Jean Chatzky
If you have people — children, a spouse, older parents — depending on your income, life insurance is a key ingredient to a sound financial plan, much like an emergency fund and a retirement account. It helps plan for your loved ones in the long term just in case something happens to you. But, despite it’s importance, there’s still a lot of skepticism and confusion surrounding life insurance. Here are four things a life insurance policy can be purchased to protect.
Your family
Your spouse and your family depend on you for a number of reasons including child care and your income. The main point of purchasing a life insurance policy is to make sure that these people will be financially protected in the event of your passing. “Generally, the main wage earner in a family should have a life insurance policy that replaces their income until the kids are out of college. A life insurance policy cannot only provide replacement income but also help provide the money to pay off a mortgage, outstanding debts or college tuition,” says Peter Colis is the CEO and Co-Founder of Ethos. He says it’s better to have it and not need it, then to need it and not have it.
Stay at home parents
A stay at home parent’s contributions would cause a major setback to a family should they pass away. “Perhaps people overlook life insurance for stay-at-home parents because they are not receiving income from an employer. But, the fact is, the work of a stay-at-home parent has an actual dollar value,” says Paul Graham, senior vice president, insurance regulation & chief Actuary for the American Council of Life Insurers. He’s right: Cooking, cleaning, caring for children, picking them up from school or recreational activities and the many other tasks done by a stay-at-home parent are not inexpensive to replace.
Your business partners
Small business owners often fail to recognize the financial impact their death may have on their partners and even their employees. “Purchasing life insurance and listing partners as the main beneficiaries will help mitigate major impacts on a small business. This type of policy is called Key Man Insurance,” says Graham. “Benefits from a life insurance policy also can help the business owner’s family cover any outstanding loans or business expenses, including employees’ salaries and benefits, which can help keep the family business in the family,” says Colis.
Your wallet
One big reason many people don’t purchase life insurance is the belief that it will be too expensive, says Graham. According to the 2018 Insurance Barometer Study, 44% of Millennials overestimate the cost of life insurance by five times the actual amount. “This is why term life insurance is an ideal fit for most people. It’s more affordable and provides quality coverage with common terms of 10, 20 or 30 years. With [these level term] policies, the death benefit, and the cost, or premium, stay the same throughout the term,” says Colis.
With Hattie Burgher
Chris O'Shea
