We are nearing the end of a very different and bizarre year. September is often recognized for the start of the school year, the start of professional and college football seasons and much more. Perhaps not as well known is that since 2004, September has also been designated Life Insurance Awareness Month in an effort to make sure Americans are reminded of the need to include life insurance in their financial plans.
Your 20s and 30s are filled with exciting life changes; whether you’re transforming your education, career or relationships, life insurance allows you to financially protect what you love (and for an economical cost).
If you’re on the fence about investing, it’s important to understand how your decision can impact your overall financial health, long-term planning and loved ones. To help provide context, below are five key reasons that purchasing life insurance should be a priority—and where to get started when you’re prepared to purchase.
1. Lock in a Low Rate
The cost of insurance is based on identified risk; if it’s more likely you’ll need to use your purchased protection, the monthly costs will increase. Life insurance companies make revenue in collecting client premiums and subtracting the benefits paid out upon policy use, meaning their ultimate goal is to minimize the likelihood of early payout. The younger an applicant is when acquiring a life insurance policy, the less likely a company will need to pay out a claim earlier than anticipated.
Based on your age and health history, millennials can often lock in lower rates early to eventually decrease the total cost paid to insurance over time. Depending on your loan type, this could have a significant impact on your overall investment. The two main types of insurance you can explore include:
- Term Life Insurance: Coverage that applies for a set amount of time, and must be renewed at a new rate or converted to a permanent policy once the deadline is reached. Most policies will last ten, twenty or thirty years based on your provider, but can be extended in five or ten year incrementions.
- Whole Life Insurance: Provides coverage for one’s entire life, pending premiums are paid each month. These policies are accompanied by a cash value account (we’ll discuss this later on).
2. Built-In Savings Options
When comparing these two policy options (term and whole), it’s important to understand the potential cash benefits of whole life insurance. While the price may be steeper, the policy remains tax-free and will develop cash value over time which can be borrowed against. It’s a low-risk savings account that can, over time, amount to a large amount of tax-free income. If taking out a loan against your policy, it’s important that you pay back the amount in a timely manner. Interest is continually added, whether your payments are made or not, and may put you at risk of exceeding your policy’s cash value.
3. Diversify Your Investments
When creating your financial portfolio, including a variety of investments will typically pose lower threats and yield higher returns in the long-term. As a result of the previously mentioned accumulating cash value, your policy instantly adds to your asset mix.
Further, if you purchase your policy from a mutual insurance company, their success is yours! You’ll share in the dividend payments and will be able to collect this as income to pay off the remainder of your policy or purchase additional policy coverage.
4. Student Loan Protection
With over 44 million Americans impacted by a $1.6 trillion dollar student loan debt crisis, life insurance can be a way to protect your loved ones against the burden of paying the remaining costs in your absence. It’s important to note that this only applies to federal student loans, and not all private loans offer death discharges.
5. Security for Your Loved Ones
Purchasing a life insurance policy is all about security and peace of mind: you’re actively putting a plan in place to protect those you love in the event of an untimely passing. If your employer’s benefits do not cover the full extent of coverage you need, consider purchasing an outside life insurance policy (this is also wise to ensure you have coverage in between employment).
Next Steps
If you’re ready to make the next step and purchase life insurance you’ll want to follow a path of three essential steps:
- Determine how much life insurance coverage you need.
- Find the right type of policy (term life or whole life).
- Hang onto your paperwork (digital and hard-copies).
Once you have established your policy and plan, make sure to communicate all the relevant details to your beneficiaries. Relying on parents or trusted advisors can also be a valuable piece to your coverage process, and their support, along with trusted and licensed life insurance agents, can make all the difference!