Life Insurance: Protection and More

We often plan vacations or family outings with great care, but do most people take the same care to plan for the loss of a spouse? It’s a difficult topic for anyone to consider. Too often, we realize our own vulnerabilities only after seeing friends and neighbors suffer tragic loss in their own families.

If something were to happen to you or your spouse, think about the financial impact. Chances are, whether the loss is sudden or the result of a long illness, your family’s ability to meet the goals you had for them would be affected.

You can help protect your family against life’s uncertainties by being properly insured. Life insurance was created to provide for those who would be financially hurt by the death of the insured.

The use of life insurance has been expanded to include more sophisticated financial strategies. But its original intent as a way to provide needed resources in a family’s time of need remains intact.

There is no hard and fast rule for how much you need. Your coverage needs are as unique as your family.

This is one of the most common questions. Since every family is unique, each person should determine what they would want for their families should they no longer be here. Children? Mortgage? College? Taking the time to plan can help ensure your financial life is protected.

When considering how much you need, it may be helpful to evaluate the financial impact of losing the family’s primary wage earner. In a 2023 survey, the Life Insurance and Market Research Association (LIMRA) engaged adult consumers who are financial decision makers in their households. According to the study, sixty percent of respondents with financial dependents say they would be financially secure if a primary wage earner were to pass away. However owning life insurance makes a significant difference: only forty-nine percent of non-life insurance owners feel secure versus sixty-nine percent of life insurance owners, a forty-one percent difference.¹

Your family’s immediate expenses would include their housing or mortgage payment and household expenses, as well as funeral expenses. Tally up the monthly payments for any outstanding liabilities, such as credit cards, car loans, and education loans.

You may also want to replace the income you would have been earning for your family. Take a look at how many years your family will need support and the average rate of return on investments. Think of your life insurance in terms of the income it can provide.

How long will your existing resources – such as savings, investments, and other life insurance policies – maintain your family’s current standard of living? How long will your spouse or partner’s earnings continue and their resources last?

As changes take place in your family and with your family’s finances, your life insurance needs may change, too. The birth of your children and grandchildren, advances in your career leading to salary increases, running a successful business – these types of changes may alter the equation.

Revisit your life insurance periodically – including beneficiary designations – as changes occur in your family and marital status. It’s a good idea to review your policy(ies) annually.

With life insurance, your beneficiaries get a cash death benefit, typically income tax-free, when you pass away. Insurance can also be used during your lifetime to:

• Create a source of supplemental retirement income
• Provide a source of funds to help pay for costs associated with long-term care.
• Make a charitable or planned gift by naming the charity as the beneficiary
• Provide an income tax-free legacy for your loved ones
• Fund a buy/sell agreement for your business
• Retain and reward key employees

Hypothetical examples of how life insurance can be used to accomplish some of these objectives:

1. Charitable giving – Rather than making a six-figure donation during his lifetime, Jeff has named his alma mater as beneficiary of his life insurance policy. He will pay the non-deductible premiums to leverage a six-figure benefit payable to the university upon his death.
2. Business succession – Evelyn and her younger business partner Craig have planned an orderly transition. They have a buy/sell agreement funded with life insurance on each partner. When Evelyn dies, the death benefit will go to purchase her interest in the business, ensuring her family receives the value of her stake without liquidating the business itself.
3. Legacy – Bill and Margie have been helping with the care of their 10-year-old granddaughter, Sylvie, who has special needs. By naming a special needs trust as beneficiary of their life insurance, her grandparents help ensure Sylvie’s living expenses will be taken care of after they die without affecting her eligibility for other types of assistance.

You may need help sifting through the fine print and asking the right questions to ensure your policies are meeting your expectations.

• Evaluate any life insurance you may already have.
• Calculate your family’s expenses and resources available.
• Check the beneficiaries listed on all insurance policies.
• Speak with your Financial Advisor, accountant, and attorney about your insurance policies.

¹ LIMRA 2023 Insurance Barometer Study

Insurance products are offered through nonbank insurance agency affiliates of Wells Fargo & Company and are underwritten by unaffiliated insurance companies.

This is not, in any way, intended as an invitation to replace your existing coverage. Such an exchange is often not appropriate due to such factors as surrender charges on your existing policy, the surrender charge period on the new policy, transaction costs associated with the exchange, the values of the new policy versus the old policy, and the various fees and expenses associated with the new product. Therefore, replacing an existing policy should only be considered after a careful evaluation of these factors as well as a thorough review of your existing coverage.