When a loved one dies unexpectedly, the last thing families should have to think about is how they’re going to pay the bills or whether they can stay in the house. But the reality is that, according to research from LIMRA1, 35% of households would feel the financial impact of losing a primary wage earner within 30 days. Half of households would feel the impact within six months.
September is Life Insurance Awareness Month, and the perfect time to think about your life insurance needs.
“Life insurance is a simple and relatively inexpensive way to ensure your family has control over how they move forward after your passing,” says Sean Scaturro, Director of Insurance Advice and a Certified Financial Planner for USAA.
So why don’t more people have it? Scaturro lists general misunderstanding about the product and competing financial priorities as the two most common reasons that people don’t have coverage.
“Consumers generally overestimate the cost of life insurance by three times, according to LIMRA,” he says. “The reality is that you can usually get a good amount of coverage for a fairly low price — maybe a couple pizzas per month.”
Here are the biggest questions around life insurance:
Who needs life insurance?
The short answer, according to Scaturro, is nearly everyone. “If someone would be negatively impacted financially by your passing, you need life insurance,” he says. “So, whether you’re single, married, kids or no kids, you likely need life insurance.”
What type is best?
There are two general types of life insurance — term and permanent. Term lasts for a set period — 10, 20, 30 years — and provides coverage if you pass away during that term. It may also be the most affordable type of life insurance. Permanent life insurance lasts your entire life, if premiums are paid. It’s a more expensive option, but has added benefits, such as gaining cash value, that could make it a positive addition to a retirement plan.
How much coverage should you have?
A quick and easy way to estimate your overall life insurance needs is using the acronym L.I.F.E. (Liabilities & debts, Income to replace, Final Expenses, Education or Extra Goals to be paid for). Then subtract any existing policies, such as coverage provided by an employer, along with any savings, to determine your life insurance gap. Many online calculators exist, including one offered by USAA at usaa.com/lifeadvice.
If you have a free or low-cost option for coverage through your employer, take it, says Scaturro. But that shouldn’t be your only coverage.
“Employer sponsored plans typically offer a flat benefit, like $50,000, or a multiple of your annual salary,” he says. “This is a great benefit, but since it’s tied to your employment, if you leave that job, you may lose that coverage. That’s why it’s important to have a private policy in addition to your employer or group policy.”
The most important thing is to make sure your family is taken care of if something happened to you. Today is the day to make life insurance part of your financial picture and know that your loved ones are protected.
Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP(R) and CERTIFIED FINANCIAL PLANNER(TM) in the United States, which it awards to individuals who successfully complete the CFP Board’s initial and ongoing certification requirements.
USAA means United Services Automobile Association and its affiliates. Financial advice provided by USAA Financial Advisors, Inc. (FAI), a registered broker dealer, USAA Investment Management Company (IMCO), a registered broker dealer and investment advisor, and for insurance, USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California, License #OE36312). Investment products and services offered by IMCO and FAI. Life insurance and annuities provided by USAA Life Insurance Co., San Antonio, TX, and in NY by USAA Life Insurance Co. of New York, Highland Falls, NY. Other life and health insurance from select companies offered through USAA Life General Agency, Inc. (known in CA (license #0782231) and in NY as USAA Health and Life Insurance Agency). Banking products offered by USAA Federal Savings Bank and USAA Savings Bank, both FDIC insured. Trust services provided by USAA Federal Savings Bank.
USAA Level Term V: LLT98952ST 05-18 (may vary by state). In New York, New York Term Series V: NLT45861NY 01-04. Universal Life: LUL69700ST 01-08 (may vary by state). In New York, NUL87859NY 04-08. Simplified Whole Life: LWL38362ST 05-01(may vary by state). In New York, NWL46017NY 01-05.
1LIMRA Insurance Barometer Study, 2018-2019