Sometimes, Life Happens: Why Life Insurance Continues to Protect Families

Life insurance can sometimes be a touchy subject for people. No one wants to talk about the inevitable, but it’s important to think about how to support your loved ones when you aren’t there.

Many believe they don’t need life insurance because they’re young and healthy, while others have become reluctant to invest in coverage because of the horror stories. Whether you believe you’re the healthiest 22-year-old to walk the planet or think you don’t have enough assets to require coverage, life insurance can provide financial security during difficult times.

Life insurance isn’t about planning for death but rather for protecting the people you love who financially depend on you. This September is Life Insurance Awareness Month. Worst-case scenarios aren’t ideas we like dwelling on, but now is the perfect time to share the importance of life insurance and how to review your coverage.

Life Insurance Awareness Month

Life Insurance Awareness Month was founded by the nonprofit organization Life Happens. They provide education and resources to reframe the way people think about life insurance.

Life Happens works to combat common misconceptions about life insurance and encourages families to discuss financial planning and protection. The nonprofit works with various life insurance companies to deliver accurate information about different coverage options, helping individuals determine what kind of coverage they need.

What Is Life Insurance?

Life insurance is a legal agreement between a policyholder and an insurance provider that promises to pay a sum of money to your loved ones when the policyholder passes away. The policyholder pays a monthly or yearly premium for coverage with the price determined by multiple life factors including age, gender, and medical history. When the policyholder passes away, the funds are given to the assigned beneficiaries.

The beneficiary can use the money for any number of things: lost income, funeral costs, debt repayments, or future expenses such as college tuition. Organizations and charities can also be designated as beneficiaries. Life insurance is meant to support your beneficiaries after you’ve passed, but it’s only one piece of a comprehensive financial plan. Life insurance acts as a financial safety net and should complement, rather than replace, a broader financial plan.

What Kinds of Life Insurance Are Available?

A common misconception about life insurance is that younger patrons don’t need it. But there are different types of life insurance that suit the different needs of all age groups.

Term Life Insurance. This type of life insurance covers a policyholder for a specific period of time. These policies are most commonly available in 10-, 20-, and 30-year terms. Term life insurance is particularly helpful if you need coverage for a set amount of time, for instance, if you want to have coverage until your children graduate or until the mortgage is paid off. This is often the most affordable option for life insurance and is good for younger families and income replacement.

Permanent Life Insurance. This life insurance keeps policyholders covered if they pay the premiums. While this type of life insurance is more expensive, premium payments accumulate cash value on a tax-deferred basis. These funds can be accessed to buy a home, support retirement income, and cover any emergency expenses.

Who Should Consider Life Insurance?

It’s important to consider obtaining life insurance coverage if you have a loved one who depends on you financially, including parents with dependent children and married couples or partners who share expenses.

You may also benefit from life insurance if you’re a homeowner with a mortgage or a business owner looking to keep family assets or businesses in the family. Finally, life insurance is beneficial if the policyholder has outstanding bills that arise after a person’s death.

Who Qualifies for Life Insurance?

Many people assume they don’t qualify for life insurance because of their assets, age, or health. However, most people can qualify for some type of life insurance.

When determining if someone is qualified for life insurance, the following factors are considered:

-Age

-Health history

-Lifestyle habits

-Occupation

-Coverage amount requested

When you first apply for life insurance, the application goes through underwriting. Underwriting is a process that evaluates your insurance risk. Some underwriting requires you to have a medical exam to determine your health. Your approval and premiums are determined from your application and/or your medical exam.

If you have a more complicated health history, you may have a higher premium. However, the earlier you apply for life insurance coverage, the lower your premiums could be. If you do have some health conditions, there are still life insurance options available.

What If I Am Denied Life Insurance?

First... breath. Second, you can contact the insurance company and ask why you were denied coverage. Once you have the reason, you can contact a financial expert who specializes in high-risk applicants to work to get the coverage you need.

Life Insurance and Taxes

Probably two of your least favorite things, right? Good thing they’re two of our favorite things. That’s why we’re here.

Usually, life insurance death payouts are not affected by federal income tax. Your beneficiaries will typically receive the life insurance money tax-free. However, there are a few exceptions.

Life insurance can become taxable if interest is earned on life insurance proceeds or if you sell your life insurance policy.

There are also special rules regarding certain types of life insurance policies. Some cash-value withdrawals could have tax implications and estate taxes may apply to some high-value estates.

We know that’s a lot to remember, but that’s why we’re here. It’s important to work with a financial professional because tax laws are complex. A tax expert can ensure you have proper reporting and can specifically tailor a financial plan that works for you and your circumstances. Everyone has a unique financial situation. Speaking with a financial professional can help you better understand your life insurance coverage options and help you work with beneficiaries to complete a plan.

Bottom Line: Have I Missed My Chance?

No! It’s rarely too late to consider life insurance. There are many different coverage options for multiple age groups. While it’s true that premiums may increase with age, life insurance coverage can still provide value.

Has it been a while since you last reviewed your life insurance policy? Consider a review if you’ve gotten married, had a child, bought a home, started a business, changed jobs, or experienced a major change in income.

Life insurance is about protecting the people who depend on you. Learning more about life insurance and its tax implications can help you make informed decisions regarding the type of coverage you need.

Whether you’re reviewing your current policy or looking to start exploring life insurance options, Life Insurance Awareness Month is a great reminder to continuously evaluate your financial arrangements and plan for the unthinkable. Contact an insurance professional and tax advisor today to begin planning.

If you would like to learn more about different life insurance options and resources, visit https://lifehappens.org/

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