September Is Life Insurance Awareness Month

Life insurance is an important part of any financial and protection strategy. For NLIA month, we wanted to share some helpful information about life insurance.

Make sure that you are covered to protect the next generation.

 

What is Life Insurance?

According to Life Happens, a nonprofit dedicated to giving users unbiased insurance information, life insurance is an insurance policy that provides cash to your family or loved ones after your death. This "death benefit" helps replace your income and supports your loved ones also in non-monetary ways. Your family can use this payment for funeral expenses, mortgage payments, college tuition, and other bills.¹

The Different Types of Life Insurance

There are two main types of life insurance: term life insurance and permanent life insurance. Let's look at the differences.

Term Life Insurance

Term life insurance policies cover the insured for a specific period, usually between 5 and 30 years, depending on your policy. Term policies pay a death benefit only if the insured person dies during the coverage term. These policies don't carry any cash value, but the premiums are generally lower than permanent life insurance premiums. Furthermore, term life insurance policies may offer a greater level of flexibility because you can amend your policy as your needs change.

Permanent Life Insurance

Permanent life insurance policies cover the holder for their entire life. Some of these policies also carry a savings or investment component. According to US News, this cash value "grows tax-deferred over time and may be withdrawn or borrowed against while you're still alive." But remember that withdrawing these funds will decrease the policy's death benefit unless the funds are repaid.²

There are a few permanent life insurance options, including whole life (sometimes called "traditional" life insurance) and universal life. Each of these policies has its pros and cons.

When considering which life insurance policy is right for you, think about the following factors:

• Coverage duration
• Coverage amount
• Premiums
• Flexibility
• Cash Value

Do You Need Life Insurance?

For most people, the answer to this question is "yes." Life insurance can help protect the people you care about if something happens to you. This could include a spouse, children, disabled family members, aging parents, or any other dependents. There are a variety of coverage limits, and depending on your household expenses, you may not have to purchase an enormous life insurance policy. Even modest protection could help your family pay the bills and make arrangements.

A simple way to calculate how much life insurance you need is to consider all your immediate, ongoing, and future expenses, as well as the financial resources that your loved ones already have. Then, subtract your financial resources from the anticipated expenses to obtain the difference. Forbes lays out the DIME method: debt, income, mortgage, and education.³

Ready to review (or begin) your life insurance policy for National Life Insurance Awareness Month? There are plenty of websites where you can sign up for a policy, or you can talk to a financial professional for help. We at California Retirement Advisors are able and willing to help you figure out your life insurance needs, so please feel free to contact us at cradvisors.com.

By Christian Cordoba
CERTIFIED FINANCIAL PLANNER™
Founder, California Retirement Advisors