7 Life Events Where Life Insurance Can Help
As your life changes, so do your life insurance needs. To help protect your family, you’ll need a plan that offers flexibility.
The first factor you’ll want to consider is whether to choose a term or permanent life policy. Term life insurance offers an economical way to make sure your family has financial cover if you should pass away unexpectedly – but by definition, it comes with a time limit. Many people who choose term life are comfortable knowing they’re covered for 20, 30 or 40 years, and don’t really want more than that basic, bare bones safety net.
Permanent policies (which include Indexed Universal Life Insurance) work differently. This type of life insurance tends to cost a little more, but you may also get more from it. As long as you keep up with the premiums and keep your policy in force, you’ll never lose the protection of your life insurance backup plan.
What’s more, these policies typically accumulate “cash value,” which you can access through policy loans or withdrawals – generally without paying any taxes or penalties.* That’s a source of income that can come in handy during one of life’s unexpected emergencies. And with a specialized policy such as Indexed Universal Life, you can accumulate cash value at a rate of return that’s linked to a market index.
Most important, permanent policies can keep you covered for your whole life, at every step along the way, but especially during seven significant life events.
Life Event No. 1: Buying a Home
Chances are, when you bought your home you took out a mortgage. If you own that property jointly with someone else, or had someone co-sign for the loan, they would be responsible for 100 percent of the debt and the payments in the event of your death. That unexpected expense, coming at such a troubling time, could leave them in dire financial straits. In the worst cases, overwhelmed by carrying this extra load, the people you care most about could end up in default, and even lose their home.
Life insurance provides a straightforward solution to this potential disaster. In fact, paying off a mortgage is one of the top three reasons people buy life insurance.1 To help keep the people you love in the home they love, you can purchase enough life insurance to completely cover that debt.
Life Event No. 2: Getting Married
Married couples without children often skip life insurance – but that can be a costly mistake. In most households, both spouses work, often contributing equally to household expenses. Budgets for these just-starting-out families often include a lot of debt: student loans, car loans, credit card debt, and mortgages. Add to that regular household expenses, like food and utilities, and you can see how very necessary both salaries may be.
Losing half the available income in the event of an untimely death could leave the surviving spouse struggling to make ends meet. In fact, 7 in 10 households say they’d have trouble covering everyday living expenses within just months of losing their primary wage earner.1 Life insurance can provide the safety net to help cover all the debts and monthly expenses when one spouse suddenly must cover them all, alone.
Life Event No. 3: Having Children
For most people, this joyous life event is the one that sparks interest in life insurance, and for good reason. Your children depend on you completely to provide for them. And as you start having children, current and future expenses may skyrocket.
Whether your family has two incomes or one, your family should have a sufficient financial safety net to protect them in the case of a premature death. The surviving spouse in a dual-income household could be hard-pressed to meet all the monthly household expenses and pay for additional child care. Single-income households are wholly dependent on that one salary, and losing it could be catastrophic without a solid life insurance policy in place.
Equally devastating is the loss of the stay-at-home parent. Those loving household contributions would need to be replaced through full-time child care providers and housekeeping help.
Live Event No. 4: Caring for Aging Parents
People are living longer than ever before, giving you more precious time to spend with your loved ones. Unfortunately, many people fall prey to chronic and debilitating diseases that require intensive around-the-clock care.
If you’re providing some or all the care for an aging parent or grandparent, having a backup plan in place can help protect their care continuity if you die unexpectedly.
Life Event No. 5: Starting a Business
When you own a business, you have a lot at stake. In addition to providing for your family, you have to keep your company solvent and your employees paid. Valued partners and star employees add an extra dimension of both possibility and risk; losing these key members of your business to death or disability can have an enormous impact on your business. To help survive such events, your business needs a stable source of funding, and a permanent life insurance policy could help your company weather that storm.
Sensible policy loans could also be part of a strategy to buy out a retiring partner without depleting business or personal cash reserves.
Life Event No. 6: Sending your Kids to College
College costs have skyrocketed, and they’re only soaring higher. Combinations of 529 plans, scholarships, and grants can help ease that overwhelming financial burden, but most families — most students — rely on significant student loans to cover the difference. In fact, most students come out of college already saddled by more than $30,000 in debt.³ To avoid that burden, some families draw from their retirement savings, which can trigger taxes and penalties on top of the lost growth potential for the nest egg.
If you have a permanent life insurance policy in place, however, prudent policy loans could help cover college costs without incurring taxes, tax penalties, or crushing student loan debt.*
Life Event No. 7: Retirement
Stress-free retirement is the ideal goal, but for millions of Americans, the No. 1 worry is outliving retirement savings.4 If fears about dwindling or disappearing Social Security benefits coupled with anxiety about potential stock market downturns keep you up at night, you’re not alone. Plus, with life expectancy on the rise, your retirement savings may be stretched even tighter.
This is where a permanent life insurance policy can help provide a welcome safety net. Instead of draining retirement accounts in down markets, you can help supplement your required distributions with judicious policy loans, giving your savings their best chance to bounce back. If you do run out of retirement savings, the cash value in your policy may be available to offset some of that lost income.
And if you pass away before your spouse, that life insurance is in place to provide much-needed financial resources after you’re gone.
*Taking loans/withdrawals from your life insurance policy will decrease the benefit.
All guarantees are based upon the financial strength and claims-paying ability of the issuing company.
1 LIMRA (2016). Web page: Facts About Life. Retrieved January 2, 2018, from https://www.limra.com/uploadedFiles/limra.com/LIMRA_Root/Posts/PR/_Media/PDFs/Facts-of-Life-2016.pdf.
2 TICAS (2016) Web page: Student Debt and the Class of 2016. Retrieved January 2, 2018, from https://ticas.org/content/pub/student-debt-and-class-2016.
3 Journal of Accountancy (October 2016) Web page America’s biggest retirement fear: Running out of money. Retrieved January 2, 2018, from https://www.journalofaccountancy.com/news/2016/oct/americans-fear-running-out-of-retirement-money-201615242.htmlhttps://www.journalofaccountancy.com/news/2016/oct/americans-fear-running-out-of-retirement-money-201615242.html.