Why life insurance should be part of your financial plan

If you believe life insurance is an important policy to have, you're in the overwhelming majority. A whopping 85% of Americans believe life insurance is a necessary part of a financial plan. But there's a disparity between belief and execution. According to consulting and research firm LIMRA, just 54% of adults have some type of life insurance, while only 40% have adequate coverage.

While talking about life insurance can be difficult, one way to align your beliefs with your financial plan is to think about how a life insurance policy can protect your family's financial future. Depending on your policy and coverage, it can help ease the financial burden for your family when their minds may be occupied with other things.

Who needs life insurance?

Anyone with a family or loved ones who depend on them financially should have a life insurance policy. The policy provides funds for your loved ones, also known as your beneficiaries, to:

• Replace income
• Pay off debt
• Cover funeral expenses
• Provide for educational expenses

Life insurance provides financial security to survivors when they need it most. And it doesn't just provide a death benefit. In fact, many life insurance options offer living benefits and investment opportunities that can be enjoyed during the insured's lifetime.

The difference between term and permanent policies

When researching life insurance options, you'll need to decide if a term or permanent policy is better for you. There are a few key distinctions between these two types of policies.

Term life insurance

Term policies cover the insured for a specific period of time and can often be a more cost-effective type of life insurance. The benefit expires at the end of the specified term, but some policies may offer the option to convert to a permanent policy down the road.

Overall, term policies may be an option for those seeking:

• An affordable policy that provides maximum coverage
• Protection needs that may include paying for large expenses during a certain period of time
• Additional coverage for an existing life insurance plan

Permanent life insurance

Permanent life insurance provides protection for the life of the insured combined with a cash-value component, which allows premiums to accumulate in a savings or investment account. Permanent policies tend to be more expensive than term policies but may be worth it for those who want lifelong coverage. With many permanent policy options available, each is designed to accommodate individual financial goals and circumstances.

There are three main types of permanent policies: whole, universal and variable. Each type is meant to suit each individual's risk tolerance.

• Whole life insurance: The least risky of the three, whole life insurance is a lifetime policy option where fixed premiums are paid for a set number of years—or over a lifetime. It grows at a guaranteed rate, providing cash value that can be accessed during the insured's lifetime.
• Universal life insurance: A policy that's a bit risker is universal life, which offers a savings element structured with flexible premium alternatives that may be linked to market performance or interest rates.
• Variable universal life insurance: The riskiest policy option, variable universal life insurance is designed with flexible premium alternatives that provide access to market performance. This is commonly done through the use of mutual funds, which are referred to as sub-accounts. With this type of policy, the risk of market performance is transferred to the insured.

If you're considering permanent life insurance but are unsure of your risk tolerance, have an honest conversation with your financial consultant about your perception of risk. This can provide helpful guidance as you select the type of permanent insurance policy that's best for you.

When to consider life insurance

There are certain times in your life when you can and should consider taking out a life insurance policy. Some of these times include:

• Buying a new home
• Getting married
• Having children
• Changing jobs or your career
• Buying or selling a business
• Becoming a grandparent

Overall, consider life insurance when your financial plan needs to adapt for things like funding an education for yourself or a child, retirement, charitable giving or estate planning.

Life insurance misconceptions

There are many misconceptions about life insurance. Here are some of the most common ones.

• Group life insurance is available through work. The average person has several jobs throughout their lifetime. Maintaining a personal policy—especially if you're healthy—may be more cost-effective than obtaining a policy each time you start a new job. Having a personal policy also means you're covered during times when you're not working for an employer.
• Life insurance costs too much. The cost of insurance depends on various factors, from how healthy you are to how much coverage you want to buy. More importantly, in the event of premature death, the premium cost may be minimal compared to the financial burden that could be left to your surviving family or beneficiaries.
• The process is overwhelming. Buying life insurance can be overwhelming, but only if you don't have a partner on your side who understands your risk tolerance and financial goals. A wealth consultant can offer key guidance throughout planning, which can help you find the most appropriate coverage.

The bottom line

The primary reasons to have life insurance are to protect your financial plan and help your family financially when you're gone. The size of your estate doesn't matter—and it doesn't prevent you from getting life insurance if you choose to buy a policy. With so many options available, there's an appropriate policy for each estate.

To explore life insurance solutions, talk with one of our financial consultants.