Here's a secret nobody realizes: life insurance is so unpopular to talk about that if you ever find yourself in a conversation you don't want to have, just tell the person you're talking to that you work with life insurance, and they will leave you alone.
But here's the thing about life insurance. The name is misleading. It's not called life insurance because of what happens when you die. It's about what happens when life happens. Bad things occur throughout our lives. We might need long-term care. We might become disabled. We might pass away unexpectedly. When those things happen, GoFundMe is not a strategy. It's an emergency lever you have to pull where your ability to address a catastrophic event relies entirely on other people. We don't like relying on others.
Life insurance addresses several specific risks:
- Income replacement: When someone passes away unexpectedly, their family still needs that income.
- Estate planning and liquidity: We use life insurance to provide liquidity when beneficiaries have to work with an estate and to mitigate taxes on that estate.
- Tax-free benefits: The death benefit itself is tax-free, which gives your beneficiaries flexibility.
- Long-term care planning: In some instances, life insurance can be part of long-term care planning.
- Emergency access to cash: You can borrow from your life insurance policies income tax-free, which can serve as a tax-free way to access cash quickly in an emergency.
Common Questions
Why is life insurance important?
It replaces income, covers an estate's taxes, provides liquidity, and in some cases, helps with long-term care. It's a Plan B so your family never has to rely on a GoFundMe. As uncomfortable as it may be to talk about a loved one's passing, it's a conversation that can literally help your family for generations.
How much life insurance do I need?
There's no single number, because every family's needs are different. In a very general sense, we try to cover outstanding debts and 5-10 years' worth of income replacement. The death benefit may seem large on paper, but when we do the math, it becomes really clear how much is needed to "help" your family versus how much is needed to "protect" them.
Do I still need life insurance in retirement?
This is a firm "maybe." In retirement, life insurance shifts away from income replacement and more toward estate liquidity, tax mitigation, potential long-term care needs, and legacy planning. If those are concerns for you, it still has a job to do. If they aren't, it may not.
Can life insurance help me while I'm still alive?
Yes. Many policies let you borrow against them income tax-free, which can be a fast way to get your hands on cash in an emergency. Some can also help cover long-term care needs. It isn't only about the death benefit. There are many different types of life insurance, and what's important to you and your situation will help dictate which type is most appropriate.
Is a life insurance payout taxed?
In the vast majority of cases, the death benefit your beneficiaries receive is income tax-free. That's one of the reasons it's such a useful tool for families that find themselves in unexpected and unfortunate situations. When we talk, we'll make sure you understand all aspects of a life insurance policy, including how your death benefit is distributed.
Insurance products are not FDIC insured, are not bank guaranteed, and may lose value. Insurance products are not deposits or obligations of any bank and are not guaranteed by any bank or bank affiliate.
The information provided is for educational purposes only and should not be construed as legal, tax, or investment advice. Please consult with qualified professionals regarding your specific situation.
Put a good Plan B in place.
It's free to have that first conversation, and you'll walk away knowing more about your situation than you did when you came in.