September is Life Insurance Awareness Month, an industry-wide campaign aimed at helping Americans understand the benefits of life insurance and how to get coverage. This effort is critical: According to a recent Unum survey, 40% of adults say they don’t have life insurance or are unsure if they do.
If you don’t have a life policy or you’re not sure if you have enough coverage to protect your loved ones, September is the perfect time to reevaluate your situation. Use these 4 tips to get the life insurance you need.
1. Know who should have life insurance.
Knowing why life insurance was created in the first place helps you understand if you need a policy and how much. Life insurance is a contract with an insurance company that gives one or more of your named beneficiaries a lump-sum payment, known as a death benefit, when you die.
There are different types of life insurance. What you should have depends on your financial goals and the needs of your loved ones.
• Term life protects your beneficiaries over a set period, such as 10 or 20 years.
• Permanent life provides coverage no matter when you die and may also grow a cash value.
The purpose of life insurance is to provide peace of mind for you and anyone who depends on you physically or financially. Your beneficiaries might include your children, spouse, partner or aging parents.
Many families make the mistake of not buying life insurance for a stay-at-home parent. Consider how you’d replace the care your children receive every day. The additional cost of daycare or a nanny could devastate an average family.
Consider who may need your financial support now and into the foreseeable future. If there’s someone who could suffer from an economic hardship if you weren’t around, you need a life insurance policy to keep them safe.
The beneficiaries of your life insurance can use the death benefit any way they like. For instance, it could pay for a child’s college, mortgage or rent payments, and retirement.
2. Understand the life coverage you have at work.
If you have a benefits package at work that includes free, basic group life insurance, be sure to sign up. Some employers offer automatic coverage in an amount equal to your annual salary or a flat amount. Or you may be required to elect coverage during open enrollment season.
Your employer may also give you the option to purchase supplemental group life insurance, which typically provides higher amounts of coverage than a basic policy. However, applying for supplemental life may require you to complete a health questionnaire or a physical exam.
3. Consider having multiple life policies.
While getting life insurance at work can be an affordable and convenient way to buy it, you may need additional coverage. If you voluntarily leave your job or are terminated, you typically lose the policy, leaving your loved ones unprotected.
So, consider buying an individual life policy on your own. Even if the cost is higher than a group policy, the portability may be well worth it.
“Consider purchasing life insurance in your 20s or 30s when you’re likely to qualify for more coverage at a lower premium,” says Matt Purington, assistant vice president in product and market development at Unum. “It’s the perfect time to make sure you have enough insurance coverage to protect yourself and those you love from the unexpected.”
4. Make life insurance part of a bigger financial plan.
Figuring out how much total life insurance you should have depends on your overall financial situation and the current and future needs of your beneficiaries.
For instance, if you have multiple minor children, you may want to factor in the future cost of college for each one. Consider your current and future total debts — mortgages, auto loans — your estate or heirs would be responsible for. Then subtract your total liquid assets, such as savings and investments, you’d leave behind. The difference is the financial gap life insurance is designed to fill.
Another approach to calculating how much life insurance you need is to multiply your annual household income by a factor of 10 to 12. For example, if you earn $50,000, you might need a policy of $500,000 to $600,000.
However, remember this rule of thumb may not be enough if you have family members with special needs, a large family or an unusually large amount of debt. Likewise, it may be too high if you have other life policies, ample savings or no minor dependents.
The Unum survey found 27% of those with children living at home think they need just one to two times their annual salary in life insurance. For the average family, that amount of coverage is not likely to provide enough protection. While you can’t know exactly what will happen in the future, buying more life coverage than less would give your beneficiaries a financial cushion.
Life insurance should be a pillar of your financial plan. It’s wise to discuss it in detail with your spouse or partner and an insurance professional.