Today, women have more financial responsibilities than ever before. How will your family or loved ones manage financially if you die? Whether single, married, employed, or a stay-at-home mom, a woman probably need life insurance. At the very least, life insurance can help pay for the costs of funeral and burial services. A policy can also help with estate administration, outstanding debts, estate taxes, and the uninsured expenses of a final illness.
Who needs life insurance?
Increasingly, families depend on the income of two working parents. If you’re a working mother, your income can have a significant impact on the quality of your family’s lifestyle. Your income helps cover the cost of ordinary living expenses such as food, clothing, and utilities. It also provides savings for your children’s college education, and for your retirement.
Often, women, like men, think it’s not necessary to buy life insurance because they have no dependents. What’s often overlooked is that life insurance can provide necessary funds to pay off car loans, education loans, debts, a mortgage, taxes, and funeral expenses that might otherwise be the responsibility of family members. Also, the cash value of permanent life insurance may be used to supplement retirement income.
Whether divorced, widowed, or simply a single mom, you’re most likely primarily responsible for your child’s support. If you die prematurely, life insurance can provide ongoing income to cover child-care costs. The proceeds will also help with medical expenses, debts, and future college costs.
Maintaining a household is a full-time job, and you have many important roles and duties. The cost of the services performed by a stay-at-home mom could be quite significant. The cost of hiring could be extremely costly. Proceeds from a life policy would pay for services such as childcare, transportation for your children, and housekeeping. Taking over these added responsibilities could cause your spouse to shorten work hours, resulting in a reduction in income. Instead of reducing hours, the proceeds allow the spouse to keep the household running and to keep working.
Many women find themselves providing care for both children and elderly family members. Caring for an aging parent or family member can include paying for the costs of adult daycare. It could also cover uninsured medical expenses and extra transportation. Adding these expenses to the costs of maintaining a household, child care, and college tuition can be financially overwhelming. Unfortunately, these added financial responsibilities often continue after your death. Life insurance provides a source of funds that can be used to help pay for these expenses.
You may be one of the increasing number of women business owners. If you die while owning your business, the cost of replacing you can be expensive. An expense that may force the company you built to close. Life insurance can be used to provide cash to hire your replacement. It can also cover company expenses such as payroll or operating costs while your estate is being settled. Also, life insurance can be a useful tool for business owners structuring buy-sell arrangements or providing benefits to key employees.
Life insurance types and options
Life insurance comes in many different sizes and shapes. Determining the policy that meets your needs may depend on a number of factors. Understanding the basic types of life insurance can help you find the policy that’s appropriate for you.
Term life insurance
Term life insurance provides a simple death benefit for a specified period of time. If you die during the coverage period, the beneficiary you name in the policy receives the death benefit. If you live past the term period, your coverage ends, and you get nothing back. The cost for the coverage can be fixed for the duration of the policy term (usually 1 to 30 years). It can also be “annually renewable” meaning that the premium can increase each year as you get older. However, the premium for term insurance usually costs less than the premium for permanent insurance when all factors are the same.
Whole life insurance
Whole life is permanent or cash value insurance that provides insurance coverage for your entire life. The premium is fixed throughout your life. With most whole life policies, part of the premium is added to the cash value account, which earns interest. Depending on how the policy is structured, the interest can help pay for paid-up additions or grow the cash value.
The cash value does grow tax-deferred. It can also be used as collateral to borrow from. The cash value can also be accessed directly through a partial or complete surrender of the policy. It is important to note, a policy loan or partial surrender will reduce the policy’s death benefit. There could also be income tax implications with a partial or complete surrender. The last thing, a complete surrender will terminate coverage altogether.
Note: Guarantees are subject to the claims-paying ability and financial strength of the issuing insurance company.
Universal life insurance
Universal life is another type of permanent life insurance with a death benefit and a cash value account. A universal life insurance policy will generally provide very broad premium guidelines (i.e., minimum and maximum premium payments). Within these guidelines, you can choose how much and when you pay premiums. You are also free to change the policy’s death benefit directly as your financial circumstances change. Remember, if you want to raise the amount of coverage, you’ll need to go through the insurability process again. This would probably include a new medical exam, and your premiums will increase.
Variable Life Insurance
Variable life insurance allows the policy owner to choose how the cash value account is invested. A variable life policy generally contains several investment options or subaccounts. These subaccounts are professionally managed to pursue a stated investment objective. Choices can range from a fixed interest subaccount to an international growth subaccount. Variable life insurance policies require a fixed annual premium for the life of the policy. They may also provide a minimum guaranteed death benefit. If the cash value exceeds a certain amount, the death benefit will increase.
Variable universal life insurance
Variable universal life combines the options and flexibility of universal life with the investment choices of a variable policy. You decide how often and how much your premium payments are to be, within policy guidelines. The policy owner can direct how the premium payments are invested among policy subaccounts. With these policies, there are no guaranteed minimum cash value or death benefits. The investment return and principal value of the investment options will also fluctuate.
Joint and survivor life insurance
You and your spouse may choose to buy a single policy of permanent insurance that covers both of your lives. With first-to-die, the death benefit is paid at the death of the spouse who dies first. With second-to-die, no death benefit is paid until both spouses are deceased. Second-to-die policies are commonly used in estate planning to pay estate taxes and other expenses. Other than the fact that two people are insured by one policy, the policy characteristics remain the same.
Life insurance protection for women is equally as important as it is for men. However, women’s life insurance coverage is often inadequate. It may be time to consult an insurance professional who can help you assess your life insurance needs, and offer information about the various types of policies available.
The information contained in this article is general in nature, provide for educational purposes only and is not legal, tax or financial advice. For information regarding your particular situation, contact an attorney, tax professional or financial advisor. Exit Planning is a discipline that typically requires the collaboration of multiple professional advisors. To the extent that our firm does not have the expertise required on a particular matter, we will always work closely with you to help you gain access to the resources and professional advice that you need.
Advisory services offered through EWG Elevate, Inc. dba Protection Point Advisors.