The Importance Of Life Insurance
A recent survey carried out by New York Life analyzed life insurance protection before and after the Great Recession. The study revealed that most Americans had life insurance cover equating to three years’ worth of earnings. However, it also found that the gap in protection has widened significantly. The study reported that Americans wanted their life insurance to support them financially for at least 14 years after the loss of a breadwinner. Yet in reality, these individuals only had protection in place for a maximum of three years.
According to the study:
- Prior to the Great Recession, the median amount of life coverage people had amounted to $300,000, while the amount they needed to cover their expenses amounted to $589,378
- This equated to a shortfall of $289,378
- In 2013 however, the median amount of cover in place became $220,000, while the amount of cover needed amounts to $540,000
- This resulted in a shortfall of $320,000 – a shortfall of 59% between the financial goals of the respondent and the death benefit payable in the event of the breadwinner’s death
- This shortfall has increased by 11% from 2008 to 2013
This lack of adequate life insurance coverage can have significant repercussions. It could result in many people missing many of their widely held goals. These could include goals such as paying off mortgages, funding college education or having sufficient funds for their retirement years.
Why You Must Consider Obtaining a Life Cover
Life insurance aims to provide financial security for the insured’s family, in the event of the insured’s death. Not many people want to think about the conditions surrounding their deaths. Similarly, not many people will want to consider the possibility that they could die prematurely or die in the prime of their lives.
If the deceased, who suffers an untimely death, was the sole breadwinner, the bereaved family will find themselves confronting an uncertain future – especially financially. Life insurance provides financial support in times like these. It ensures that the bereaved members of the family have the money to meet their living expenses, even as they come to terms with their loss.
Therefore, consider purchasing life insurance so that you:
- Can provide for your dependents in the event of an untimely death, thereby enabling them to maintain their lifestyle even in your absence
- Can meet the future expenses of the household e.g. children’s education etc.
- Can invest your savings in policies like variable life insurance policies, thereby increasing your cash value at a much faster pace
- Can accumulate a higher cash value through universal life insurance policies, thereby making the accumulated amount a cash reserve effectively
- Can obtain coverage for specified duration of years or for the entire duration of your life
- Can sell the policy especially if you’re terminally ill and need the funds for covering your medical and other expenses
- Can discharge your debts such as private student loans, mortgages etc.
The Top Myths Associated with Purchasing Life Insurance
Many people believe that having life insurance is beneficial. However, many of them do not purchase life insurance because of the following reasons:
- Employer-Provided Life Coverage: Many employers offer health and life insurance coverage to their employees. However, this cover is usually just about one to two times the employee’s annual income. Ideally, the cover should be at least seven to 10 times the employee’s annual income.
- Expensive Premiums: Premiums for life insurance are usually lower than for other forms of insurance. Many term policies offer cover for premiums of under $100 a month.
- Complicated Jargon: Life insurance does come with some jargon. However, the agent or broker of any life insurance company could make it easier for you to understand. The agent or broker could help you find the policy that meets your requirements perfectly.
- Procrastination: The older you get, the higher your premiums will be. Therefore, it’s best to purchase life insurance when you’re young. Estimates suggest that a 20-year term policy for a 25-year old individual with a sum assured of $250,000 will amount to $13 a month. However, if a person aged 50 years were to purchase this cover, this individual might need to pay $43 a month
The Main Categories of Life Insurance Policies
There are various types of life insurance policies available these days. Life insurance policies typically comprise:
- Term Life policies: Opt for these if you need life cover for a specific duration or if you have a limited budget
- Permanent Life policies: Purchase these if you need insurance throughout your lifetime or if you want to accumulate a cash value that will grow on a tax-deferred basis
Purchasing life insurance is important. However, ensure that you review it annually. This will enable you to make sure that the policy continues to protect your loved ones in the way that you envisioned at the time of purchase. Your expectations from your life insurance policy will tend to evolve throughout your lifetime. Therefore, ensure that your policy continues to keep your family financially secure – especially when you’re not around.
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