They are questions most of us are not comfortable discussing: What happens if I become sick and am unable to work? What happens to my family if I die unexpectedly? What if I need nursing home care when I’m older?
Everyone should understand those risks and take steps to protect themselves from the unknown, according to Cheryl Beauvais, a vice president and insurance project manager at PNC Investments.
“Most people have long-term plans for themselves at 25 years old, 50 years old and beyond,” Beauvais said.
They include things like retiring, providing education for children or improving lifestyle for themselves or their family. The risks all of us face are those we might not want to think about. We might not live until we’re 85 or 90 years old, or we’ll have to rely on someone in the family – possibly more than one individual – to earn an income.
It is important to understand the motives behind every life insurance policy.
The most straightforward and inexpensive form of protection is term insurance. It offers coverage for a set period of time – most often 10 to 20 years – and provides a beneficiary with a lump sum if the insured dies during the term. Term insurance is available from financial professionals, insurance agents, and even online. However this type of policy has some drawbacks.
“Term insurance is like getting home or automobile insurance,” Beauvais said. “If you don’t have a house fire or get into an accident, you’ll pay the premium again to protect yourself for another year.”
There is no cash value with term insurance. When the term expires, the policy pays nothing. According to Beauvais, after the policy period ends, it may be renewed, but at a higher rate because by then you will be older and may not be in good health. However, there may be good reasons to pursue other insurance options.
Permanent life insurance policies accumulate a cash value. They can offer protection for a lifetime and provide a beneficiary with a death benefit upon your death. Because of this, and because of the lifetime coverage and the ability to build cash value on a tax-deferred basis, the premiums are higher than for term insurance.
“There are so many different types of policies – some with cash values based on a stock market index, some based on an interest rate, some with a combination of both. Financial professionals can help you understand what type of policy will best meet your financial goals,” Beauvais said.
Although you can probably think of more fun ways to spend your money, buying an insurance policy is a critical part of most financial plans.
“I recommend that everyone building a plan for their financial future speak with a financial professional and discuss their needs to protect that plan from the unexpected and unthinkable,” Beauvais said. “Insurance forms the stable base of the financial planning pyramid.”
Insurance can protect you and your loved ones against the financial risks we all face: untimely death, not being able to earn income because of a disability or the high cost of a nursing home stay.
“You don’t want to make these decisions in a vacuum and without knowing your options, and that’s why it’s important to have a financial professional to help you through it,” Beauvais said.
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