Risks Of Not Having Life Insurance?

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    What Are The Risks Of Not Having Life Insurance? The Consequences Of Little To No Coverage

    Life insurance financially secures your loved ones after you die. It allows your family to prepare for future costs and cover final expenses. Yet, 1 out of 5 Americans don’t have enough coverage – some don’t have a life insurance policy at all. 

    In this guide, you’ll learn the reasons why people put off buying insurance and the dire consequences of not having a policy that covers your needs.

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    Why Some People Don’t Have Life Insurance

    People forego or delay purchasing a life insurance policy for many different reasons. Some don’t believe it’s necessary, while others are simply too busy to apply for one. Below are a few common reasons why some people don’t have life insurance. 

    They Can’t Afford It

    Between daily expenses and monthly bills, many do not consider life insurance a necessary cost. However, contrary to popular belief, life insurance is not as expensive as you might think. 

    According to LIMRA’s annual Insurance Barometer Study, people think an insurance policy costs three times its actual price! In reality, the average life insurance policy costs between $40 and $55 a month.

    They Think They Are Too Young For It

    Many people falsely believe that the best time to buy life insurance is when you’re older. Yet, the reality is quite the opposite. The best time to apply for life insurance is in your mid to late twenties, especially since premiums rise with age.

    Being younger also doesn’t diminish the possibility of an unexpected death. If you die in an accident, you’ll want to make sure your family is financially secure. In addition, purchasing a life insurance policy when you’re younger allows you to build savings and achieve your future financial goals. 

    They Are In Good Health

    Even at your healthiest, you cannot discount the possibility of accidental death or sudden illness. If you suffer a severe injury or develop a condition, it will become more challenging to apply for an insurance policy.

    This is because, when you are in poor health, you become riskier to insure. Conditions such as high cholesterol, cancer, or a devastating injury directly impact how long you will live. The shorter your lifespan, the more expensive your insurance premiums will become.

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    It’s Too Complicated

    Yes, applying for life insurance can be a lengthy process, but it’s not an impossible one. 

    Most people get stuck thinking about what type of life insurance they need. Instead of reaching out to an expert, they stop pursuing their application. Working with a professional can help you decide how much coverage you need and for how long. A dependable insurance agent will also enumerate the steps you must take and the documentation you must provide to get the best possible terms. 

    They Don’t Have Kids

    Many people do without a policy because they have no kids to insure. However, having children is only one of many reasons you might need life insurance. 

    Applicants can list other loved ones as their beneficiaries, which are people or entities that are entitled to receive your death benefit. If anything happens to you, the right life insurance policy can help protect your spouse, a parent, or even a sibling.

    What Are The Consequences Of Not Having Life Insurance?

    Having little to no insurance coverage can result in devastating consequences for your loved ones – they can become burdened with your outstanding debts and liabilities or have to cover costly end-of-life expenses. Below are the disadvantages you might face without a life insurance policy. 

    You Can’t Afford Final Expenses

    In the United States, the average funeral costs between $7,000 and $12,000. These costs can rise depending on whether you want to be buried, cremated, or have a ceremony. 

    If you don’t have final expense or life insurance, your family might end up paying thousands of dollars’ worth of funeral costs that they can’t afford. Leaving enough coverage for a funeral allows your loved ones to grieve without the added stress of paying for a burial.

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    You Might Leave Your Family In Debt

    It can take decades to pay off expensive debts such as a mortgage, loan, or credit card. Plus, when you die, your debt doesn’t die with you – instead, it gets passed on to your next of kin. Without a source of income replacement or cash flow, you subject your family to the same cycle of debt. 

    If your estate cannot cover the amount of debt you leave behind, your case may enter probate court. During this time, the court can opt to sell your belongings to cover these outstanding expenses. Having a policy in place can protect you and your family from this stress.

    You Leave Your Children Without Inheritance

    The average cost of tuition in 2021 is $11,171 for public colleges and $41,411 for private universities. For families who cannot afford these fees, student debt gets passed onto their children.

    The best way to ensure your child’s education even after your death is with a life insurance policy. Compared to a 529 Educational Plan, which charges a 10% penalty for non-college-related withdrawals, you can use the cash value on a permanent life insurance policy to pay for tuition and any other costs.

    You Miss Out On Tax Savings

    More often than not, life insurance is tax-deductible or non-taxable. The death benefit on your policy is not considered taxable income, and thus gets passed onto your beneficiaries in full. Without a life insurance plan, you could be missing out on significant tax savings. 

    For instance, the cash value on a permanent life insurance policy grows on a tax-deferred basis. Without these tax advantages, you miss out on building your savings for emergency needs or retirement costs. 

    You Won’t Have A Long-Term Financial Plan

    The average American at retirement age will spend $987,000 until their death, typically on living or medical expenses. However, this cost doesn’t consider other expenses such as mortgages, college tuition fees, and other debts. In most cases, your savings from income aren’t enough to cover these extra costs. 

    Despite this, many working individuals aim for a comfortable retirement yet don’t have a life insurance policy, which can help you pay for end-of-life obligations. Without one, you can lose thousands or even millions in future expenses. 

    What You Should Know About Being Underinsured

    Even with a life insurance plan, you might not have enough coverage. You want your policy to serve as an income replacement, so you should have at least 10-15 times your annual income as your death benefit amount.

    Here are a few things you should know about being underinsured. 

    Group Life Insurance Isn’t Enough

    While employer-sponsored life insurance is easy to obtain, it often provides an inadequate amount of coverage. Among the other drawbacks of group life insurance are:

    • A maximum coverage amount of $250,000
    • The loss of coverage if you leave your job 

    Always seek options outside of group life insurance to guarantee coverage for your loved ones. 

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    Your Term Might Be Too Short

    While a 15-year life insurance policy is undoubtedly cheaper than a 30-year term, it may end up costing you more if you have to renew it. Remember, insurance premiums increase as you age, especially if you develop an illness during your first term.

    Setting your policy term according to anticipated costs and unexpected circumstances can help save you money in the long run. For instance, if you have a 30-year mortgage, it makes sense to apply for a 30-year term. This ensures that your family can still pay off your mortgage, even if you die before the loan ends.

    Do You Have Enough Coverage?

    Low coverage policies may be affordable right now, but they may not suffice later on. As a rule of thumb, your policy should cover at least 10 to 15 times your yearly earnings, adjusted to suit your circumstances and existing assets.

    Determine how much coverage you need by calculating your financial obligations – these include your expenses and debts. Then, subtract these obligations from your assets to get your coverage gap. This will tell you if you need more insurance. 

    Not All Insurance Is The Same

    Different types of life insurance policies will satisfy varying needs. Choosing the wrong kind puts you at risk of spending more if the unexpected happens.

    For example, if you only need coverage for a set time, it wouldn’t make sense to take out a whole life insurance policy with a cash value component. Likewise, only having final expense insurance doesn’t protect your family from future hospital bills at the end of your life.

    In Conclusion

    Ultimately, everyone needs life insurance at some point. Without it, you risk burdening your loved ones with unpaid debts or expensive funeral costs. If you do have a life insurance policy, make sure you aren’t underinsured by calculating your current and anticipated financial obligations. 

    If you’re thinking about applying for life insurance, get started by contacting our experts at Wesley LLC. You can also visit our website for more helpful resources that can guide your decision!

    Written By Cameron McDowell
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