A family member recently suffered serious injuries when he fell from a ladder. All too commonly it’s an occurrence like that which makes us realize death can hit us anywhere and at any time.  Without protection, your premature death can devastate the quality of life your family is left behind to endure. Do you, and your family, to have the peace of mind that comes from knowing you have things covered, no matter what life throws at you? Life insurance has the ability to provide a foundation for your family’s financial future.

General Patton has been quoted frequently as having said “a bad plan is better than no plan at all”. The quote may stem from military activities but it applies to life insurance. Some life insurance is better than none at all. The amount you need varies according to your life’s challenges. Questions relating to life insurance are commonly overwhelming. No doubt you need to consider the best use of your financial resources. If you die tomorrow, how much debt do you leave behind? Financially, how much will your spouse and kids need to carry on without you? What will child care cost? What will college cost? What will day to day living cost? These expenses need to be projected, and then compared to what resources your spouse would have from any existing life insurance, salary, savings, and other investments. How about your home’s real estate value?

It’s important to understand your options and how life insurance can work for you. The biggest question asked is how much life insurance do I really need and how can I afford it?  These are tough questions to ask, but you can’t plan for your family’s fiscal future after you’re dead; it’s too late then to buy more insurance. It also becomes cost prohibitive after your health fails, or an accident leaves you with permanent injuries.

Life has challenges that affect us differently at each stage of our lives. You need differing amounts of insurance at each phase.  While we’re young and care free; no kids, no commitments equals no life insurance. Then comes the life style change associated with having kids and a mortgage to impede your ability to afford life insurance when you need it most. As the kids become teenagers, you’ll find yourself behind in college planning; how do you afford it then?  After the nest is emptied, many cut back on life insurance unless, like me, you commit your savings to start your own business. Through all those stages, the right time to buy life insurance at a minimum is when you recognize that you should have it.

How do you map out your needs throughout each phase of your life?

First, look at your income expectations. Look where you are at now. Look at your future income potential. Look at savings, investments, the value of property, and your spouse’s income and potential future income. While we’d all like to leave our spouse on “easy street”, the cost to do so could be better spent on your quality of life now. Also, reality is that men on average remarry after 4 years and women after 7. Include that in your planning

Next identify your regular occurring expenses for food and clothing or arising from auto and home loans, maintenance, health insurance, student loan payments and any other short term debt payments.

Identify major expenses or big goals like the purchase of a home, savings for retirement, or paying for college tuitions. Your plans for these activities will steadily have payments made with a diminishing need in the future. Until they are paid for, life insurance will be needed to make up the shortfall

After identifying these financial goals, add them to your day to day expenses. Calculate a monthly expenditure for all of them. Now compare your income to expenses. Identify the shortfall when your income is no longer part of the picture. Adding up that shortfall month to month and year to year is a simplistic approach to calculating your life insurance need. There are “apps” for that too.

After such an exercise, you’ll likely be left with a daunting realization that you need more life insurance than you can afford now. You’re not the first person to discover your financial needs exceed your life insurance resources. For over 100 years insurance companies have been trying to meet the needs of every family out there. Early years, you had to choose between a “whole life” and a “term” policy. Every company now has programs that combine the features of traditional life insurance with investment options to better meet your long term needs. The better you understand the different types of life insurance, the easier it will be for you to decide which type of policy is best for you.

So how does life insurance work?  What Options Are Available?

Term insurance is often considered the lowest cost life insurance. If your insurance need is only temporary, that may be true. Term insurance premiums stay the same and cover you for a specific term. At the end of the term, you may continue year to year with the policy but premium increases can be substantial as you age. Term insurance generally does not offer the opportunity to accumulate cash value.

For the long term need, there are more cost effective options. Permanent or long term life insurance policies commonly provide an income tax-free, death benefit for your family to help cover mortgage, education, monthly bills and final expenses. They commonly offer a tax-deferred build-up of policy cash values, access to cash values through loans and withdrawals to help meet emergencies, or supplement an income stream.

Whole Life insurance offers guaranteed premiums, death benefit and cash value. Policy values have the potential to be enhanced through dividends paid by the insurance company.

Fixed Universal life insurance offers a flexible premium with an adjustable death benefit and credits a fixed interest rate for the cash value within the policy.

Indexed Universal life insurance offers premium flexibility and an adjustable death benefit with the ability to earn interest based in part on the change in value of a major market index.

Variable Universal life insurance offers premium and death benefit flexibility and offers the potential for market-type returns on cash value growth.

Many life insurance policies offer optional living benefits that can provide access to the death benefit during your lifetime in the event of a qualifying terminal, chronic, critical illness or critical injury.  These benefits may be used to cover medical expenses, additional care, home renovations, or business expense.

By this point I hope you realize that life insurance has evolved in its offerings. Before buying a policy, align yourself with an agent who will evaluate all options to share with you the program that best meets your needs.