A Smart Planning Tool for Your Life
Life insurance can feel complicated and overwhelming, but at its core, it's a pretty simple way to plan for the financial future of the people you love. Learning what life insurance is now can help you make informed decisions about the right ways to keep your family protected.
State Farm® agents know from experience how much life insurance can help people when they need it most, and they work with customers every day to help them understand what life insurance is, and what a difference it can make. Several State Farm agents have contributed their knowledge and experience to this article.
Ken Quach, State Farm agent in Houston, Texas, explains what life insurance is really well: "It's a planning tool to ensure what you want to happen will happen, whether you're here or not." And that's really what it's all about. None of us can predict the future. Most of us hope to be around for a long time. We want to grow old with our families, run our business until we're ready to retire, give back to our communities for years to come. But one thing that's guaranteed about the future is that it has no guarantees, and we don't know how long we'll live. Life insurance is a way to help protect against this uncertainty, and it's a way we can feel more in control of the unknown.
How Does Life Insurance Work?
How life insurance works is pretty simple. You buy a life insurance policy and name a beneficiary to receive the death benefit. If the policy is active when you pass away, your beneficiary will receive that death benefit. As Denise Elliott, State Farm agent in Durango, Colorado, describes it, "It's like having someone who will take care of your family financially if you couldn't, due to an untimely death." It can be a great comfort knowing if something happened to you, your family can stay in their home, stay in the same schools, and keep living the life you've dreamed for them.
And while most people buy life insurance because they want to protect their family, it also offers a lot of benefits for small business owners and can even be a way to leave money to a favorite charity. If you have a business to protect or an organization you're passionate about, an agent can help you understand your life insurance options.
Agents also get a lot of questions about the cost of life insurance, and it can be helpful to look at cost in two different ways - the cost of having it, and the cost of not having it.
- The cost of having it — The cost of life insurance varies, based on factors like the type of life insurance you purchase, the amount of life insurance coverage you want, your health, and your age. The younger you are, the more affordable it typically is. As Quach explains, "I always tell people when you buy life insurance, today is the least expensive day you can purchase it." That doesn't mean it becomes unaffordable as time goes on though, and most people think life insurance is more expensive than it actually is. Sitting down with an agent to talk through your budget and your goals can help you find the protection that makes the most sense for you.
- The cost of not having it — This is even more important to consider. Take a moment and think about what you provide for your family now. Do you provide income they need for the mortgage and other expenses? Do you contribute to their future savings? Do you help with child care? Cooking? Shopping? Home maintenance? Now imagine if you weren't here. What would your family's life be like without you in it? How would they be affected financially? What would the cost to their future be without life insurance? That's the cost of not having it.
Types of Life Insurance
Though life insurance serves the same basic need (providing a death benefit if something happens to you), different types of life insurance work in different ways, and offer additional benefits. Patrick Blevins, State Farm agent in Lexington, Virginia, likes to put life insurance into two categories - short-term protection and long-term protection.
- Short-term protection — Term life insurance falls into this category. "It's like renting a place," says Blevins. You buy a policy for a specific amount of time, commonly for 10, 20, or 30 years. If you die during that time, your beneficiary receives the death benefit. If you're still alive at the end of that time, your policy ends. "What's good is that you can buy a lot of coverage for not a lot of premium."
- Long-term protection — This is how Blevins often refers to permanent life insurance, which includes variations such as whole life insurance and universal life insurance . He describes it as "owning a home, it's yours." It's lifelong coverage and, like term coverage, provides a death benefit to your beneficiary if you die.
It also offers several living benefits, including accumulation of cash value at a guaranteed interest rate and preferential tax treatment. A lot of Blevins' customers like the cash value aspect of a permanent policy. "As the cash value of their policies grows, they like knowing there's money they can access in an emergency, to help with college expenses, or to help supplement retirement income."
Some people find that one type of policy satisfies all their needs, while others select a combination of different coverages. Every individual's situation is different, and talking to an agent can help you sort it all out. Your needs will likely evolve over time too, so it's a good idea to review your policies regularly to see if you need to make adjustments as changes happen in your life.
How Much Life Insurance Do I Need?
How much life insurance you need will depend on your own unique situation. Some people rely on the group life coverage they have through work, but once they sit down and look at their goals for their family, they find it's not enough. Plus, if you change jobs or lose your job, your group coverage won't go with you.
Helen Lee, State Farm agent in Buena Park, California, starts by looking at several factors in her customers' lives. "We look at their income, their family size, their home's value, their debt, their business if they own one. If they have children, we factor in everything from basic costs like food and clothes, to future costs like a college education. It comes down to how much your family would need to continue to live comfortably, if you were no longer there to help support them."
It's also important to think about what you want for your family. As Quach puts it, "A lot of people talk about doing a financial need analysis, but I don't like to think of it as a ‘needs' conversation, it should be a ‘wants' conversation. What do you want for your family if you're not here? You want them to continue their dreams. You want your spouse to be able to stay home and take care of your young kids. You want these things."
When you start looking at everything in your life that goes into how much life insurance you need, it can feel overwhelming. That's why State Farm agents are here. They can help break it all down and help you find the coverage you need.
Is Life Insurance Worth It?
You can probably answer this question by asking yourself another question. What would life insurance mean to my family if I wasn't here? If it would make a big difference, then your answer to "Is life insurance worth it?" is likely a yes. For one of Ken Quach's customers, it was a definite yes, and it was just in time.
"One of my customers was a father and the owner of a successful local business. He kept busy running his business, and his wife spent a lot of her time taking care of their kids. We'd talked to them a number of times, asking if they'd like to have a conversation about getting life insurance for him, so their family and their business could go on with or without him. He was young and healthy so I could tell it was something that wasn't top of mind. He'd say it sounds good, but we'd talk about it later.
"When we talked to his wife about it again later, we asked her some questions about her family's future. With her kids being so young and her husband running the business, we asked her what would happen to her family if something happened to him. They were doing so well, we wanted to make sure that could continue for them. And so she convinced him they needed life insurance, and they bought a policy.
"Less than a year later, he was killed. His wife came to the office, told us what happened. In the face of such tragedy, we were so glad he purchased his policy when he did. So we submitted a claim, State Farm Life claims is one of the best out there, and they walked us through the whole process. Soon after, his wife had a check. It may not have helped with the grief she was consumed by, but it did help take away the worry of what she was going to do financially. It gave her some time to cope with her loss and really think about what she wanted to do with the business and with her family's future. That's the power of a life insurance policy."
There's a lot to understand about life insurance, and we want to make sure you have all the information you need to make informed decisions about protecting the financial future of your family or business. We encourage you to learn more and discuss your unique needs with your local State Farm agent.