As a conversation starter, life insurance is darn near guaranteed to be followed by the type of silence normally found only in a hearing-test chamber. After all, when you talk about life insurance, you’re really talking about death. And who wants to do that? So, allow me to break the silence and provide a few tips to help get your conversation started when it comes to this all-important coverage.
- Tax-free death benefits. I’m surprised how often I’m asked about the income tax burden of life insurance benefits. The typical answer: None. That’s because life insurance proceeds, whether $10,000 or $10 million, are generally income tax free.
- Term may switch to perm. “What’s better, term or perm?” is a common life insurance question. I normally encourage people to look at why they are buying the coverage to come to an appropriate answer. For example, term insurance is likely the right answer for coverage intended to cover expenses associated with raising kids because eventually (fingers crossed), they will be financially independent. However, if you land in a situation where permanent coverage seems more appropriate than your existing term, conversion may be the answer. Many term policies offer the ability to convert a term policy to permanent coverage. Check with your insurer for the rules, deadlines and costs associated with such a move.
- Beneficiary trumps your will. If your legal will clearly states who gets your stuff when you die, make sure your life insurance beneficiary arrangements match. A beneficiary designation — that’s the part of the life insurance application where you indicate who will get the proceeds — will supersede what’s in your will, and the life insurance money will pass directly to the beneficiary, regardless of what your will says. While naming your estate as the beneficiary will allow your will to ultimately control who gets the life insurance, some folks wish to have as few assets pass through probate as possible.
- Benefits may be tapped early. If you’re terminally ill, many insurance policies let you tap into a portion of available death benefits to pay for medical expenses. This provision, called an accelerated death benefit rider, can go a long way toward helping ease the financial strain of a serious illness. Policies vary, so check with your life insurance company for details.
- Get covered — it can be cheap. Young families typically have fairly large requirements for life insurance. The average cost of raising a child in the US is around $20,000 per year, according to the US Department of Agriculture. And that doesn’t include college! My point? Everyone should examine your coverage with the help of an online life insurance calculator to know if it’s enough. Surprisingly, a 25- or 30-year-old male might be able to get $500,000 of coverage for $20 or $30 per month and be locked in for the next 20 years … until their kids are on their own (still knocking on wood ).
- It’s flexible. You might think of life insurance as stuffy and inflexible. As I mentioned earlier, the reality is that many policies allow you to convert to different levels or types of coverage. Some even let you forgo premiums if your budget gets tight. So if you’re considering dropping or adding coverage, make sure you understand all the details. Obviously, you’ll want to check with your insurance company so you don’t make any missteps.
Surprised? Regardless, now is as good a time as any to conduct your own life insurance reset.
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FSGLI, TSGLI, VGLI, SGLI … the long list of acronyms and bare minimums may not be enough to cover your family’s needs. Explore life insurance options with our free tool, which compares rates and matches you to the coverage you want.
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