January marks Financial Wellness Month, making it a great moment to reassess your overall financial strategy. While many people focus on budgeting, saving, or investing, life insurance is often missed in the conversation. In reality, it can be a critical pillar of protection and long‑term stability—no matter your stage of life.
Life insurance does more than support your family after you're gone. It helps prepare for the unexpected, adds an extra layer of financial security, and in some cases, even contributes to goals you may want to reach while you're still living. Below, we’ll break down how it works, what policy types look like, and how to keep your coverage aligned with your needs.
Understanding the Purpose of Life Insurance
At its simplest, life insurance provides a guaranteed payout—known as the death benefit—to the beneficiaries you name on the policy. Those funds can help cover significant expenses such as housing payments, outstanding loans, childcare costs, funeral arrangements, or everyday bills.
Put another way, life insurance helps your family stay on track financially if something unexpected happens to you. It provides immediate cash when your loved ones may need it most and offers reassurance during a difficult time.
To keep a policy active, you pay scheduled premiums. In exchange, the insurer promises to deliver the agreed-upon benefit under the terms of your contract. That certainty is why life insurance is commonly viewed as a foundation of financial preparedness.
How Term and Permanent Life Insurance Differ
Life insurance generally falls into two major categories: term and permanent. Each type serves a different purpose depending on your goals, budget, and long‑term plans.
Term life insurance
covers you for a specific period—typically 10, 20, or 30 years. If you pass away during that window, your beneficiaries receive the death benefit. When the term ends, so does the policy. Term coverage is usually the most affordable option and works well for people looking to protect their families during peak responsibility years, such as raising kids or paying down a mortgage.
Permanent life insurance
remains active for your entire lifetime as long as you continue paying premiums. These policies also have a built‑in savings component called cash value, which grows over time. You can borrow from it or take partial withdrawals while you're alive (though doing so may reduce the final death benefit).
Permanent coverage usually comes in two main forms:
- Whole life insurance provides fixed premiums, steady cash value growth, and a guaranteed payout. It offers long‑term stability and predictability.
- Universal life insurance offers more flexibility. You can adjust your premiums and death benefit, and the cash value grows based on market conditions. While this can create opportunities for growth, it may also introduce more risk.
Both types of permanent policies can be useful if you want lifelong coverage or prefer a policy that builds savings as part of your financial plan.
Should You Consider Cash Value?
The cash value component of permanent life insurance is often viewed as an added perk. Over time, it can be tapped for expenses like education costs, medical needs, or even supplemental retirement income.
However, it’s important to understand how it works. Cash value typically grows gradually in the early years, and borrowing or withdrawing from it can reduce the amount your family ultimately receives. Permanent policies also tend to cost more than term insurance.
Cash value can be helpful if you need lifelong coverage or want predictable premiums. Still, most financial professionals recommend prioritizing other savings and retirement accounts before relying on life insurance for investment purposes.
Customizing Your Policy With Riders
Life insurance isn’t a one-size-fits-all solution. Riders—optional add-ons—allow you to tailor your policy to better fit your situation.
Some common riders include:
- Long‑term care rider: Helps pay for support if you develop a serious illness or injury that requires ongoing help.
- Terminal illness rider: Allows you to access part of your death benefit early if you’re diagnosed with a qualifying condition.
- Return of premium rider: For certain term policies, this rider can refund your premiums if you outlive the term.
Many term policies also offer a conversion feature, giving you the option to switch to permanent coverage later without undergoing a new medical exam. This can be valuable if your health changes over time.
How to Keep Your Policy Updated
Maintaining your life insurance is part of staying financially healthy. A few simple yearly check‑ins can ensure your coverage still lines up with your needs.
- Review your beneficiaries annually. Major life events—such as marriage, divorce, or the birth of a child—may require updates.
- Reevaluate your coverage amount. As your income, responsibilities, and expenses change, your policy may need adjustments.
- Look into conversion options. If you have a term policy, check whether you can convert it to permanent coverage later.
- Schedule a yearly policy review. Treat it like reviewing your budget or savings plan—it’s a quick way to stay on track.
If you need support evaluating your life insurance needs or reviewing an existing policy, reach out anytime. We’re here to help you safeguard what matters most.