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This September (i.e. Life Insurance Awareness Month!), we are covering life insurance: Who should consider purchasing it, how to choose the right policy, when is life insurance the cheapest, what tax advantages can you take advantage of, and more.

As always, Kris and Mike at First Light Financial LLC are here to counsel you and your family on the ins and outs of life insurance and other financial topics. Schedule a call with our team here. We hope you find this information useful.

Who Needs Life Insurance?

Most people don’t want to think about life insurance because of the implications: after all, who wants to dwell on themselves or a loved one passing away? But much like dodging that pile of paperwork on your desk, this problem won’t go away, and let’s be honest: life does not always follow our ideal timeline.

That being said, some people need life insurance more than others. Let’s break that down:

Purchasing life insurance as a married individual

If you’re married or in a legal partnership, consider carrying life insurance to prevent a drastic change of lifestyle if one of you dies. At minimum, life insurance can help someone afford to take an extended bereavement break when their partner dies. It can also help them maintain financial goals and life plans previously oriented around dual income streams, even if both individuals are working jobs that could individually sustain their lifestyles.

Both spouses in a divorce proceeding should also consider life insurance to cover financial responsibilities in the case of one of them passing after a divorce.

Purchasing life insurance as a parent

If you’re a parent with children who are still minors, you may also want to consider holding life insurance.

Tax-free payouts after death ensure that spouses, guardians, and children have suitable income replacement, debt payoff, and means to cover expenses like education and healthcare.

Carrying life insurance for minors can also typically be done at a lower rate. For many families, life insurance serves as the main financial safety net after a provider’s passing, and can give everyone peace of mind and security once finalized.

Purchasing life insurance as a business owner

Business owners should also strongly consider life insurance. Why? Inventory costs, up front investments, and debt are all commonplace for business owners, and you wouldn’t want to leave the burden on your professional partners should something tragic happen.

Benefits of Having Life Insurance

Peace of mind

The first and most obvious benefit of having life insurance is security and peace of mind, both for you and your loved ones. Unexpected expenses, bills, and debts are always a nasty surprise – doubly so for someone already grieving the passing of a loved one, which is often coupled with funeral planning, settling estates and accounts, and other strenuous and stressful activities.

Covers expenses

Carrying life insurance can help ensure that your family is taken care of after you pass and can focus on honoring your life and legacy rather than dealing with endless financial matters. Life insurance can help pay for your funeral, cover lingering debts, and replace income that no longer exists.

Living benefits

Some life insurance policies also include accelerated death benefits, or living benefits, as Ethos Life points out in their article here. If you are diagnosed with a qualifying medical condition, you may be able to access a portion of death benefits while you are still alive, which can ease the burden on family members and loved ones to support you.

Tax advantages

Permanent life insurance is also typically tax-free up to the amount you paid into the policy, meaning family members collecting life insurance after you pass won’t be stuck paying taxes on the money they are withdrawing – at least for the initial withdrawal period.

Lower costs when purchased young

If you buy life insurance early enough in life, not only do you have the peace of mind that you are providing for your children when you pass someday, but premiums are typically much lower if you are younger and healthy. Just like we covered in our series on retirement planning, you benefit more from life insurance the earlier you start and the more prepared you are.

The ways in which life insurance changes as you age are mostly down to the specific type of coverage you bought. If you have whole life insurance, you are likely guaranteed not to see premium increases over your life. However, if you have term insurance or are purchasing life insurance for the first time at an older age, the cost of your policy will be affected by your health (whether you smoke, your weight, preexisting medical conditions, etc.), whether you are working or retired, how many children and/or dependents you have, spousal status, and other factors.

MarketWatch has a guide here on how to consider more affordable life insurance options as you age. Hearkening back to our series on saving for retirement, you should consider life insurance as a form of retirement security as you age. Balancing saving for retirement with an understanding of your health and a desire to take care of your loved ones after you pass helps build a more comprehensive portfolio of economic safety as you age.

No matter how old you are, speak with a First Light Financial LLC advisor today to make sure you are as prepared as possible.

Key Types of Life Insurance

As with most forms of insurance, navigating the different types of life insurance available to you can be tricky, but we’re here to break it down. There are three main categories that you should consider when purchasing:

Term Life Insurance

As Forbes points out, term life insurance is ideal for individuals who want coverage for a specific debt or situation, like covering the period of time until your mortgage expires and you may have more expendable income.

Term insurance typically covers you in increments of five or ten years, and you can always renew your policy at the end of the coverage date, typically at a higher rate.

Term insurance is usually the cheapest way to purchase life insurance, but it does come with the added task of deciding whether to renew for another benefit period or let it expire, and it can be expensive to renew if you’ve developed medical conditions or taken on additional debt during your initial coverage window.

