Life insurance is a key part of financial planning, and there are different types of policies to choose from. If you live in Texas, an insurance agent who is licensed in the state can help you review your Texas life insurance options and determine which policies work best for your needs. You’ll want to cover five key considerations before making your decision.
1. Do You Need Life Insurance?
First things first – do you actually need life insurance? If you think the answer is no, don’t be so sure. You may have more of a need than you realize.
If you have a family who depends on your income, you may already know that you need life insurance. People with young children often purchase life insurance to make sure that their children will be provided for no matter what happens in the future. However, even if you don’t financially support a family with young children, you may need life insurance.
For example, stay-at-home parents provide significant value. If a stay-at-home parent were to die unexpectedly, the family might have to pay for childcare and housekeeping services. This can become a financial strain, and life insurance can ease the burden. Similarly, people who provide unpaid caregiving services for aging parents, spouses, or other relatives may also want to invest in life insurance.
Life insurance can also be used to pay for burial and final expenses. Parting says that a traditional funeral in North America usually costs between $7,000 and $10,000. A final expense life insurance policy can help survivors deal with this unexpected cost.
Life insurance is also helpful in estate planning. If you want to leave a legacy, it’s important to consider how taxes and debt could impact your estate. If you owe money, your estate will have to pay the debt before heirs can receive their inheritance, and this can reduce the amount that your heirs receive. In some cases, they might not be left with anything. Life insurance benefits can go directly to your beneficiaries, and this means the funds may be safe from creditors. Life insurance benefits are also typically exempt from income taxes.
2. How Much Life Insurance Do You Need?
When determining how much life insurance to purchase, you can use different methods. For example, a simple calculation has you multiply your annual income by a number representing the number of years you want covered. The number 10 is often used, and this gives you the amount of life insurance you need to replace 10 years of income. For example, if you earn $70,000 a year, you’ll multiply $70,000 by 10 to get $700,000.
This method works well if you’re buying life insurance because your family depends on your income. However, if you’re buying life insurance for other reasons, this method may be inadequate. Another popular way to determine how much life insurance you need is the DIME method. This stands for debt and final expenses, income, mortgage and education costs. You add up these amounts, and the resulting figure is how much insurance you need.
If these methods don’t work for you, simply think about how much money your loved ones might need and how much money they would have from other sources. For example, if you want life insurance to cover your funeral, any medical bills and caregiving services that your family will need, add up estimates for all of these costs. Then subtract any savings or other assets that could cover these costs. The result is the amount of life insurance you need.
When people crunch the numbers, they often find that they need more life insurance than they realized. Your needs may also change over time. For example, if you buy a house – a big financial commitment – you might decide you need more coverage. When your children reach adulthood, you might decide you need less. You can buy multiple life insurance policies with different benefit amounts and terms to cover these various needs.
3. How Long Do You Want to Keep Your Life Insurance Policy?
Term life insurance is written to last for a predetermined period of time. If you buy a 10-year term life insurance policy, your coverage will last for 10 years as long as you keep up with the premium payments. If you buy a 20-year term life insurance policy, your coverage will last for 20 years if the premiums are paid.
When purchasing life insurance, think about how long you will need coverage. For example, if you want to buy life insurance because you just had a baby, you might want coverage that lasts for 20 years. If you’re buying life insurance because you just bought a house with a 30-year mortgage, you might want coverage that lasts for 30 years. Keep in mind that you can buy additional policies later if your life insurance needs increase.
But what if you want your life insurance policy to cover your entire life? With permanent life insurance, this is possible. Unlike term life insurance, permanent life insurance policies do not come with an expiration date. As long as you keep up with the premiums, you will have coverage. There are different types of permanent life insurance policies, including whole life insurance and universal life insurance.
4. Do You Want Your Life Insurance to Perform Double Duty?
Life insurance provides a death benefit, a payment that goes to the beneficiaries when the policyholder dies. The death benefit is often the main reason people purchase life insurance, but it’s not the only benefit that life insurance can offer.
Permanent life insurance policies accrue a cash value over time, and the policyholder can access this cash value through a life insurance loan or withdrawal. Whole life insurance policies can also pay dividends. Permanent life insurance policies can therefore be used as part of an investment strategy.
Life insurance riders can provide additional benefits. For example, a life insurance policy with a long-term care rider can pay benefits if the policyholder requires long-term care, and an accelerated death benefit rider can provide benefits if the policyholder is diagnosed with a terminal illness. With these riders, life insurance policyholders can receive benefits during their lifetimes.
5. What Are the Best Texas Life Insurance Policy Options?
People who live in Texas have several great Texas life insurance companies to choose from. These companies include American National, National Life Group, Americo, Lincoln Financial Group and American-Amicable Life Insurance Company of Texas.
The best Texas life insurance company will depend on your needs. This is why it’s so important to have several life insurance companies to choose from when you compare life insurance quotes. For example, because underwriting and pricing can vary, one Texas life insurance company might offer you better rates than another. You might also like the riders and life insurance terms that one company offers more than another. A Texas life insurance agent can review your needs and help you find a life insurance company that offers a policy that works for you. Speak with a Texas Life Insurance Agent.