The 411 on life insurance

Jonathan Kaupanger
September 13, 2018 - 3:51 pm

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If your spouse died tomorrow, would you feel financially secure?  Could you pay the mortgage?  The college bills?  Would you need to change your lifestyle completely?

More than a third of Americans say that would happen.

Choosing life insurance can be trying.  The fact that it is insurance on your life brings up the thought of your own mortality.  But the most important thing to understand about life insurance is what it does: it relieves financial burden when they need it most.

“When they’ve lost a loved one and they’re looking at how they maintain their financial position, life insurance will keep families in their home,” says Sean Scaturro, USAA’s Director of Life and Health Insurance Advise. “It helps kids stay at the schools that they’re going to and helps them maintain the activities that they’re used too.”

Buying life insurance can be challenging and confusing, so Scaturro says to keep it as simple as possible.  Once you get through all the legal terminology, simply think about your needs and what you want to have covered.

The two most populare form of life insurance are basic term and permanent.

Basic term insurance is like renting.  You get it for a set number of years at a set price. If you die during that time, your heirs get that pre-determined amount. For example, you could buy term insurance for 20 years for $250,000.  For the next 20 years, you pay the monthly premium, and if you die within those 20 years, your heirs receive the $250,000.

Permanent life insurance is just like it sounds: it lasts your entire life and gains cash value. Also called whole life or universal life insurance, it can be a function of estate planning. The premium is the same as long as you live, the benefit is guaranteed, plus the cash value accumulates at a guaranteed rate. Maybe you want to leave money to other relatives or to charity.  Permanent life insurance is also like a bank account: you can also borrow against it, but it decreases the payout after your death.  

“When it comes down to folks that are either starting out with life insurance, typically term insurance is the thing they should look at first.  Term insurance is really great if you pass away in the next number of years for the things you need,” says Scaturro with an emphasis on need.  “Would you need the home paid off?  Other debts paid off or an income being replaced just so you can maintain the standard of life.”

Scatturo suggests you review your life insurance each year.  This doesn’t mean that you need to shop around for new life insurance each year, but instead look at how much coverage you have and ask yourself if your needs have changed.

Finally, your health isn’t guaranteed. As you age and your health changes, life insurance becomes more costly.  Being forward thinking and buying a policy now while in good health insures you can actually continue life insurance or get more in the future.

Find articles to help get the life insurance conversation going with your family and many other financial tools and resources at USAA.com/life

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