Life insurance can seem like a complicated topic, making it easy to put off until later down the road. However, it’s important to understand your coverage options and its advantages from the get-go. After all, there are many benefits to getting started early in life!
According to the 2022 Insurance Barometer Study, most people recognize the need for life insurance, but only 52 percent say they have it. If you want to learn about life insurance and your options, we have you covered with this guide on what you need to know, how it can be a powerful tool, and different coverage options. Additionally, we offer our simple life insurance calculator to help you find out how much you might need.
What is Life Insurance?
Life insurance is protection for your family’s financial future should the worst happen. It can help lower the financial risks your family faces in the event you can no longer provide for them.
When you purchase a life insurance policy, you pay premiums on a periodic basis. Then, upon the death of the insured, a lump sum is paid to the beneficiaries. There are many different types of coverages with multiple add-on options, so policies can be customized to match your personal needs and goals.
Before digging into the details of the different types of policies, it’s helpful to understand the benefits of having life insurance and how it can help protect your family in the long run.
Benefits of Life Insurance
- Safety and security for your loved ones. Ensuring the safety and security of loved ones is the primary reason many people purchase life insurance. In addition to covering funeral costs, your policy can provide income to pay expenses, such as a mortgage, continuing a family business, higher education for children and many other situations.
- Paying for chronic or terminal illness. There is a common misconception that life insurance is only useful after a person has passed away. But, in reality, some policies have optional benefits that can help pay for chronic or terminal illness care expenses.
- Access to the cash value. If you purchase permanent life insurance you will generally be able to access your insurance’s cash value through a policy loan or withdrawal for emergencies, retirement income and more. You have the flexibility to access your accumulated cash without the restrictions that other investments may carry.
- Leaving a legacy. With a life insurance policy, you can create additional wealth for your family or a charity you want to support. This is an excellent tool for building the funds you need to make an impactful donation to community organizations that are important to you.
Life Insurance Needs at Every Stage of Life
- Young Adult: Buying life insurance when you’re young and healthy is the best time to get started, as you will likely have access to lower rates because of your younger age. Life insurance needs are unique to every individual but, in general, life insurance becomes the most critical when you have young children. This is when it becomes especially important to build assets that can protect your family if something should happen to you.
However, even if you don’t have children, buying insurance can be a smart financial move. Many permanent life policies provide not only a death benefit but also allow you to use your accumulated cash value to help fund future financial objectives, such as buying a home or retirement.
- Midlife: At this stage, your children may be grown and out of the house and they may not need as much financial support as they once did. However, there are other factors to consider at this point in your life. Do you have a spouse who you financially support? Do you provide financial support or plan to provide financial support for an aging parent or a dependent? Sure, you are growing your assets in a 401(k) or another retirement fund, but will that be enough? Consider the financial implications of the loss of your income on your family when deciding which type of life insurance is best for you.
- Seniors: Many retirees no longer have dependents, and may be thinking about reducing their life insurance benefit. Be sure to first discuss coverage changes with your insurance agent or a financial advisor. There are ways to use life insurance that you might be overlooking such as providing income while Social Security benefits grow, asset replacement and inheritance equalization.
Common Types of Life Insurance
There are different types of life insurance with many additional options available. Here are the most common types you’re likely to hear about as you begin your search for the right coverage.
Permanent Life Insurance
Both whole and universal policies are types of permanent life insurance. These policies typically have two components: cash value accumulation and death benefit. A permanent policy is designed to be kept for a lifetime. With permanent life insurance you may pay slightly higher premiums than with a term policy, but remember you’re earning cash value with your premium dollars and you have coverage for life.
- Whole Life Insurance: Whole life insurance provides guaranteed protection for your whole life. As a policyholder you’ll pay consistent premiums and have guaranteed cash value accumulation. Whole life insurance is ideal for those with long-term goals. You also have the option to borrow from your whole life policy to help purchase a home, start a business or even fund retirement.
- Universal Life Insurance: Universal life is a form of permanent life insurance that covers you throughout your lifetime and generally offers more flexibility than whole life insurance. Along the way, you can adjust things like your premium payment amounts and frequency, and your death benefit, to meet your needs and goals. Similar to whole life, universal life insurance allows you to also borrow from your funds for future financial needs.
Term Life Insurance
A term life insurance policy provides a predetermined sum (also called death benefit) if you, as the insured, die during a specified period of time. The term may be anywhere from one year to over 20 years long depending on the policy you choose. Because term insurance is designed to be kept for a shorter amount of time, term life insurance is one of the most affordable options. Unlike whole and universal policies, there is no cash value.
Check out our new Term product – Increasing Term. This policy gives you the ability to obtain coverage now, but also secure more coverage in the future. With Increasing Term, you’ll be allowed to increase coverage up to double the face value of your policy over the first five years without having to go through the underwriting process again.
Converting Life Insurance
Some term life insurance policies have the option of being converted to a permanent life insurance policy. This gives you the benefit of initially obtaining a less expensive policy, while also being able to switch to a permanent policy as insurance needs and financial situations change. By converting to a whole or universal life insurance policy, you’ll be able to take advantage of the additional benefits, such as a policy that never expires and accumulating cash value from which you can borrow.
How Much Life Insurance Do You Need?
When it comes to deciding on your life insurance policy, one of the biggest questions to answer is how much do you need. There are a variety of factors that come into play when it comes to your needs, including age, salary, expenses, debts and future financial needs.
Fortunately, uncovering your life insurance needs is easier than you think! Connect with a Farm Bureau agent to learn more and to find the coverage option that fits your needs.