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Xerxes Nabong, CFP®, CDFA®
Philip M. Maliniak, CRPC®
Nicole Brown-Griffin, CFP®, CDFA®, EA
Aaron Petty, Client Associate
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September is Life Insurance Awareness Month
As September rolls in, it’s a good chance to touch on something often overlooked but important as part of a holistic financial plan: life insurance. While it might not be the most exciting topic, it’s crucial for protecting our loved ones and securing our financial future. This month is recognized as Life Insurance Awareness Month by Life Happens, a nonprofit dedicated to educating the public about the importance of life insurance. To help you make informed decisions, here are 10 key things you should know about life insurance.
1. Why You Need Life Insurance
Life insurance is more than just a payout after you pass away; it’s about ensuring that your loved ones are financially secure and protected from unexpected hardships. If something were to happen to you, life insurance provides a financial cushion that allows your family to maintain their current lifestyle, cover essential expenses like daily living costs, and pay off any outstanding debts, such as a mortgage or car loan. Additionally, it can help fund future financial needs like your children’s education or your spouse’s retirement, ensuring that their goals remain achievable even in your absence.
2. Permanent vs. Term Life Insurance
Term life insurance provides coverage for a specific period, such as 10, 20, or 30 years, and is generally more affordable. It’s ideal for covering financial obligations that have a clear time limit, like paying off a mortgage or funding your children’s education until they graduate. Permanent life insurance offers coverage for your entire life and includes a cash value component that grows over time. While it tends to be more expensive, it offers additional benefits like the ability to borrow against the policy and provides lifelong financial protection.
3. Determining the Right Coverage Amount
To determine the right amount of life insurance, start by evaluating your financial obligations, including your mortgage, debts, education costs, and daily living expenses for your dependents. Additionally, consider all available sources of income that could be lost if something happened to you, such as pensions, rental income, annuity payouts, and other streams of income. A common rule of thumb is to have coverage that is 10-15 times your annual income, but your specific needs may vary based on your individual circumstances, such as the number of dependents, their ages, and your long-term financial goals.
4. Understanding Your Policy's Features
It’s important to fully understand the features and benefits of your life insurance policy. This includes any riders or additional options, such as waiver of premium, accidental death benefit, or long-term care coverage, which can enhance the value of your policy and provide extra protection tailored to your needs. Additionally, if you have a term policy, be sure to explore conversion privileges that allow you to convert it to a permanent policy without additional medical underwriting, which can be beneficial as your needs change over time.
5. Reviewing Your Policy Regularly
Your life insurance coverage should adapt as your life changes. Significant life events like marriage, the birth of a child, purchasing a home, receiving substantial pay raises, changing jobs, being awarded company stock that vests over time, or earning a pension should all prompt a review of your policy to ensure it still aligns with your current needs and goals.
6. The Importance of Beneficiaries
Keeping your beneficiary designations up to date is crucial. This ensures that the life insurance proceeds go exactly where you intend, whether that’s to your spouse, children, or another designated person. It’s especially important to review and update beneficiaries after major life changes such as marriage, divorce, or the birth of a child. Additionally, consider including charities as beneficiaries, which can be a meaningful way to support causes you care about and can play a significant role in your overall estate planning.
7. Tax Benefits of Life Insurance
One of the advantages of life insurance is that the death benefit is generally not subject to income tax, making it an efficient way to transfer wealth to your heirs. However, be aware that if your total estate exceeds certain thresholds, there may be estate tax implications to consider.
8. Life Insurance as an Investment
Permanent life insurance policies can serve as more than just a death benefit; they can also act as a financial tool. The cash value component of the policy can be used for various purposes, such as borrowing against it for emergencies, funding education, or supplementing your retirement income.
9. Employer-Provided Life Insurance
While life insurance provided by your employer is a valuable benefit and often easy to obtain due to the lack of underwriting, it typically covers only a portion of what you may actually need. Moreover, most work policies aren’t convertible to individual plans, so it’s crucial to review your life insurance coverage and needs if you change jobs. Consider purchasing an additional individual policy to ensure that your family is fully protected.
10. Shopping for Life Insurance
When shopping for life insurance, there are many factors to consider beyond just the price. Compare policies from different insurers based on features, policy length, and overall cost to find the best fit for your needs. It’s also important to consider the financial strength and reputation of the insurance company you choose, as this will impact their ability to pay out claims in the future.
Life insurance is a fundamental part of a solid financial plan. Whether you’re reassessing your current coverage or considering new options, now is the ideal time to act. One of Wealth Avenue’s top priorities is protecting you, your family, and your financial goals from the unexpected. We’ll work with you to determine the right coverage amount and the best type of policy with the features that suit your unique situation, ensuring you’re fully prepared for whatever the future holds.
Your Team at Wealth Avenue,
