You insure your home against fire, floods, storms, and earthquakes.
You insure your apartment belongings against theft.
You insure your car against collision damage, accidents, and bodily harm.
Why then does nearly half our population fail to insure their own lives?
It’s a head-scratcher. The right life insurance policy protects family dependents against financial decline should the primary income-earner pass away.
We all love our families. We hope they’ll survive our passing and thrive.
What happens to the surviving family members with no life insurance in place? How do they carry the burden of your lost income?
Sell the family home? Move in with relatives? Give up college plans to work instead. What if lack of income forces some family members onto public assistance?
Arguably, this gap affects every taxpayer.
As a nation, we need to do better. Imagine if life insurance were mandatory like auto insurance?
The Life Insurance Market Research Association (LIMRA) says that 70 percent of U.S. households with children under 18 would have trouble meeting everyday living expenses within a few months if a primary wage earner were to die today.
We’re leaving children unprotected. A 2015 Bankrate.com survey found that “one-third of the parents who do have insurance, have no more than $100,000 of protection.”
One Issue of Many
Admittedly, our country faces other pressing issues today. Stagnant wages. Tight labor market. Immigration. Education.
So, life insurance may be down the priority list. But it is my passion, expertise and responsibility to do what I can to protect the lives of others.
Of course, the decision to buy a life insurance policy is not an easy one. Premiums can be costly, depending on age and health. When surveyed, most people make the mistake of thinking life insurance costs three times more than it does.
And, certainly, understanding how life insurance works can baffle the most intelligent of us.
LendEDU conducted a life insurance-focused survey of 1,000 adult Americans and learned that:
- 54% of respondents own a life insurance policy
- 83% believe it’s worth the cost
- But 33% claim they do not fully understand how their policy works
- Among those without life insurance, 53% said they plan to buy one in the future
- But 18% do not plan to buy a policy and 29% were not sure
This blur of percentages can confuse. Not my intention at all.
In fact, the purpose of this post is to lay down a foundation for understanding the immense value life insurance brings to your life and the lives of those you love.
What About the Underinsured?
There’s another issue to consider.
Many who do own life insurance policies are underinsured and don’t know it.
Most employees own life insurance through work benefits but they assume it’s all they need. Group life insurance provides only basic coverage, grows in cost significantly after age 50, and is not portable when you leave your employer.
Ask yourself these questions:
Can I replace a lifetime of lost earnings for my family if I die unexpectedly?
Can my family pay for my final expenses?
Can they pay off the mortgage? Stay in our home? Wipe out debts?
Can my partner retire comfortably without me?
Even the more well-off individual with higher net worth should ask these questions. Or sit down with an expert in life insurance to calculate present and future needs for coverage. If the face amount on your current death benefit falls short of these calculations, increase your coverage as soon as possible.
Because circumstances change throughout life.
Quick Tutorial on Life Insurance
Life insurance is a contract between you and the carrier. In exchange for paying regular premiums, the insurance carrier pays your death benefit to your beneficiaries when you die.
Most people buy life insurance to protect family members who depend on their income. Others find it an effective vehicle to build cash value to borrow against, income tax-free, to augment retirement income. Life insurance offers so many useful applications beyond these two basics, we’ll cover more in upcoming posts.
Think of life insurance in two forms—term and cash value (also referred to as permanent). The cost of your premiums will depend on your age, gender, health, family history, driving record, whether you engage in dangerous activities, say spelunking, or frequent travel to questionable destinations.
Term life is a bare bones solution and most affordable because it pays your beneficiaries only if you die while the policy is in force. The “term” may extend from five to 30 years. Ten or 20 years is most common. As you age, premiums may rise. As your health changes, premiums may also rise. However, many variables affect premium cost and benefits paid.
Cash value/permanent life policies permit you to accumulate cash value within the policy which grows tax-free. You enjoy the flexibility to borrow tax-free, as well, from the accumulated cash, depending on policy design. However, this convenience comes at a higher price than a term policy.
To keep this tutorial simple, three basic types of cash-value life insurance policies exist:
- Whole Life provides lifetime protection with locked-in, guaranteed premiums, death benefit and cash values making it the most expensive type of permanent life insurance.
- Universal Life offers the same fixed-investment performance as whole life, only with added flexibility on premium payments, guaranteed death benefit, and accumulation of cash value.
- Variable Universal Life (aka adjustable life) allows you to invest cash-value in the policy into stock or bond funds, money market funds or other vehicles which hold more growth potential. This potential gain is offset by greater investment risk than fixed accounts.
If already a client of The Henehan Company, your policies will be reevaluated regularly, and the need for additional coverage addressed.
Unless you’re encountering changes in your life that you’ve not yet shared with us, you should be well covered with life insurance protection.
If not a client and you’re searching for the right insurance team to help you through life insurance analysis, we stand ready to answer the simplest to most complex questions.
To your life well-lived,
Joseph E. Henehan, president and chief executive officer
The Henehan Company