Life Insurance: A Sound Financial Planning Tool at Any Age

A lot of people avoid the topic of buying insurance. For them, having insurance sold to them is like being forced into buying something they don’t think they need. This misconception causes a lot of people to miss out on the benefits that an insurance policy can offer.

Life insurance is a great way to secure your financial future, even if you don’t have a family, debt, or anyone that relies on you for an income. Locking in an affordable policy when you are young and healthy can save you a considerable amount of money, and you’ll have added peace of mind knowing that when you start a family, they are provided for. Here are some additional reasons to consider buying an insurance policy.

Income and wealth protection

If you are your family's primary income earner or “breadwinner,” imagine what their life would be like if something were to happen to you. Do you have enough savings for them to pay for their daily expenses until your surviving spouse is able to recover financially?

Putting food on the table, paying the mortgage, and keeping the lights on isn’t cheap. Now add these expenses to the individual expenses of your children for clothing, transportation, and education. Without an insurance policy, your family would probably have a lot of difficulty maintaining your current lifestyle.

For someone who is relatively young with a large income, traditional life insurance might not be your best option. Instead of purchasing a term policy, an insurance product like guaranteed universal life might be a better option to help you build generational wealth while securing affordable coverage for the future. These policies allow you to lock in your rates and coverage for your entire life.

Payment for taxes, debt, and final expenses

When people purchase an insurance policy at a later age, the purpose is usually to provide money to their loved ones for final expenses like medical bills, estate taxes, and funeral expenses. A life insurance policy can also serve as the source of income for a retiree or surviving spouse. Moreover, it can be bequeathed as an inheritance for children and grandchildren or donated to a charity.

What is the right amount of coverage?

Another consideration when buying an insurance policy is deciding how much coverage to buy. The face value of the policy is the amount of money your beneficiary will receive if you pass away. You need to make sure that you purchase enough coverage to replace your income, but it’s also important consider the cost. A higher face value is desirable, but if your policy is unaffordable, you risk losing your policy due to non-payment.

Before deciding on an amount, factor in your present income and your family’s needs. You can also stagger or layer more than one insurance policy to save money while still providing your family with adequate coverage. This approach is also referred to as laddering, and its very common for younger people with a lot of debt.

Term insurance policy or whole life policy?

Whole life insurance provides coverage for your entire life, while term life insurance only provides financial protection for 10, 15, 20, 25, or 30 years. Term life insurance is less expensive than other forms of life insurance because none of your premiums are used for investing. With whole life insurance, your policy can build up a small cash value over time, but it won’t be much. Even after years of payments, most people never accumulate more than few hundred dollars.

Each type of insurance has advantages and disadvantages, and some policies may be better-suited to your family’s needs than others. If you are confused about the choices available to you, there are insurance professionals who can break down the details and help you decide which product best suits your current and future financial goals. Be specific about what you wish to achieve, and an experienced agent will be able to pinpoint your best option.

The author: Cliff Pendell

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