A First Light Financial LLC advisor can help you make the renewal decision when the time comes.

Whole Life Insurance

Whole life insurance is perhaps the most common form; it covers you for the duration of your life, building value over time.

Most whole life insurance purchase agreements guarantee no premium increases. If you want coverage for the rest of your life and don’t want to worry about increasing costs, a poor rate of return due to inflation or price increases, whole life insurance may be the right choice for you. It can be expensive, but the peace of mind can be worth it.

Consider the different types of whole life insurance:

Participating whole life insurance allows policyholders to receive dividends from insurance company profits.
Simplified whole life insurance can be a good option for those with preexisting health conditions that may jack up their premiums.
Guaranteed whole life insurance has a lower benefit cap but provides a guaranteed death benefit and cash value accumulation with fixed premiums.

Universal Life Insurance

Universal life insurance is a bit more complicated, but it lets you vary how much you pay on your premium to adjust benefits received after death.

Burial and Funeral Insurance

It is also worth mentioning burial and funeral insurance, which Forbes covers in their article as well. If you are worried about loved ones covering funeral costs after you pass, burial insurance could ease that concern and provide a financial safety net to those shouldering postmortem costs.

How to Choose the Right Life Insurance Policy

Assess your income situation and balance that against your needs

Do you have expendable income each month? Are you prepared to start putting money away for retirement alongside paying down debt and living life to the fullest?

If you are young, single, and healthy, you may not have a need for life insurance at the moment. But if you are in a relationship, have children, have health conditions, or simply want to get a head start on your future (and you have the income stream to afford it), life insurance can be a great way to ensure peace of mind, lifelong goals, and family provision. Talk to a First Light advisor today about whether you are ready to make the jump into life insurance. And do your research first! This article is a great primer, but there are other considerations we won’t cover today due to space constraints, and you want to be as informed as possible before making your decision.

Meet with your financial advisor to calculate your coverage amount

Your death benefits will be directly linked to the premium you pay into now, so choose a premium amount that makes sense for you while balancing both comprehensive death benefits (and possibly living benefits for if you develop a medical condition; more on that below) with an affordable premium that will not break the bank month-to-month.

Choose your policy type from among those listed above

Term insurance to cover a specific time period of concern, or comprehensive insurance that will cover you for the rest of your life. Within each type of life insurance are countless sub-types and individual coverage offerings based on your insurer and life situation; a First Light advisor can help you pick the coverage that’s right for you and your lifestyle.

Busting the Myths About Life Insurance

“I’m young and healthy. I don’t need it.”

Life insurance comes with plenty of myths and misconceptions, including the idea that “I don’t need life insurance because I’m young and healthy.”

While that might be true, you may benefit deeply from getting it out of the way, so to speak. Peace of mind is essential when it comes to financial security, and knowing you are insured against unexpected illness and death takes the load off and allows you to spend your money more wisely and save for the future more accurately.

“It’s too depressing!”

Some folks also have the misconception that even thinking about life insurance, never mind purchasing a plan, is overly macabre. On the contrary, planning for your future and ensuring your loved ones will be taken care of in the case of your death can be beautiful, selfless, and life-affirming. Everyone will pass away one day, and there’s no harm in planning for the future even if you’re far away!

“It’s too expensive.”

Another myth is that life insurance is prohibitively expensive. While costs will vary depending on your plan and provider, there are many affordable options, especially if you consider term plans or coverage that lets you increase your premium payments over time-scaling with increased death benefits.

“I’ll need a medical exam.”

As The Zebra points out here, you also don’t necessarily need to complete a medical exam to purchase life insurance. You may need to complete a health questionnaire or something similar, but no-medical exam insurance is an option if you don’t mind lower benefit coverage. Preexisting conditions also don’t disqualify you from purchasing life insurance, although they may increase your premiums or decrease potential benefits.

“I have coverage through work.”

While you may be provided with life insurance through your employer (definitely look into coverage and benefits!), you may need additional coverage to cover things like childcare expenses, etc.

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Life insurance may seem like a taboo topic, but hopefully the information we covered here today has changed the way you think about carrying it.

Here at First Light Financial LLC, we’re committed to helping our clients achieve holistic financial health, in life and death. Even if life insurance is not needed for a long time after you purchase it, it can provide peace of mind and long-term security for the people you love.

Providing financially for your loved ones is often a focus during life, and there is no reason not to extend that after your passing as well. If you have questions, or want to find out more about signing up for a life insurance policy, contact Kris or Mike at First Light Financial LLC today so we can set you up with one of our highly qualified and experienced advisors! We’ll see you next month.

Should You Purchase Life Insurance?