Life is unpredictable, but you and your loved ones can be prepared for the inevitable regardless of the “hows” or “whys”. Life insurance is increasingly important to protect the financial security of dependents, yet there are so many who have little or no coverage.
According to the Life Insurance and Market Research Association (LIMRA)’s most recent “Facts About Life 2016” study, the number of U.S. households with life insurance has increased by more than five million over the last six years. However, this means that 30% of American households (or 37.5 million homes) still do not have any sort of life insurance coverage. One in five households with minors, or children under age 18, were reported as being uninsured in 2016. When it comes to deciding on coverage, there are three major questions buyers need to answer:
- Why should I get coverage?
- What kind of coverage should I get?
- How much in coverage should I get?
LIMRA’s study reports that eight out of ten U.S. households believe that they need more insurance coverage but do not pursue it because of the perceived cost and/or other financial priorities. However, research has shown that on average people overestimate the cost of life insurance by up to three times the actual price. Life insurance options vary in premium, often making it more affordable than most would expect.
Life Insurance is not about protecting your life or well-being as most, if not all, other types of insurances are. It is a form of coverage protecting those closest to you from facing insurmountable debt caused by your final expenses or other financial hardships without your income.
Once you decide to take that first step toward getting a policy, you will need to decide what kind of policy fits your needs. There are many different types of life insurance policies offered to fit an individual needs and budgets. Each policy has different benefits and drawbacks, so it is important to carefully consider each one before purchasing a policy. While each policy can be tailored on an individual basis, the main categories are:
- Whole life is a permanent life insurance policy that builds cash value and may pay a dividend.
- Universal life is also a type of permanent coverage policy that pays a flexible interest rate, and the death benefit may or may not be guaranteed.
- Variable life is another type of permanent coverage where the cash value is allocated to one or more investments referred to as separate accounts making the cash value subject to the fluctuations of the broader markets.
- Term life refers to a policy that does not have an investment or cash value component but offers a monthly premium guaranteeing coverage for a predetermined amount of time.
Another important component in determining the right life insurance policy is to calculate how much coverage you need. There are many factors to take into consideration when deciding on a policy amount, such as how much your family will need to maintain their current lifestyle without your income, as well as funeral costs and other final expenses. These may include medical bills or nursing home fees that will fall upon the family should you pass on prematurely. According to the most recent version of the news release “NFDA Releases Results of 2015 Member General Price List Survey” conducted by the National Funeral Director Association (NFDA), the average cost of a funeral in 2014 was $7,181.00. This cost and all other final expenses (student or other loans, medical care, etc.) will fall upon your loved ones to afford.
It is also important to take into account any debt you currently carry, particularly if you have a cosigner. According to the article “Protect Cosigners, Families of Student Loan Borrowers With Life Insurance” for U.S. News & World Report by staff writer Susannah Snider, life insurance policies may be a good buffer for student loan borrowers with cosigners. The article writes: “If the responsibility for a student's loans transferring over would be unmanageable or financially devastating for the student's survivors, then a life insurance policy may give peace of mind.” While loans may be easier to plan for ahead of time, it is not possible to predict an exact cost of medical care should you fall ill. However, it is possible to prepare for these potential costs with your life insurance policy by selecting an amount high enough to buffer these expenses.
To learn more about calculating your life insurance need, take advantage of this online life insurance calculator.
If you are interested in learning more about life insurance policy options offered through your New York State Bar Association membership, check out the NYSBA Insurance Program online here.