company invests a portion of your premium that becomes the cash value. These are more expensive than term policies in the early years, but they even out because the premium does not increase.

  • Universal Life: This policy is similar to whole life in that it can cover you for your entire life or can be designed to provide the protection you need. It is more flexible in terms of changing premiums and face value throughout the policy. Disadvantages include higher fees and the possibility of increasing premiums.

  • Variable Life: Similar to universal life, but offers a selection of investment options in the market through stock, bond or mutual funds. The face value will rise and fall based on the performance of the investments selected.

  • Disability Income Life: If you become disabled for 3 months or more, it could prove devastating to your family’s finances. This insurance is meant to allow you to maintain a stream of income to help you stay on top of your finances if you will be out of work for an extended period of time.

4. Different factors affect your insurance policy premiums.

Age and health status are typically the most important factors in calculating your premium, or how much you pay for insurance. Generally speaking, the younger and healthier you are, the less your life insurance premiums are. Other factors that may affect your premium rates include your marital status, where you live, your family medical history, and your lifestyle.

Also affecting your premiums is whether your policy is simplified issue or fully underwritten. A simplified issue policy only requires you answer questions about your health when completing the insurance application. This kind of policy can cost more because the insurance company has less proof about your health. Fully underwritten policies require that you undergo a medical exam and complete lab work. You usually get a lower premium with these policies if your results show good health.

5. You can cancel an existing life insurance policy, but exercise caution when doing so.

If you have a policy that doesn’t meet your needs, but you still need life insurance, don’t cancel the wrong policy until the right one is in place. With an existing term policy, you can simply quit making the premium payments and it goes away. With a permanent policy that has a cash value, don’t cash it in without considering its present and expected future value, any surrender charges or penalties for canceling the policy, and possible tax implications.

Buying life insurance may seem unmanageable right now, but it could be a smart decision. Unlike many other benefits, life insurance is actually more affordable right now than in the recent past. Plus, during this challenging economic period, ensuring that your family will be financially secure in the future is more important than ever. The process can range from a few minutes to a few days to a few months, depending on your health and available products, so start the conversation now with your insurance advisor to guarantee your loved ones are protected.

Even if you already have life insurance, it’s a good idea to take a look at your current coverage periodically to see if any adjustments might need to be made for a variety of reasons:

  1. Do you have a term policy that is reaching the end of the level term period? If so, your policy may have a term conversion provision that will allow you to continue coverage while avoiding the significant annual increase in premiums in future years, or an end to your coverage altogether.

  2. If you have a permanent policy, like whole or universal life, do you know how your policy is doing? Lower interest rates or changes in premiums paid over time can result in a policy being in danger of lapsing sooner than originally projected. Be sure to review your annual policyholder statement each year. If your policy is not performing as expected, a discussion of options to improve policy performance with your insurance agent may be in order to keep you from inadvertently losing coverage. Increasing the premium by even a small amount may have a positive impact on the duration of the policy.

  3. Have you recently had a major change in your life? Events such as the birth of a child or grandchild; marriage; divorce; or death of a spouse, business partner, or other family member are just a few of the changes that may necessitate a change in your policy’s primary and/or contingent beneficiary designation.

  4. Do you have policies that you don’t understand or question whether you should continue them? Ask your insurance agent for an audit of your existing policies. They can provide general information about how your policies work and what options may be available if you want to make a change.

Life Insurance Awareness Month is a great reminder to review your existing coverage to make sure it is positioned to meet the needs of your family and/or business. As a licensed insurance agent, I have several options for your consideration, some of which are found on this website. Contact me soon to learn more and to set up a conversation about building a life insurance program for you and your family.

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