Many individuals think about life insurance in a negative way and therefore avoid having critical discussions that protect their loved ones as a result of an unforeseen event. Truly, it should be considered one of the most essential building blocks of any sound financial plan. Life insurance can be used to provide support for family members after a person passes, the creation or transfer of wealth, estate planning, and many other functions. An understanding of a household’s financial picture is critical to selecting the right type and amount of life insurance.
There are a number of life insurance types to be considered and each has different benefits and limitations. The five main types of life insurance for any individual are term life, whole life, universal life, variable life, and burial life. Individuals need to ensure that they are selecting the right type of life insurance and the right amount of coverage. A few of the main factors that impact the amount of coverage to select would be the amount of debt in a household, the size and age of the family, and the financial needs of family members (health care, education, etc.).
While many find the discussions about life insurance and mortality daunting, it is imperative to have the discussions early in the financial planning process as waiting impacts the cost. Additional factors that impact the cost of insurance are the age and health of the insured individual, the type of coverage needed, the family history regarding health issues, the planning time horizon, types of additional riders/benefits, and coverage limits. Families should talk with a financial professional about their specific considerations and ensure that they have adequate protection.
