Life Insurance shouldn’t be a scary decision to think about but rather a responsible consideration. Being unable to meet your child’s basic needs is every parent’s concern. An untimely demise of a parent can have a profound impact on your family, both emotionally and financially.
Ensuring that you are adequately prepared for continued stability is key. Family life insurance provides you with a safe plan for securing the well-being of your family in the wake of unexpected events. Such a plan makes peace of mind as a parent possible.
The earlier you invest in a life insurance policy the more affordable it will be.
Six out of ten Americans assert that they own life insurance but what strikes through is that almost half of them are actually underinsured.
Family & Individual Life Insurance
50% of US households are aware that they need more life insurance. Addressing financial needs upon demise requires sufficient coverage that many American families currently lack. After all, it is estimated by the U.S. Department of Agriculture that an average of $250,000 are needed to raise a child up to age 18. Considerations should be made for the lifestyle, level of education, overall financial well being and many other factors that will considerably increase this figure.
Having a comprehensive financial plan that includes life insurance ensures that parents’ worry of what will happen to children upon their demise does not include stress on finances. Securing your family’s financial future assists in their overall growth.
1. How can life insurance provide family security?
Each family member contributes to the well-being of the family in some way or another. The death of a family member thus has a profound effect on the overall well-being of the family, particularly if he or she is the main financial contributor.
- Meeting burial and funeral expenses is costly, as is a loss of income and contributions to the household. Having an adequate family life insurance plan ensures that if this happens, the remaining members of your family can meet expenses.
- Your spouse and children will have the ability to pay expenses related to burial, any outstanding debts and estate taxes, as well as other future expenses, including education.
- It assists your family to proceed with the lifestyle that they are used to, to keep the family home and replaces your own income for at least a period of time.
2. Different types of life insurance
Selecting a life insurance plan that best meets your needs depends on a plethora of factors. There is no one size fits all solution.
The size of your family, your current financial situation, as well as long term objectives are all factors that come into play. It is important to adequately analyze all options and choose the best coverage in line with your particular situation.
There are two main types of life insurance: Term Life Insurance and Permanent Life Insurance. The latter is also sometimes called whole life insurance and includes within it several subcategories, including traditional whole life, universal life, variable life, and variable universal life. Term life insurance can also be of various types: Renewable, Convertible, Decreasing, Level, and Increasing. We’ll look into each in more detail below.
3. Term Life Insurance
Term Insurance constitutes the simplest form of life insurance and, as its name implies, offers protection for a specific period of time. A death benefit is only paid if the death occurs during the term of the policy. The duration of this kind of policy usually runs from one to thirty years. It is regarded as a more affordable option for life insurance and is best for when coverage is needed for a specified time, such as until children become financially independent. There are several types of term life insurance.
Renewable term life insurance
It is generally advised that a renewable policy is opted for. The majority of term life insurance policies are renewable but still, this shouldn’t be regarded as a given. Whilst renewing your policy once your term is up is not a financially viable option, in case of deteriorating health and uninsurability, this option comes in handy. It will basically allow you to keep your current coverage without having to requalify. It should be noted though that this might be possible only at a higher premium. Such a policy renews automatically so if you do not wish to renew, coverage will have to be proactively dropped.
Convertible term life insurance
Whereas a renewable term insurance allows you to extend your coverage, a convertible term insurance essentially means that at any point during your term (and before your 70th birthday), there is the option of converting your policy into a whole life one. Conditions outlined in the initial plan are to be met but no medical exam is necessary.
Decreasing term life insurance
Having a decreasing term means that the death benefit drops over the course of the policy’s term. This usually drops in one year increments, reaching 0 at the end of the policy term. Decreasing term life insurance is no longer so popular as there are other more competitive options.
Level term life insurance
With this policy, premiums and death benefit remain the same throughout the term. Whilst premiums may be more expensive at first, they will not increase because of age or ill health. This is a very popular option in that most of term life insurance bought is of this kind.
Increasing term life insurance
Another less popular option is an increasing term policy. This policy provides a death benefit that increases throughout the life of the policy. Premium payments usually increase as the death benefit increases.
4. Permanent or Whole Life Insurance
The major characteristic of permanent or whole life insurance is that a death benefit is paid whenever you die, regardless of the age. It provides protection for as long as you pay your premiums. Apart from guaranteed lifelong protection, payments remain level throughout your lifetime and it builds cash value. Access to your cash is available through loans and withdrawals. To consider though is that this policy involves higher premiums than term insurance and that premiums and death benefit are not flexible. As outlined above, there are three main types of permanent life insurance: traditional whole life, universal life, and variable universal life, with variations available in each type.
Guaranteed lifelong protection, payments remain level throughout your lifetime and it builds cash value.
Traditional whole life insurance
Apart from a death benefit for your survivors, this option includes a savings component that grows as the insurance company pays dividends into the account.
Universal life insurance
Universal life insurance is a more flexible policy option that allows changes in the death benefit, savings, and premiums in accordance with your changing needs. It also pays premiums from the interest on the savings account.
Variable life insurance
This form of permanent life insurance provides permanent protection to the beneficiary upon the death of the policy holder. It also allows you to allocate a portion of your premium to investment funds.
Children’s Life Insurance
Your family may also wish to consider purchasing child life insurance. Whilst many argue against, child life insurance presents a shoulder to lean on in case of the untimely death of a child. The policy assists in meeting the financial obligations associated with this, from funeral and burial costs to other costs related to professional services. A child life insurance offers protection to that child throughout life, regardless of their health; it is also a way through which to build a safe financial cocoon for your loved ones.
What is the cost of family life insurance?
There is a mistaken perception that family life insurance is costly, leading many to steer away from pursuing such plans. In reality though, there exist plans for diverse budgets and financial situations. As we have indicated earlier, there is no one size fits all solution; studying your options and working with your agent to identify the best family insurance plan is key. Whichever the option, the certainty and peace of mind provided by family life insurance is certainly worth every effort. The knowledge that your children and other family members will be financially stable in the case of your demise is reason enough to pursue a life insurance plan that works.
If a child, a spouse, a life partner, or a parent depends on you and your income, you need life insurance.
~ Suze Orman