Your step-by-step guide to understanding life insurance

There’s more to life insurance than most people think. A lot more.

Of course, everyone generally understands that a life insurance policy helps provide protection for loved ones should you pass away. But, depending on how you plan it out, life insurance can specifically help with financial situations arising out of:

Family growth
Age
Occupation
End of life

Beyond being an asset in all phases of life, life insurance also can help with specific areas like:

Retirement
Taxes
Gifting
Estate planning
Business

This is a guide to life insurance that will help you understand the possibilities in all these areas.

Life insurance 101

To fully appreciate the range of life insurance capabilities, it’s important to learn about the different types of policies that are available. It’s also important to understand how to shop for insurance and consider what policy might be right for your circumstances and goals.

Types of life Insurance

Term insurance tends to be the most affordable and, consequently, the most basic type of life insurance policy available. It provides death benefit coverage for a specific period of time.
Permanent insurance, by contrast — including whole life, universal, and variable — offers coverage for a lifetime.

Since many people start with term insurance, it’s important to understand its basics and how it can be built upon or combined with other types of insurance.

At the same time, since needs and resources change over time, it’s important to be familiar with the features of permanent insurance.

In the range of permanent insurance, whole life insurance offers particular features that can be attractive.

With a grasp of the types of insurance available, you can understand the different situations and circumstances where certain features can be useful.

Life insurance and protecting loved ones

Life insurance protection is generally recognized as an important part of financial wellness. Yet, only about 52 percent of Americans own any, according to a recent study by the insurance research group LIMRA.¹And, even then, the amount of life insurance they have may not be enough. (Life insurance calculator)

Life insurance at different ages

There are also questions about the right time to get life insurance. Does is pay off to purchase a policy when you are younger, when it will likely cost less, or wait until you obviously need it? Answers can vary, but the question should be considered.

Life insurance and occupation

Many people own group coverage life insurance through their employer or other organization. In fact, 29 percent of American consumers overall own group coverage, according to LIMRA’s research.¹ But oftentimes, such coverage may not be enough and it has other drawbacks that need to be considered.

Life insurance and the end of life

Obviously the most critical role life insurance plays is when someone has passed and left proceeds to beneficiaries. Understanding what to do when it’s time to make a claim and how to implement final wishes can be challenging. Here’s some help.

Life insurance and retirement

Beyond protection for your loved ones, some types of life insurance, particularly whole life insurance, can provide a way to accumulate a source of funds. Those funds may help you address some of the financial risks during retirement, such as market volatility or could be used to provide supplemental retirement income.

Life insurance and taxes

Whole life insurance and some other types of permanent insurance offer tax advantages too, like tax-deferred growth as well as tax-deferred distributions. Also, death benefit proceeds are generally tax free.

Life insurance and estate planning

Proceeds from whole life insurance and other types of policies have long been used to help heirs deal with costs and taxes that can apply to inherited property and assets. They also avoid the expenses and delays of probate and are not part of any public record. But, as the estate size grows, there can be pitfalls.

Making life insurance a gift

A life insurance policy can also be a vehicle for helping young people get a head start and aiding worthy causes.

Life insurance for business

Many people don’t realize the critical role life insurance can play in starting or maintaining a business, small or otherwise.

Shopping for life insurance

Once you are familiar with the types of life insurance, their uses, and how they can possibly apply to your situation, you can start investigating specific options.

You also learn about the industry in general and the two basic types of companies operating within it.

Life insurance can be ... fun?

Life insurance discussions tend to be serious and focused, but not always. Life insurance, after all, pops up in movies from time to time, both comedy and drama. The industry has a long, rich history as well. Exploring can be fun.

Conclusion and help

Yes, life insurance comes in many forms and can have many uses. Depending on your circumstances, the choices can get challenging and confusing. Many people opt to consult with a financial professional who can help them make informed decisions.

____________________________________________________

^{¹LIMRA, “2023 Insurance Barometer,” April 2023.}

A complete guide to understanding life insurance

By: Allen Wastler