Do you ever wonder about the quality of your life insurance plan? It’s probably not something you think about often, but regularly checking in on your coverage can help you protect your loved ones if the unexpected were to happen. To ensure that you have the life insurance coverage that will fit your needs and those of your family, here are a few things that your policy should cover.
Term vs. Whole Life Insurance
Before we get started, let’s define the difference between term and whole life insurance. These are essentially what their names describe them as:
- Term life insurance covers you for a specific term or your life (e.g., 20 years).
- Whole life insurance covers you for your whole life and doubles as an investment account.
Which is better? It depends on your individual situation, however term life insurance has certain benefits that can be attractive. You might be thinking, “Why would someone choose to cover only a portion of their life and forgo an investment account?” Though term life insurance only takes effect if you die within the covered term, it is typically much more affordable than whole life insurance and can be a better deal overall. Term life insurance is designed to replace an income during your working years so that if you were to pass away, your beneficiaries have financial assistance. Beyond that time (with a smart financial plan), your savings and investments are there for your family, so you can essentially be self-insured.
So, now let’s look at whole life insurance. Your first reaction may be to think that this is the preferred option because it covers your entire life, not just a term. However, whole life insurance can be more expensive than term because it’s insurance and an investment account rolled into one. We can understand why this is appealing, but this may not be a wise investment decision, depending on your individual situation.
Life insurance serves one fundamental purpose—to help protect your family in the event of your death. It’s not a way to make or save money, as there may be more efficient ways to do so. Talk to your advisor about various ways to invest your money so that you can help your family be well-positioned down the road after your term life insurance ends. Now, let’s take a look at what your term life insurance should cover.
What Your Term Life Insurance Should Cover
1. Living Expenses
As your term life insurance is there to replace your income if you were to pass away, it should cover your daily living expenses, such as day-to-day bills, childcare, your mortgage, and so forth. It’s essential to reevaluate your living expenses regularly to ensure that you have enough coverage. Sit down with your family to total up all your daily costs. Don’t forget the expenses that seem minimal, such as lawn care, house cleaning, discretionary funds, and any other small spending. It can help to review your bank statements and transaction histories for your bank account so that you can see exactly where your money is spent and how much you spend.
2. Co-Signed Debts
Consider any debts on which you are a co-signer. This might include business loans, your child’s student loans, or a loan that you’ve helped a family member with. Unfortunately, except in the case of a federal Parent Plus student loan, your debts are not forgiven when you pass away. Make sure that your term life insurance coverage is enough to pay off those debts so that your co-signer doesn’t have to bear that financial burden without you.
3. Medical Expenses and Long-Term Care
Talk to your insurance provider about an accelerated death benefit rider, as this feature of your term life insurance policy could cover you if you were to be diagnosed with a terminal insurance. In this case, you would be tapping into your life insurance funds before your death, reducing the benefit that your beneficiaries receive later, but it could help to ease the financial burden of medical expenses and long-term care.
4. End-of-Life Expenses
Your family will be grief stricken following your death. Your term life insurance policy can help ensure that their grief is not compounded by the stress of paying for your end-of-life expenses, such as cremation, burial, a funeral, or a memorial.
Discover Your Insurance Needs with Southwestern Investment Group
Southwestern Investment Group advisors can help you determine how much insurance coverage you need and how that fits into your overall financial strategy. Ready to make a plan to help you meet your financial goals? Contact Southwestern Investment Group today to schedule a consultation!
