Who needs life insurance?
Would your family be financially secure without your income? Could you use another way to save for retirement? Life insurance can help you with both.
While talking about life insurance may not be a conversation you want to have, the sooner you do, the sooner you can rest easier about your family’s financial future.
Life insurance protects the ones who depend on you.
“Many people wrongly think of life insurance as a ‘necessary evil,’” says Nate Schelhaas, vice president and actuary of Individual Life at Principal.
During a recent discussion with consumers about life insurance, Schelhaas said that only 3 out of about 30 people viewed it as “essential part of their financial plan.”
And that's only because those 3 had actual experience with life insurance. One had even been able to stay in their house because of a deceased partner's policy.
“When you get some perspective,” Schelhaas says, “you see what a loving act purchasing life insurance really is.”
When is the best time to buy life insurance?
You may think life insurance is something to get when you’re older. Or only when you buy a house, or have a couple of kids.
But life insurance is typically cheapest when you’re young and healthy.
“You can get a meaningful amount of life insurance for a relatively low price,” says Schelhaas. “People don’t realize how affordable it can be.”
“The most important thing to remember is that if you wait to buy it until you need it, it may be too late,” says Schelhaas. “Trying to purchase a policy after being diagnosed with an illness could be cost prohibitive.”
There are life insurance options for a variety of needs and goals.
There are 2 main types of life insurance: Term life insurance and permanent life insurance (we define these 2 types more deeply below). Both provide tax-free payment (called “death benefits”) to your loved ones when you die, which they can use to:
- continue their lifestyle, even though your income is no longer available.
- cover your children’s college expenses, now or in the future.
- pay off debt, like a mortgage or student loans.
- provide income replacement if they would need to stop working to take care of your family.
Life insurance serves as a key financial tool for business owners as well. It can be used for business continuity purposes, to help attract and retain key talent or to help employees save for retirement.
Term life insurance
Definition: Term life insurance provides budget-based coverage for a specific period, or “term,” of time. Term lengths are typically 10, 15, 20, or 30 years.
This type of life insurance is an affordable option for covering costs that diminish over time, like consumer debt, your mortgage, and education expenses. Some term life policies can be converted to permanent life insurance policies, making them a great way to get started.
Is term life insurance right for you?
A term policy is a good fit if you’re young and still building income, or if you’re starting or growing your family. Rates are typically lower, so you can afford to pay for other expenses in your life while providing protection for your family if you’re no longer here.
Opting for a convertible term policy is wise. At the end of the term, you can convert the policy to permanent life insurance, without having to go through the underwriting process (proving your insurability) again. This could save you a lot of money and worry.
“For example,” Schelhaas says, “let’s say someone was diagnosed with Stage 4 cancer and had a convertible term policy that was about to run out. He could convert the term policy to a permanent life insurance policy. If he’d let the policy lapse, he might not qualify for a new policy.”
Permanent life insurance
Definition: Permanent life insurance offers long-term coverage with long-term benefits. In addition to providing a tax-free payment to your loved ones when you die, permanent life insurance polices accumulate cash value—which you can to use in your lifetime.
Is permanent life insurance right for you?
If you’re looking for ways to potentially build wealth, leave a legacy, or save more for retirement, consider a permanent policy. These policies generally have a higher initial premium, but a portion of those premiums goes toward growing cash value, which helps offset costs over time.
The cash value of the policy grows tax-deferred. You can use this money to supplement your family’s retirement savings or emergency fund, or cover an expense.
How much cash value you earn depends on the type of permanent life insurance policy you choose. Some policies may have investment options and offer a higher risk/reward, while others take a more conservative approach with fixed interest rates.
Nothing matters more than taking care of those you love. You can invest in their future (and your legacy) by adding life insurance to your financial plan.
All guarantees are subject to the claims-paying ability of the issuing insurance company.
In exchange for the death benefit, life insurance products charge fees such as mortality and expense risk charges and surrender fees.
Insurance products issued by Principal National Life Insurance Co. (except in NY) and Principal Life Insurance Co. Plan administrative services offered by Principal Life. Securities offered through Principal Securities, Inc., 800-247-1737, member SIPC and/or independent broker/dealers. Principal National, Principal Life, and Principal Securities are members of the Principal Financial Group®, Des Moines, IA 50392.
Principal, Principal and symbol design and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.