Understanding Life Insurance: Securing Your Future and Peace of Mind

September 15, 2023

Life Insurance is a financial tool that provides security and peace of mind, not only for yourself but for your loved ones as well. Life insurance isn’t a fun thing to consider, and it may seem unnecessary. However, if you have people who depend on you for financial support, life insurance protects them if something happens to you. In this case, your designated beneficiary would collect a financial benefit upon your death.   


What is Life Insurance?  


Life insurance is a contract between an individual (the policyholder) and an insurance company. In exchange for regular premium payments, the insurance company agrees to provide a lump-sum payment to the policyholder’s beneficiaries upon the policyholder’s death. This payment, known as the death benefit, can be a crucial financial lifeline for your loved ones when you are no longer there to provide for them.  


What Are the Different Types of Life Insurance?  


  • Term: This is the simplest and generally the cheapest form. You buy coverage for a specific period of time. It can be renewed, but premiums will increase based on age and health factors. There is no cash value.    

All other types of life insurance are permanent, but there are several varieties. They all include a savings element that builds cash value in addition to the death benefit. Once that cash value accumulates, it is accessible to the policyholder tax-free. The following are some of the common types of permanent life insurance.  

  • Whole Life: You purchase this policy to cover your entire life as long as you keep paying premiums. Premiums remain constant throughout the policy, and the company invests a portion of your premium that becomes the cash value. These are more expensive than term policies in the early years, but they even out because the premium stays the same.  
  • Universal Life: This policy is similar to whole life but has the potential for higher earnings on the savings component. It is more flexible in terms of changing premiums and face value throughout the policy. There is usually a guaranteed return on the cash value. Disadvantages include higher fees and the possibility of increasing premiums.  
  • Variable Life: A variable life policy generally has fixed premiums, and you have control over the investment decisions for the cash value portion. However, this is riskier because there is no guarantee for the cash value.  


Why Life Insurance Now?  


Buying life insurance may seem unmanageable right now, but it could be a smart decision. Unlike many other benefits, life insurance is more affordable now than in the past. Plus, during this challenging economic period, ensuring that your family will be financially secure in the future is more important than ever. Life Insurance plays a crucial role in financial planning for several reasons:  

  • Income Replacement  
  • Debt Coverage  
  • Estate Planning  
  • Business Protection  


How Do You Choose the Right Amount?  


To determine the appropriate coverage, start by assessing your current financial obligations and future needs. Consider factors such as outstanding debts, mortgages, children’s education, and daily living expenses. Additionally, think about your long-term goals and how your family would cope financially in your absence. A common rule of thumb is to aim for coverage that is at least 10-15 times your annual income. However, individual circumstances vary, so it’s essential to consult with a financial advisor. Once you know the type of coverage you’d like to offer, Shepherd Insurance can help you find a plan that meets your needs.  


How Do You Get Started?


Life insurance is a vital component of financial planning that provides financial security and peace of mind to you and your loved ones. By understanding the types of policies available, evaluating your needs, and regularly reviewing your coverage, you can ensure that your life insurance policy aligns with your financial goals and priorities. Do not wait to secure your future – take the necessary steps to protect your loved ones today – contact us