You probably won’t see it on your calendar, but September is Life Insurance Awareness Month. And it is indeed important to be aware of the importance of life insurance. Are you adequately insured?
Many people aren’t. About 40% of Americans face some type of life insurance gap, either because they’re uninsured or underinsured, according to a 2021 survey by the research and advocacy groups LIMRA and Life Happens.
The need for life insurance is pretty straightforward: If something were to happen to you, would your family be able to continue their same lifestyle? Would the mortgage still be paid? Would your children still be able to further their education?
So, if you decide that you should acquire or strengthen your life insurance, how much do you need? Your employer may provide you with some insurance as an employee benefit, but it may not be sufficient. You might have heard that you should have coverage worth seven or eight times your annual salary. But this estimate is just that — an estimate. Everyone’s situation is different, and there’s really no one formula that can tell you how much insurance you require. To determine the coverage you need, you’ll want to consider several factors, including your age, number of dependents, your income and that of your spouse and the size of your mortgage.
Knowing how much coverage you need is obviously important, but you’ll also want to consider what type of life insurance is right for you. You have two basic choices: term or permanent insurance.
As the name suggests, term insurance provides coverage for a specified amount of time, such as 10, 20 or 25 years. Term insurance only offers a death benefit — there’s no buildup of cash value in your policy. Generally speaking, term insurance is considered to be quite affordable, especially when you’re young.
Permanent insurance, on the other hand, offers a death benefit and the opportunity to build cash value. Because of this, premiums for permanent insurance — which includes “whole life” or “universal life” — are considerably higher than those for term life.
Which type of insurance should you choose? Again, it all depends on your situation and your preferences. Some financial experts advise people to “buy term and invest the difference” — that is, use the money saved on the lower term insurance premiums to invest in stocks and mutual funds. Others, however, disagree, and point to the benefits of permanent insurance, such as the ability to borrow against the cash value of a policy to pay for unexpected expenses. Ultimately, in making the choice between term and permanent insurance, you’ll need to look at your entire financial picture to determine which option is best for you.
In fact, life insurance should be a key component of your overall financial strategy, along with your investment mix and the long-term goals you’ve set. Insurance can even play a role in your estate planning, as you determine the best way to distribute assets to your family members and any charitable organizations you support.
Life Insurance Awareness Month lasts 30 days — but your need for life insurance can endure for decades. Make sure you’re doing everything you can to protect your loved ones.