There are many misconceptions surrounding life insurance. And it does not help that the industry can be confusing. Shopping for life insurance can feel overwhelming as you may have had many myths about how it works and what to expect.
Fact: In many cases, it is customary to associate purchasing life insurance when you are first married and starting a family as a way to protect family members and children. However, life insurance is not just for those starting out their adult life. It is critical to remember that life insurance becomes more expensive as you age, but there are various options that can meet most people's needs.
Fact: Employer-paid life insurance can be helpful, but it is generally limited to no more than seven times your salary. In addition, employer-provided life insurance is a benefit that can be changed without your consent, and if you leave your job, you lose coverage.
Fact: Your family and loved ones can use life insurance to pay off any debts, including car loans, mortgages, and student loans. In addition, it may be used for any final expenses, such as a funeral.
Fact: Generally speaking, the money a beneficiary receives from a life insurance policy is not considered income. Thus, the beneficiary does not have to pay taxes on it.
Fact: It is tempting to delay a decision around life insurance when so many items are competing for your attention. The key to all insurance is getting protection before you need it. Remember:
Fact: As Benjamin Franklin said, "…nothing is certain except death and taxes."
Temporary life insurance, which expires if not used, provides peace of mind during the years of highest financial responsibility. Temporary life insurance can indeed expire without value after years of premium payments. However, permanent life insurance is guaranteed to pay a benefit no matter how long you live as long as the premium payment is met. Understanding the different types of life insurance and when to use each type is crucial to making an informed decision to meet your goals. And one of the benefits of life insurance is that it can bring you peace of mind.
Fact: 106 million American adults lack life insurance or adequate coverage, based on data from the 2022 Insurance Barometer Study conducted by LIMRA and Life Happens.
It is not uncommon for life insurance needs to range between 10-20 times your income for physicians and dentists with significant student debt, home loans, or income potential,
Fact: While the purpose of life insurance may change and the desired amount may fluctuate over time, there are many reasons you may wish to own life insurance in retirement. For example, early on in life, the purpose of life insurance may be to pay off your debt, replace income, or provide financial stability to your family. However, life insurance can be valuable later in life in adding other priorities like legacy planning, tax-free inheritance for heirs, and estate taxes.
Depending on your financial goals and needs, life insurance could be an essential part of this plan. Remember, your life insurance needs may change in conjunction with your stage in life. For example, it is critical to consider marriage, children, divorce, retirement, and caring for aging parents. If you are considering purchasing or have questions about life insurance, don't hesitate to get in touch with one of our financial planners.
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Shane Tenny is the managing partner of Spaugh Dameron Tenny. Along with hosting the Prosperous Doc® podcast, Shane has a true passion for behavioral finance, helping clients and audiences understand how to develop successful strategies based on their unique temperaments. An accomplished and highly engaging speaker, Shane is regularly interviewed for television and podcasts, is actively involved in the Financial Planning Association®, and contributes to industry advisory boards.
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