With all of lifeâ€™s everyday expenses, it can be easy to let life insurance slip to the back burner. And itâ€™s safe to say that most of the time, weâ€™re focused on our day-to-day crisesâ€”which makes us less prepared for when something unexpected happens.
Life insurance is a powerful and cost-effective means to protect you and your familyâ€™s future financial health, but many Americans will admit that theyâ€™re either underinsured or have no life insurance plan at all. According to a 2018 study, almost 40 percent of Americans claimed they donâ€™t have any form of life insurance.
Of those with no plan, nearly 64 percent cite finances as the reason theyâ€™re not life-insured.
While it may seem like youâ€™re saving money in the moment, it can cost you much more in the long run if you avoid paying for life insurance. Itâ€™s actually far less pricey than most people think.
Especially right now.
Life insurance rates are incredibly affordable. Letâ€™s say a healthy individual in their 20â€™s or 30â€™s wants to purchase a 10-year, $250,000 life insurance policy. That can cost under $16 a month*. Letâ€™s be real: Most millennials spend triple that on coffee in a month.
Although sudden or unpredicted deaths are rare, it can happen. And life insurance is a means of ensuring that youâ€™re financially ready if the unexpected happens to you or a loved one.
Risks of Not Having Life Insurance
While the topic may seem a bit gloomy, itâ€™s necessary to calculate the steps for your and your familyâ€™s financial future.
Large expenses such as health care and medical emergencies, college tuition or student loans, mortgages, and other outstanding debts could fall entirely to family members after your death. For these expenditures, life insurance can provide a vital financial cushion.
With that, letâ€™s talk about some of the risks that come with being underinsured:
- Being unable to afford a mortgage after the loss of a primary breadwinner (or a second income) could result in the loss of your home or significant downsizing.
- Tapping your retirement (such as IRAs) and savings to make up for a loss in income can negatively impact your future financial health.
- Expenses beyond cost-of-living (such as college tuition and health care) may become harder to manage for your family membersâ€”or altogether unaffordable.
- Although many cite debt as the reason they avoid paying for life insurance, the potential costs of going without life insurance could supersede your debt costs by a mile. Your family could be liable to pay off outstanding debts (such as student loans) if you have no life insurance policy at the time of your death.
- Having a savings account intended for emergencies or unexpected expenses can give you a false sense of security. In the case of terminal illness or unexpected death, that safety net will drain fast.
- It can take four to five years to bounce back from the financial hardship caused by the loss of an income. And some households never completely recover.
The Benefits of Life Insurance
There are plenty of benefits to having life insurance, which include:
- Flexibility over which policy, company, duration, and beneficiary you choose.
- Financial protection for your loved ones after youâ€™re gone, especially your child dependents.
- Freedom from worrying over your family and loved onesâ€™ financial future.
And, although it can seem counterintuitive, you can actually enjoy the perks of life insurance while youâ€™re still alive with a whole life or universal life policy. By that, we mean tax benefits^:
- You can accumulate cash value on a tax-deferred basis
- These cash value withdrawals are typically treated on a first-in-first-out (FIFO) basis, which means these withdrawals are generally income-tax-free.
- Death benefits are income-tax-free, and may be estate-tax-free if the policy is owned properly.
Determining your benefit amount
Thereâ€™s no doubt that the risks of being underinsured can be unsettling, but procuring an adequate life insurance policy can allay those concerns.
When determining your benefit amount, there are numerous factors you should take into consideration:
- Calculate how many years you have before retirement, and multiply that by your current annual income.
- Do you have investments that will ensure a comfortable retirement for your spouse? If not, you should factor that in.
- If you receive health insurance through your employer, how will your survivors be insured after your death? If your spouse is working and a decent health insurance plan is available, this may not be a concern. But if your spouse isnâ€™t working and you have children, you will need to take health care and possibly even long-term care into account.
- Consider the ages and needs of your children. Younger kids will need considerable care for more years, while older children are likely to face college tuition fees. Any dependents with special needs require specific services that will need coverage as well.
In short, a thorough look at your entire financial situationâ€”including any future expensesâ€”is necessary to avoid becoming underinsured.
Consider what your needs are and what they will costâ€”and go through the â€œHow Much Do I Need?â€ worksheet to make sure you havenâ€™t missed something.
You can always talk to a licensed sales agent about your options as well. Contact us to get your free, no-obligation quote today.
Itâ€™s tempting to think that the unexpected wonâ€™t happen to you, but itâ€™s best to be prepared in case it does, especially for your family. Plus, your future bank account will thank you.
*Rates are based on the assumption of great health and a preferred plus rating. Legal & General America life insurance products are underwritten and issued by Banner Life Insurance Company, Urbana, MD and William Penn Life Insurance Company of New York, Valley Stream, NY. Banner products are distributed in 49 states and in DC. Banner does not solicit business in NY. OPTerm policy form # ICC18-OPTC and state variations. Two-year contestability and suicide provisions apply. The Banner term life insurance premiums quoted here are based on the information provided for this quote. The quote is based on the assumption of excellent health and does not take into consideration occupational risks or other avocations. Approval and actual premiums will be based upon the entire underwriting process, including but not limited to, information provided on the application, exam results and specific underwriting requirements and criteria. OPTerm 10 issue ages are 20-75 all classes. Premium rates vary by coverage amount: $100,000-$249,999, $250,000-$499,999, $500,000- $999,999, $1,000,000 and above. Premiums quoted include $60 annual policy fee. Premiums are guaranteed to stay level for 10 years and increase annually after initial guarantee period. OPTerm policies can be issued in preferred plus non-tobacco, preferred non-tobacco, standard plus non-tobacco, standard non-tobacco, preferred tobacco and standard tobacco classes. OPTerm 10 substandard policies can be issued through Table 12, subject to underwriting discretion. Coverage can be renewed to age 95. Policies can be returned without obligation within 30 days of receipt in most states. Rates as of 8-19-19. Advertising compliance #19-277.
^SelectQuote does not provide tax or legal advice and it is recommended you seek independent advice from a qualified professional concerning your individual circumstances. Nothing herein is intended or written to be used, and cannot be used, by any taxpayer for the purposes avoiding penalties that may be imposed by law.