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Life insurance can offer significant financial assistance to a policyholder’s family if the policyholder passes away. However, life circumstances can change things, like having a child, retiring, or getting a new house. This could impact how much life insurance a policyholder may need.
According to LIMRA’s 2022 Insurance Barometer Study, 10% of insured adults in the U.S. need more life insurance coverage. This article will dive into signs someone should consider more life insurance. Then, it will review several types of life insurance policies, such as whole and variable life insurance, that can provide additional coverage for the policyholder.
Here are some signs a policyholder might want to consider more life insurance coverage:
1. They had a child
When a policyholder has a child, they will have more expenses to deal with. As a result, they may need to increase their death benefit significantly so the spouse can replace their income, cover childcare costs, and fund the child’s college, to name a few things.
2. Their lifestyle changed
Lifestyle changes can necessitate more life insurance coverage. For example, if a policyholder buys a new house with a larger mortgage and increases other living expenses, they may need a larger death benefit. This will help their family cover the increased debts and other expenses.
3. They are retiring
Life insurance can be an excellent estate planning tool for seniors. For example, a retiring policyholder may consider increasing their life insurance coverage to pass more tax-free wealth to heirs. Additionally, they may bump up their death benefit to help heirs cover end-of-life expenses, like medical bills or funeral costs.
4. They need to care for aging parents
Life insurance isn’t just for covering a spouse and children or heirs. A policyholder may be a caregiver for their aging parents as well. As a result the policy holder may want to buy more coverage to provide for their parents if the policyholder dies.
If a policyholder decides they need to boost their coverage, here are some life insurance options to consider:
Whole life insurance offers lifelong coverage if the policyholder keeps up on premiums. It comes with fixed premiums and a fixed death benefit. Additionally, it has a cash value growth component. Part of each premium goes into this component, which grows tax-deferred at a fixed rate.
Once the cash value grows large enough, policyholders can borrow from it at a low rate with no credit check, withdraw from it, or surrender their policy to receive all of it minus surrender charges.
Universal life insurance offers the same type of lifelong coverage as whole life insurance, but policyholders can adjust their premiums and death benefit if necessary. Lowering premiums may lower the death benefit, whereas raising the death benefit may require a new medical exam. The cash value grows at a variable interest rate. Policyholders may also be able to pay some or all their premiums when the cash value grows large enough.
Variable life insurance also offers the same coverage-related benefits as universal life insurance and indexed universal life insurance. However, the cash value is invested in the policyholder’s choice of individual securities, like stocks, bonds, and mutual funds. There is no minimum rate guarantee to protect against losses, but growth potential is higher than indexed universal life insurance.
Indexed universal life insurance offers the same coverage-related benefits as universal life insurance. However, the cash value is invested in a fund that follows an index, like the S&P 500. This allows for more growth potential but also losses. That said, indexed universal life insurance often comes with a minimum rate guarantee to ensure the policyholder earns something.
As life changes, so should a policyholder’s life insurance coverage. If a policyholder has a child, retires, increases their lifestyle expenses, or needs to care for aging parents, they may need more coverage to meet their goals. They can get a policy like whole, universal, indexed variable, or variable life insurance to fill that gap. If a policyholder needs one of these policies to get more coverage, they should shop around for multiple quotes to find the best rates.
