What might be missing from your financial strategy
While the 1990s were a time of growth and prosperity, more recent economic events have reminded us of the importance of protecting what we have. Which is why it may be time to consider a product that’s often overlooked in the financial planning process: life insurance.
It may not be trendy, but life insurance brings a lot to the table when it comes to stability and peace of mind. Of course, there are the obvious benefits: If you pass away, it can help your loved ones pay off funeral expenses, debts, maintain their lifestyles, and pay for your kids’ college. But some policies offer other features that can help you later in life, too: They can be used as supplemental retirement income, to pay off debt, or create a legacy when you’re gone.
So why don’t more financial professionals recommend life insurance as part of a financial strategy? Well … it’s a bit misunderstood, and there’s a tendency to oversimplify it. It’s a common misconception that a term or permanent insurance policy are your only choices. Those are the two basic types of life insurance, but that doesn’t mean it’s an either/or situation.
With permanent life insurance, the death benefit is paid to your beneficiaries whenever you pass away. The premiums don’t increase over time, and it accumulates cash value that grows on a tax-deferred basis. That cash value can be used for anything you want. You could purchase more insurance, help pay for a college education, supplement your retirement income … the possibilities are endless.
Term insurance, on the other hand, provides a payout only if you pass away within a certain period of time. The premiums typically increase whenever you renew your policy and it has no cash value. Initially, the premium for term insurance is considerably lower than permanent, but in the long-run, the net cost may eventually be lower with permanent insurance.
But how do you know whether you should have term or permanent? What meets your needs depends on many factors, such as what you want to protect, how long you’ll need the insurance (just a few years, or is this going to be part of the legacy you leave your kids, grandkids or charity?), how your life (and insurance needs) might change over time, and what you can afford. But it’s also very important to remember that no one product can cover all possible circumstances. While it might make sense for some people to have all term or all permanent, it’s possible that you’d be best having a combination. You could split evenly between them, have more of one than the other, or plan to convert term to permanent in the future.
There are a lot of possibilities, and no one-size-fits-all solution. So, what’s the best way to figure out what life insurance options are best for you? Get help from a financial professional. A good one will help determine what role insurance should play in your personal financial plan, and they won’t just push a product on you. They’ll realize that your financial security is a big deal, and that their relationship with you is long-term. They’ll ask you what goals you’re working toward and they’ll help you figure out a strategy to reach them. And then they’ll keep working with you year after year to make sure that your plan is keeping up with your ever-changing life.