In 2023, 52% of Americans reported having life insurance, either through their employer or personally purchased policies. Despite the benefits, however, many families remain underinsured, with 42% stating they would experience financial hardship within six months if the primary earner passed away.
So, what is life insurance? And why is it important to have? Continue reading to learn more about life insurance and the benefits it can provide for you and your family.
What is Life Insurance?
Life insurance is a contract between the insurer and the insured that provides financial support to the policyholder’s loved ones or other beneficiaries after their death. The financial payout can be used to cover living expenses, education, mortgage payments, burial costs, or any other expense that the beneficiary chooses.
Types of Life Insurance
Knowing the different types of life insurance is crucial to understanding the question, “What is life insurance?”
Term Life
Term life insurance offers coverage for a certain amount of time. This type of insurance is one of the most affordable options and suits those who require protection only for some time, such as until their mortgage is paid off. It is important to note that your beneficiaries only receive the payout during the policy’s term.
Whole Life
Whole life insurance is part of permanent coverage, which protects your entire life as long as you keep up with the premiums. Whole life insurance also includes a savings component, in which cash value accumulates over time at a fixed rate.
Although initial premiums are higher than term life, whole life insurance offers benefits such as guaranteed cash value growth and a fixed policy (your rate does not change; you pay the same amount every month).
Universal Life
A Universal policy, like Whole Life Insurance, is a type of permanent coverage that provides lifetime protection and the ability to build cash value. However, unlike Whole Life Insurance, Universal Insurance offers greater flexibility regarding monthly rates. Policyholders may reduce or increase premiums based on their financial situation.
Final Expense
A final expense policy is a type of whole life insurance that is less expensive but has a lower death benefit because it primarily covers end-of-life expenses like burial and funeral costs. A final expense policy is recommended for those over 50 years old.
Why is Life Insurance Important?
Financial Protection for Loved Ones
One helpful question to ask yourself to help you determine if you need life insurance is: If you pass away, would your loved one experience financial hardship? With life insurance, you ensure that your loved ones are protected from potential hardship and can continue to live their lives, paying essential costs.
Peace of Mind
Worrying about your family is normal. We want our loved ones to be happy and healthy. Providing financial security when you can’t be in control anymore will give you peace of mind, knowing that your dependents will be taken care of when you’re no longer around.
End-of-Life Expenses
When one passes away, there are death-related costs, such as funeral and burial costs. It’s estimated that these costs alone can cost up to $10,000. With certain life insurance, these expenses can be covered, such as with final expense insurance, ensuring you don’t put any burden on family members.
Who Needs Life Insurance?
While life insurance is not required, many opt to purchase it to provide financial security for their loved ones. Individuals choose to do so at various stages of their lives, such as when they go through a significant life change, like marrying or having children. Here are some other situations where life insurance is beneficial:
Individuals with Dependents
The first important beneficiaries of life insurance are the people who rely on you financially. For example, suppose you are a parent or guardian. If something happens to you, you want your children to be able to meet their basic needs.
Homeowners with a mortgage
A mortgage is often the most significant financial obligation a person can have. With the proper coverage, you can avoid passing on this responsibility to your loved ones and causing them financial hardship. Life insurance can help pay off your remaining mortgage, providing stability and protection for your beneficiaries.
Business owners
Life insurance can provide a safety net for your business. It ensures your company has enough funds to cover expenses in your absence. Furthermore, if you have a business partner, life insurance can help fund a buy-sell agreement, ensuring that your partner owns a portion of the company.
Single Individuals
Life insurance can be beneficial even if you are a single person with no dependents. It can pay off your debts, such as student loans and credit card balances. The right coverage can also cover your burial costs, ensuring that you do not leave your family members with expenses related to you.
How Much Life Insurance Do You Need?
The amount of life insurance you need is determined by your circumstances. The first important consideration is your financial obligations. Assess your debts, mortgages, and credit card payments, as well as your future expenses and income level.
Next, consider your beneficiary’s needs. How old are they? What stages of life do they still have to go through? Are your children still young and need to attend school? Or are they about to graduate from college and begin their careers? Once you have every single important detail jotted down, you can move on to choosing the right life insurance policy.
How to Choose the Right Life Insurance Policy?
Choosing the right life insurance policy should be in line with your goals. Determine your short- and long-term goals and then begin budgeting your finances to meet those goals. Finally, work with a professional insurance agency, like Diemert Insurance, to help you navigate the process effectively, reduce errors, and obtain the best insurance policy for your specific needs and circumstances.
Common Misconceptions about Life Insurance
What is life insurance, and why is it important? Understanding common misconceptions about life insurance can help us answer these questions.
The first common misconception is, “I don’t need life insurance because I’m young.” This could not be farther from the truth. We are all aware that death can occur at any time, regardless of age. We cannot predict when we will die, so age should not be a reason to avoid getting life insurance.
The second one is, “Life insurance is too expensive.” Although we understand where you are coming from, providing a secure financial net for your loved ones is worth the investment.
Last, “I have enough coverage through my employer.” While employer-provided life insurance is greatly beneficial, it is often insufficient to meet your family’s financial needs. Group policies typically provide limited coverage. With life insurance of your choosing, you can opt for a policy that covers your needs and preferences, Ensuring your loved ones are fully protected.
Why Choose Diemert Insurance for Life Insurance
People have insurance for their homes, cars, and businesses. Although those are important, someone close to you deserves equal, if not greater, protection. It can be overwhelming and emotional to prepare for difficult situations. However, you must protect yourself and your family by planning.
Choosing Diemert Insurance to help you with your life insurance policy ensures that you select a policy that will meet all of your requirements and preferences. Contact our team today to begin planning your life insurance for the complete protection of you and your family!
Helping homeless families in the Pittsburgh area, the Neighborhood Living Project is a UPMC-backed grant funded Program. They serve an array of individuals and families who have come from shelters, abandoned houses, and places not meant for habitation. This includes children living in the foster care system or with other family members until reunification occurs. In total, they support over 300 households, which amounts to nearly a thousand people.