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Life Insurance as a Planning Tool

By Susan Doktor

Life insurance is a frequently-recommended component of a sound financial plan. And in the

US, consumers are heeding financial experts’ advice. According to the Insurance Information

Institute, 54% of Americans carried life insurance in 2020. Commonly purchased for

investment purposes, buying a life insurance policy is also an important move for anyone who

wants to be certain their loved ones will be financially secure when they pass on. But life

insurance policies vary a lot. And the type of coverage that’s most advisable for you at one

point in your life may not be the same as you age. Let’s take a look at some of the options

you might consider when choosing the best life insurance policy for your needs.

Term Life Insurance: Inexpensive When You’re Young

Term life insurance is often recommended for younger people who don’t have a lot of money

to spend on more expensive whole life policies. If you’re single and have no dependents, you

may not need life insurance at all. But if you have kids, it’s essential to provide for their

welfare when you’re no longer around to take care of them. While you’re young and healthy,

term life is very reasonably priced. As you get older, insurance companies consider you a

riskier proposition, and you can expect your premiums to go up.

A term life policy pays a death benefit only. It doesn’t accumulate value and it will only pay a

benefit for as long as you keep up with your premiums. The person who receives the benefit is

called a beneficiary. Since kids aren’t very good at managing money, parents will usually

name their kids’ other parent or a trusted guardian as the beneficiary. Choosing the right

beneficiary is an important part of estate planning, as is appointing a guardian for your

children in your will.

Whole Life Insurance: A Long-Term Investment

The idea behind whole life insurance is that it’s something you keep for your entire life. As is

the case with term life insurance, you choose the value of your policy death benefit. The

higher the benefit, the more expensive your premiums will be. The difference is that the

premiums you pay for whole life insurance add cash value to your policy. Whole life is akin to

a savings account with a death benefit attached. If you stop paying your whole life premiums,

it won’t pay a death benefit. But you (or your heirs) will still walk away with a portion of

what you paid in premiums. A whole life policy is an asset you can borrow against or even sell

during your lifetime. Many experts recommend making both term and whole life a part of

your financial plan. They also advise you to reassess your insurance needs as your

circumstances change.

Life Insurance Beneficiaries: Why You Need One

One of the more common mistakes people make when purchasing life insurance is failing to

name a beneficiary. When you don’t name a beneficiary, the proceeds of your policy transfer

to your estate when you die. That may trigger the probate process, which can cost your heirs

time and money in the form of legal expenses. It may also prevent funds from flowing to your

child, for example, just when he or she needs it most. In addition, if you don’t name a

guardian for your children, a judge will appoint one for you posthumously to be sure the

proceeds of your life insurance policy are spent in the best interest of your kids. Wouldn’t you

prefer to pick your own guardian—someone who knows you well and will help uphold the

values you want to instill in your children as the money you leave them is spent?

Estate Planning is a Dynamic Process

Life insurance and wills have one thing in common: neither is a set-it-and-forget-it estate

planning tool. As you age and your circumstances change—your children grow up and become

independent, you accumulate more wealth, or you want to provide for your elder parents, for

example—your use of these tools should change, too. Your will should keep up with you and

reflect what you care about for your entire lifetime.

Author Bio:

Susan Doktor is a journalist, business strategist and principal at Branddoktor. She writes on a

wide range of topics including finance, insurance, real estate, and family issues. Follow her

on Twitter @branddoktor.

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