A GUIDE TO LONG-TERM PLANNING FOR YOU AND YOUR FAMILYFriday, January 25, 2019
Thinking about what happens after we pass away isn’t the most comfortable topic, but it is a necessary one. Having a financial plan in place to protect your family after you’re gone can help alleviate significant stress and support their long-term stability. One way you can plan ahead is by setting up a life insurance policy.
Our team at American Savings Bank knows that taking care of your loved ones is a top priority. We’ve put together a guide to term life insurance – read on to learn all about how this tool can protect your loved ones financially in the future.
WHAT IS TERM LIFE INSURANCE?
Term life insurance is a type of life insurance that provides a monetary payment (also known as a death benefit) to your beneficiary if you pass away during the time that your policy is active. Sometimes called “pure life insurance,” term insurance allows you to choose a set time period, during which your benefits are in place. This set time period is the term of the policy. Once the term expires, you can usually renew the policy and convert it to a different type of life insurance or terminate the policy and lose its benefits. You’ll also be able to choose a specified death benefit amount for your policy.
Compared with other types of life insurance, term life insurance usually has a lower premium. The affordability of term life insurance comes from the simplicity of the policy. You won’t get a savings component with term insurance. However, there are lots of times where a term policy can be an affordable option for financially protecting your loved ones in the event that you pass away unexpectedly.
DO I NEED TERM LIFE INSURANCE?
If you’re wondering if you need term life insurance, you’ll want to consider several factors. The most important is whether or not you have a spouse, children, or other dependents who rely on your income. As the provider to your dependents, your death would not only be an emotional burden but potentially a financial one as well. As a parent, you want to ensure that your kids have the means to live a financially secure life.
Those without children or other dependents are less likely to need term life insurance. However, there are some instances in which you could benefit from term insurance, even if you don’t have someone directly depending on your income. Homeowners, or those looking to purchase their first home, might benefit from a term policy. You can choose a policy with a term that mirrors your mortgage. For example, with a 30-year mortgage, you might purchase a term life policy for 30 years. This protects your relatives from potentially being on the hook for your mortgage if you were to pass away.
WHY LIFE INSURANCE IS IMPORTANT FOR YOUR FAMILY
While it’s always a good idea to have a safety net in the form of a savings account, a term life insurance policy can be incredibly useful. If you have a spouse, or kids, for example, the death benefit of a term insurance policy can provide income replacement. Funeral expenses, potential medical costs, and your existing debts are passed onto your family when you pass away. Without life insurance, your family is burdened with these debts while also being affected by the loss of your income. Your death benefit will provide a sum of money that can help cover at least some of these costs. It can also be used to retain your family’s standard of living and maintain future investments, such as college funds for your children.
Stay-at-home parents can also consider a term life insurance policy. If you are the daily caretaker for your children while your spouse is at work, your passing would certainly affect your family’s income. Suddenly, there would be childcare expenses for your family to consider. Generally, the amount of money you make is less important than the negative effects on your family due to the loss of your role as a caretaker.
IS MY EMPLOYER-SPONSORED LIFE INSURANCE ENOUGH?
Many people enjoy some form of term life insurance as a benefit offered by their employers. Unfortunately, these policies may not be enough to cover funeral costs and other expenses. Additionally, you’ll want to have extra protection on your own because such policies are typically tied to your employment. You may be at risk of losing the benefit in case something happens and you can no longer work or you lose your job for other reasons.
Is your employer-sponsored life insurance enough to cover expenses if you pass away? You can use a calculator to determine how much insurance might be right for you. Once you know how much insurance coverage you need, look at the amount provided by your employer.
Now that you know more about life insurance, you may be wondering when you should get it. Generally, purchasing life insurance is more affordable the earlier you are in life. Speak with a knowledgeable member of our insurance and investments team at ASB to learn what options are available to you. We’ll help you determine how much insurance you may need and what length of term is right for you and your family.
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