By Sonya Sellmeyer, Consumer Advocacy Officer for the Iowa Insurance Division
September is Life Insurance Awareness Month, making it an ideal time to educate yourself about this important financial decision. According to the Life Insurance Marketing and Research Association (LIMRA), 44% of consumers are only somewhat or not knowledgeable about life insurance.
Life insurance pays a death benefit to your named beneficiaries when you die. It can be a safety net to avoid challenging times if a loved one who contributed earnings to a household passes away unexpectedly. The policy proceeds may be used to help cover funeral expenses, mortgage payments or rent, daily living expenses, college tuition, outstanding loans, and uncovered medical bills. It can also help preserve generational wealth. Beneficiaries may be named with different percentage payouts, or you may designate a charity or church to receive the benefits.
There are two main classes of life insurance coverage: term and cash value. Term insurance provides coverage for a period of time and may be very affordable. Cash value life insurance is a permanent type of insurance that offers protection with two components: the death benefit for beneficiaries and a cash value that grows over time. This cash value may be accessed through various means, including loans, withdrawals, or full surrender.
After receiving a life policy, always review it and ensure you understand all the terms and conditions. There is a 10 day free look period on the policy, where you can return it to the insurer and receive a refund. The free look period is 30 days if it is a replacement of an existing life policy. Also, periodic reviews of all your insurance policies with your agent ensures the coverage amounts and terms still fit within your financial plan.
Life insurance premium rates are based on age, health, lifestyle, and the coverage amount. The younger and healthier you are, the cheaper the premiums may be. Also, when determining the coverage amount look at your financial goals, debts, dependents, and income. Know the expiration date on a term policy, as you may be able to renew but with a significant increase in premiums (which is frequently a default or automatic option), convert to permanent coverage, or purchase a new policy. Life insurance coverage may be available through your employer, but it is often not enough, and is dependent upon your continued employment.
Caregivers commonly find old life insurance policies in the possessions of a loved one. The National Association of Insurance Commissioners life insurance policy locator is free and can assist with finding long-lost life insurance policies of a deceased family member or loved one.
Since insurance is complicated, the Iowa Insurance Division has developed the Save4Later and SmartHER Money websites to help Iowans plan, earn, save, and retire by learning the basics of financial literacy and insurance concepts. Learning about the role of life insurance in your financial plan is essential for protecting your family’s financial future.