Congress proclaimed September as "National Life Insurance Awareness Month." Most states are making similar proclamations. More than 100 insurance companies and industry trade groups are expected to participate in the campaign.
While most Americans recognize that it is important to protect loved ones with life insurance, far too many lack adequate education and coverage. Therefore, I want to pass along some life insurance basics.
Life insurance is an agreement between you and an insurance company. Under the terms of a life insurance policy, the insurer promises to pay a certain sum to your beneficiary upon your death, in exchange for your premium payments. Proper life insurance coverage should provide you with peace of mind, since you know those you care about will be financially protected after you die.
One of the most common reasons for buying life insurance is to replace the loss of income that would occur in the event of your death. When you die and your paychecks stop, your family may be left with limited resources. Proceeds from a life insurance policy make cash available to support your family almost immediately upon your death. Life insurance is also commonly used to pay any debts that you may leave behind. Life insurance can be used to pay off mortgages, car loans, and credit card debts, leaving other remaining assets intact for your family. Life insurance proceeds can also be used to pay for final expenses and estate taxes. Finally, life insurance can create an estate for your heirs.
Your life insurance needs will depend on a number of factors, including whether you're married, the size of your family, the nature of your financial obligations, your career stage, and your goals. There are plenty of tools to help you determine how much coverage you should have. Your best resource may be an independent, fee only advisor since they have a fiduciary responsibility to you with no conflicts of interest. Since your needs change over time, you'll need to continually re-evaluate your coverage.
While there are various types of life insurance (Term, Whole-Life, Universal Life, Variable Life, and Variable Universal Life) it is my opinion that most Americans are best served with a no-load convertible term life insurance policy with level payments that is convertible to a permanent policy with level payments.
Any policy that you buy is only as good as the company that issues it, so investigate the company offering you the insurance. Ratings services, such as A. M. Best, Moody's, and Standard & Poor's, evaluate an insurer's financial strength.
Do you have adequate coverage?
Chris Bryant is an American financial advisor.