Life Insurance: Everything You Need to Know

DENVER (Sept. 12, 2024) – September is Life Insurance Awareness Month, and it’s an important time for Colorado families to make sure their coverage will protect their future. 

Per AAA research, 70 percent of all U.S. households would have trouble covering everyday living expenses after just a few months if the primary wage earner was gone. And, according to a new study from LL Global, a record number of American adults – 42%, or 102 million people – say they need (or need more) life insurance. That’s alarming because life insurance is an integral part of a financial plan, no different than a budget or savings account. 

“The best way to think about life insurance is to think about everything that makes your life so worthwhile,” said Skyler McKinley, regional director of public affairs for AAA. “How would you want to protect your loved ones? What do you want for their future? When you take a couple minutes thinking about how life insurance can factor into your family’s financial security, you can get back to what really matters: Spending time with those you care about.”

AAA offers the following things to think about this Life Insurance Awareness Month: 

How much life insurance do I need?

As a rule of thumb, your life insurance policy should equal six or seven times your current salary. Or you can determine what your policy needs to cover by subtracting your assets from your financial responsibilities - but accurately finding that number is a lot easier said than done. Use this calculator to help inform your needs, then speak with a specialist to talk about life insurance options.

Is employer-provided insurance enough?

While it’s a nice benefit to have, life insurance through work is a perk, not a plan. 

If your family relies on your income to make ends meet, this kind of coverage just won’t be enough. Most employers offer one or two times your salary in coverage, meaning your family could be OK for the first year or two. But what happens in year three, four, five, and so on? 

What’s more, your coverage is often tied to your employment, so if you change jobs, you may lose that insurance. 

Remember, life insurance can cover a lot of expenses – debts such as your mortgage, medical and funeral bills and estate taxes – and those expenses add up, fast. Most folks will want more coverage than they can get through work. 

Do you need insurance if you’re young and healthy?

It’s unlikely that you’d need your life insurance as a young, healthy person, in the statistical sense that you’re less likely to get sick and pass away. However, life insurance is typically less expensive and easier to get the younger and healthier you are.

If you wait until you are chronically or terminally ill, you may find your ability to purchase insurance to be a little more limited.

If you’re single and you don’t have dependents, you might think you don’t need coverage. Here’s the problem: If you pass away unexpectedly when you’re young, you may leave behind a lot of unpaid expenses for your family or executor to deal with. Life insurance guarantees those expenses can get paid so that your family will never need to worry about them.

Do you need insurance if you’re nearing retirement? 

Some folks who are near retirement age will say, “Well, the house is paid off and the kids are out of college, so my family is covered, and I don’t need life insurance.” That may be true, depending on your financial picture. But increasingly, people live longer – and can spend 20-30 years in retirement. Good life insurance can make up for losses in your retirement nest egg, and make sure your spouse or partner will be OK financially even if you haven’t closed the gap in retirement savings. 

Is life insurance expensive?

Per research from LIMRA, 78% of Americans overestimate the true cost of a basic term life policy. To wit, 44 percent of millennials said they thought the cost of a policy was $1,000+ per year.

In reality, a simple term life insurance tends to offer low and more flexible premiums compared with other kinds of insurance. The younger and healthier you are when you buy your coverage, the less expensive the policy will be. As you age, you can always choose to expand your coverage.

What’s the difference between term and permanent life insurance?

Having a positive discussion about life insurance means understanding its types.

Term life insurance is for a fixed period, such as 10 or 20 years. If you die during the specified period, your beneficiary will be paid a death benefit - or the face value of the policy.

Permanent life insurance is designed to remain in place for your entire life, for which your beneficiary receives the death benefit. In addition, you may be able to borrow from the cash value or surrender the value when canceling the policy.

What if I have a pre-existing condition?

Though it could be an obstacle, having a pre-existing condition doesn’t automatically mean you won’t be able to buy life insurance. Consult with a licensed insurance agent about policies that may not require a medical exam, as well as about life insurance designed for people with specific pre-existing conditions, such as cancer and diabetes.

When should I think about life insurance?

Life Insurance Awareness Month is a great time to revisit your coverage. Still, you should get in the habit of reviewing things regularly. Be sure to look at any big life changes! If it’s worth celebrating, it’s worth covering.

• If you recently got married, you’ll want to make sure your coverage can support your spouse and any shared expenses. 
   
• Did your household grow? Life insurance policies can cover the costs of raising a child, as well as future expenses – like college tuition. 
   
• Did you buy a new house? Life insurance will make sure your family will always have a place to call home. 

Where should I start?

Talk to a local agent: Insurance should be unique and tailored to your family, and life insurance is no different. An agent can help you find the best coverage option that works for your life and your financial picture, all while helping you put a plan in place for the future. Coverage options include debt, future college tuition, loss of income, and other family financial goals. 

“Life can be a little better and a little less stressful knowing your loved ones are protected,” McKinley said. “Fundamentally, that's what insurance is all about.”