Life is unpredictable, and while we can't control every aspect of our future, we can take steps to protect our loved ones financially. Life insurance is a powerful tool that provides peace of mind and financial security for your family in the event of your passing.
The topic of life insurance, however, can be confusing with different terms, policies and premiums available.
“Choosing the right type of life insurance can be confusing, but it’s also an important decision,” says the Insurance Information Institute (iii).
According to the 2024 Insurance Barometer Study, approximately 51 percent of Americans own at least one life insurance policy with 42 percent of adults needing to obtain life insurance or increase their existing coverage.
J.P. Morgan Wealth Management says there are two primary reasons for individuals to purchase life insurance: income replacement and providing liquidity and replacing estate taxes paid.
Let’s explore the world of life insurance, its various types, benefits, and why it's an essential consideration for individuals and employers alike.
Life insurance is a contract between an individual and an insurance company. The policyholder pays regular premiums, and in return, the insurer promises to pay a specified sum of money (the death benefit) to the designated beneficiaries upon the insured person's death.
This financial protection can help cover funeral expenses, replace lost income, pay off debts, and provide for your family's future needs.
“Recent years have underscored the importance of financial preparedness for families across the globe, with events like the COVID-19 pandemic emphasizing the need for protection against unforeseen circumstances,” says Bankrate. “This heightened awareness has sparked a significant increase in the demand for life insurance, as many seek to ensure their loved ones are safeguarded financially.”
The concept of life insurance dates to ancient times, with early forms appearing in ancient Rome. However, modern life insurance as we know it began to take shape in the 17th and 18th centuries:
“The life insurance industry has experienced some fluctuations in recent years, but current trends indicate a positive shift. While certain barriers to purchasing life insurance persist — such as misconceptions about cost and lack of awareness — increased access to information and more flexible policy options are starting to make a noticeable impact,” reports Bankrate.
There are several types of life insurance policies available, each designed to meet different needs and financial goals:
J.P. Morgan Wealth Management says its best to think in terms of “term insurance” and “permanent insurance”.
“Term insurance insures you for a fixed term, in some cases even just for one year. The premium, or cost of insurance, generally increases each year, since you’re another year older and statistically more likely to die during that year of coverage,” says J.P. Morgan Wealth Management. “Unlike term insurance, permanent insurance remains in place for the insured’s lifetime. Permanent insurance includes both a term component and a savings or investment component. Premiums are higher for permanent insurance than they are for term insurance, but the savings component can earn a return that may add to the “cash value” of the policy.”
There are many reasons to consider life insurance including:
The iii says to consider term life insurance if you:
The iii says to consider permanent life insurance if you:
Of course, everyone’s circumstances are different so life insurance may not be the right choice for everyone. Here are the pros and cons to seeking life insurance:
Pros:
Cons:
If you are one of the 30 percent of Americans without coverage but recognize the need to have life insurance, here are some best practices for seeking the right coverage:
Keep in mind that, according to Bankrate, one of the most significant determining factors in life insurance costs is age. The premium amount increases on average 8-10 percent for every year of age.
Forbes says that savings, debts, income, and family situation are all considerations in how much life insurance you need. They have a calculator that can help you.
Offering life insurance as an employee benefit can be advantageous for both employers and employees.
Life insurance can be part of a competitive benefits package that helps employers retain qualified and passionate employees.
Dean & Draper has found that offering individual life insurance for employees can:
Life insurance is a crucial component of a comprehensive financial plan. It provides protection, peace of mind, and financial security for your loved ones in the event of your passing. With various types of policies available, it's essential to carefully consider your needs and options to find the right coverage for you and your family.
Whether you're an individual looking to protect your family's future or an employer seeking to enhance your benefits package, life insurance offers valuable protection and peace of mind.
By understanding the different types of policies, weighing the pros and cons, and following best practices, you can make an informed decision about your life insurance needs.
Don't leave your family's financial security to chance. Dean & Draper, your trusted Houston-based insurance broker, is here to help you navigate the complexities of life insurance and find the perfect policy for your unique needs.
Our experienced team can guide you through the various options, whether you're looking for individual coverage or considering offering life insurance as an employee benefit.
Contact Dean & Draper today to schedule a consultation and take the first step towards protecting your loved ones' future.
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