Life insurance can offer much more than peace of mind to you and your loved ones.
Whenever a new year approaches, I tend to reach for my pair of rose-colored glasses and make a list of resolutions that will help me become a happier, healthier and wealthier version of myself.
If you’re filled with a similar sense of optimism, life insurance might be completely off your radar. But year’s end is a good time to reassess your financial priorities and how to help protect those loved ones who are financially dependent on you (or your spouse) for lifetime income.
Two main types of life insurance: Which one might be right for you?
Term life insurance has an endpoint; in other words, you’re only covered for a set period of time (a typical term is 20 years). It is frequently referred to as pure life insurance, designed to cover your dependents in the event that you die prematurely. It can also be used to cover remaining mortgage payments, if you want to ensure the house can be paid off. It’s the most basic, affordable option; however, your loved ones may never receive the benefit should you outlive the term of the policy.
Permanent life insurance, on the other hand, may be more appropriate for individuals who are taking a longer-term approach, as it has the advantage of providing the policyholder with the opportunity to accumulate money and transfer wealth. (Whole life insurance is the most popular, and least expensive kind of permanent life insurance.) With a permanent life insurance policy, you have the potential to build tax-deferred cash value. Policies can also provide an estate with liquidity should the need for quick cash arrive, whereas other assets, such as a home, cannot be so easily tapped into.
Talk to a life insurance agent or with more complex estates, an estate planning attorney, about these options—inquire which is the most appropriate choice for you and your family’s estate planning needs.
Plan how your loved ones will benefit
The kind of insurance you choose often depends on the likely beneficiaries of your policy. For example, if you have a loved one with special needs, he or she will likely require lifetime care. In situations such as these, where lifetime income would be required, whole life insurance may be the most suitable option.
You may already have considered setting up a trust to provide instructions on care for any children or loved ones with special needs. In addition to outlining instructions for the care of that beneficiary, part of the trust can include how you wish your assets to be distributed in the event of your death. If you take out whole life insurance, the need for such a trust is especially pressing. Your estate planning attorney can help ensure that the wealth you accumulate in your insurance policy is passed on tax efficiently.
Not just for breadwinners
Typically, the working parent, or the family’s biggest earner, is the one to take out a life insurance policy, since that person brings in the lion’s share of household income. His or her death would have a negative financial impact on the surviving loved ones, since their main source of income would be lost. Term or permanent life insurance can help insure against this eventuality, providing everyone with considerable peace of mind.
However, what many families neglect to think about is the considerable expense of childcare that would become necessary if anything happened to the other parent, the one perhaps staying at home full time to provide care. That’s why life insurance is something that both parents should consider.
Why now could be the right time to think about life insurance
When I look forward to a new year, and the changes I’ll be making to my diet and exercise routine, the last thing I want to think about is my own mortality. And yet it’s always those clients of mine who are in tip-top condition, health-wise, that I especially encourage to purchase a policy: After all, it’s significantly more expensive to purchase whole life insurance after becoming disabled or after receiving a cancer diagnosis. Eligibility may also be affected by an adverse health diagnosis.
So, as you confidently look ahead each year—to how much you plan to save and how little you hope to spend—also consider life insurance options and how they might help protect your family from whatever fate has in store. Policies are as varied as brands of coffee in the supermarket. What is crucial, however, is that you do plenty of research, get your financial advisor involved, and consider the financial strength and ratings of the insurance company.
Here’s a helpful tip: Check out this online “Life Wizard” insurance calculator <https://www.tiaa.org/public/lifewizard.html> as a starting point. It will help determine if you need life insurance, estimate how much you’ll need and how much a term insurance policy may cost. And it will only take you a few minutes to use!
It is important to keep in mind that loans and withdrawals from policy cash values will reduce those values and the death benefit and may have tax consequences.
Life insurance policies contain exclusions, limitations, reductions of benefits and terms for keeping them in force. A financial professional can provide you with costs and complete details.
TIAA-CREF Life Insurance Company is domiciled in New York, NY with its principal place of business in New York, NY. Its California Certificate of Authority number is 6992.
Life insurance is issued by TIAA-CREF Life Insurance Company, New York, NY.