Evaluating Life Insurance Plans with a Financial Advisor
Life insurance is a contract where you pay money to an insurance company. When you die, the company gives money to your loved ones.
However, not all life insurance policies are created equal. The ideal policy for one person may not be suitable for another. By understanding the basics of life insurance and knowing what to look for, you can find a policy that meets your needs.
Understanding Life Insurance
Life insurance is a versatile financial tool that serves various purposes. Here are some reasons you might consider purchasing a policy:
Income Replacement: If others depend on your income, a life insurance policy can ensure they are financially secure if you pass away. This is also true for stay-at-home parents, whose unpaid labor can be insured for its value.
Covering Final Expenses: Even if you don't have dependents, life insurance can cover funeral and other final expenses, sparing your loved ones from financial burdens.
Supplementing Employer-Provided Insurance: Employer-provided life insurance may offer basic coverage, but it often isn't enough for those with dependents, typically covering only one or two years of income.
Taking Advantage of Youth and Health: Buying life insurance when you are young and healthy can secure lower premiums. Renewable policies let you keep coverage without new exams, saving you money if your health gets worse.
Leaving a Financial Legacy: If you wish to leave a substantial inheritance, life insurance can help maximize your estate and minimize tax implications for your heirs.
What to Look for in a Life Insurance Policy
When shopping for life insurance, it's crucial to compare multiple policies. Here are key factors to consider:
Term vs. Permanent Life Insurance: Term life insurance provides coverage for a specific period, while permanent life insurance covers you for life and often includes a savings component. You can use the cash value of permanent life insurance policies to help pay for things like education expenses.
Premiums and Coverage Amount: Your coverage needs will dictate the size of your policy. Decide if you need insurance for many years of income or just enough to cover debts like a mortgage. Check if premiums are fixed or will increase over time.
Length of Coverage: Term policies typically last between 10 and 30 years. Decide how long you need coverage for based on when your children are grown or when your mortgage is fully paid.
Accelerated Death Benefits: Some policies offer accelerated death benefits if you are diagnosed with a terminal illness, allowing you to use a portion of the death benefit while still alive.
Insurer Reliability: Ensure the insurer is financially stable and reliable. Check independent ratings from organizations like AM Best to gauge their credibility.
Bottom Line
When choosing a life insurance policy, it's important to find one that meets your needs. It's not just about avoiding bad choices. The best policy will be the one that fits your specific situation. Take your time, ask questions, and scrutinize each plan to ensure it aligns with your needs and goals.
Sources:
https://www.forbes.com/advisor/life-insurance/stay-at-home-parents/
https://www.iii.org/article/what-are-principal-types-life-insurance
https://www.iii.org/article/what-are-different-types-permanent-life-insurance-policies
https://longtermcare.acl.gov/costs-how-to-pay/using-life-insurance-to-pay-for-long-term-care.html
Disclosures:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.