In a recent episode of our YouTube series, Money Moves, I had the pleasure of speaking with Regan Hizer, a licensed agent with State Farm, to discuss an essential topic for women—life insurance. Women often face life transitions like divorce, starting a business, or becoming a caregiver, and life insurance plays a crucial role in ensuring financial stability during and after these changes.
We dove into the importance of understanding how life insurance works, what the different types of policies are, and how they can be tailored to suit women’s unique needs. Life insurance isn’t just about providing for your loved ones after you pass; it’s about ensuring you and your family are financially secure through various stages of life.
Term vs. Whole Life Insurance
One of the most common questions people have about life insurance is: what’s the difference between term life insurance and whole life insurance? Regan broke it down beautifully, offering an explanation that simplifies this decision.
- Term life insurance is primarily used to cover the essential financial responsibilities during the active years of your life, such as your paycheck, debts, and savings. Think of it as a financial safeguard during the period when your family is most dependent on your income. This type of insurance typically lasts for a specified term, such as 10, 20, or 30 years, and is often more affordable, making it a popular choice for young families or individuals with significant financial obligations. Once the term ends, the coverage ceases unless you renew it.
- Whole life insurance, on the other hand, acts as a long-term wealth-building tool. In addition to offering a death benefit, whole-life policies accumulate cash value over time. This cash value can be used while you’re still alive, offering tax advantages and serving as a way to transfer wealth to your beneficiaries without being taxed. Whole life insurance tends to be more expensive, but it provides lifelong coverage and financial growth opportunities.
Regan explained that while term insurance protects your paycheck and lifestyle, whole life insurance is more suited for wealth management and estate planning, allowing you to leave a legacy for your loved ones.
When and How to Reassess Your Policy
Life is constantly changing, and as women, we often experience major transitions—whether it’s marriage, divorce, the birth of a child, or buying a new home. Regan emphasized the importance of reassessing your life insurance policy every two to three years, or anytime a significant life event occurs.
Major events that should prompt you to review your policy include:
- Marriage or divorce: When you enter or exit a marriage, your financial responsibilities shift. You might need to increase or decrease coverage based on your new circumstances.
- Children: Having or adopting children significantly changes your financial obligations. Life insurance should cover expenses like education, childcare, and living costs if something happens to you.
- Career changes: If you’ve changed jobs, started a business, or retired, your income and financial needs may have shifted, and your life insurance policy should reflect these changes.
- Purchasing a home: Taking on a mortgage is one of the largest financial commitments you’ll make. Life insurance should be adjusted to ensure your mortgage is covered in the event of your passing.
- Retirement: As you approach retirement, your life insurance needs might change from income replacement to estate planning or wealth transfer.
By reviewing your policy regularly, you can ensure that it aligns with your evolving financial goals and responsibilities, giving you peace of mind no matter what changes life brings.
Updating Your Beneficiaries
One of the most crucial steps women often overlook is updating beneficiaries after major life changes. Regan pointed out that no matter your current intentions if you haven’t updated your beneficiaries after a significant event—such as a divorce or the birth of a child—the life insurance payout will go to whoever is still listed as the beneficiary. This could mean that an ex-spouse could still receive the payout, even if you no longer intend for that to happen.
Here’s why updating your beneficiaries is critical:
- Legal binding: Life insurance companies are legally obligated to follow the designations on file, regardless of your personal or verbal wishes. If your ex-spouse is still listed as the beneficiary, they will receive the death benefit, even if you intended for your children or a new partner to receive it.
- Unclaimed property: If beneficiaries don’t know they’re listed on your policy, they may not claim the payout, leaving the funds to eventually go into unclaimed property through the state.
Regan advised making it a habit to update your beneficiaries after any significant life event, whether it’s a divorce, new marriage, birth, or death in the family. Additionally, let your beneficiaries know about the policy so they’re prepared to contact the insurance company in the event of your passing.
The Impact of Starting a Business on Life Insurance
As more women become entrepreneurs, understanding how starting a business affects life insurance needs is critical. Regan explained that many people rely on life insurance provided through their employer. However, once you leave that job to start your own business, that coverage typically ends.
Entrepreneurs need to ensure they have personal life insurance to cover both personal and business obligations. This means considering both your home and family’s financial needs, as well as the financial health of your business.
Regan also discussed the importance of key person insurance, which is essential for businesses that depend on specific individuals. If your business has key employees or partners whose death could significantly impact the company, key person insurance can provide the financial support needed to keep the business running smoothly during difficult times.
Home Ownership and Life Insurance
Buying a home is a major financial milestone, and your life insurance should reflect this new responsibility. Regan explained that women who purchase a home should ensure that their life insurance policy covers the mortgage balance. If something were to happen to you, your loved ones shouldn’t be left with the burden of trying to pay off the mortgage.
While some lenders offer mortgage insurance, not all do. If your lender doesn’t provide this option, or if you prefer not to take it, you’ll need to make sure your life insurance coverage is sufficient to cover the outstanding balance. This will allow your family to remain in the home without financial strain.
Don’t Forget Disability Insurance
One of the most important topics Regan discussed was disability insurance, which is often overlooked when planning for the future. Many people think of life insurance as the key to protecting their family’s financial future, but they forget about the possibility of becoming disabled and being unable to work.
Disability insurance provides a steady income in the event that you’re unable to work due to illness or injury. Regan emphasized that while life insurance protects your family if you pass away, disability insurance ensures that you and your family are financially secure if you become unable to work. Without it, you could struggle to meet your financial obligations, even if you have a life insurance policy in place.
Women should review any disability coverage they might have through their employer and supplement it with a personal policy if needed. This way, both short-term and long-term financial risks are covered.
Health Changes and Life Insurance
As your health changes, so too might your life insurance needs. Regan shared that it’s best to purchase life insurance when you’re young and healthy, as this allows you to secure lower premiums and broader coverage options. However, health changes later in life can make it difficult to obtain additional coverage.
To protect yourself against these risks, Regan advises adding a guaranteed insurability rider to your life insurance policy. This rider allows you to increase your coverage or take out additional policies without undergoing another medical exam, even if you develop a serious illness later in life.
By securing this rider, you can ensure that your future health won’t prevent you from adjusting your life insurance to meet your evolving needs.
Life Insurance for Children
Life insurance for children isn’t a topic many parents like to think about, but it can be an essential tool for future security. Regan acknowledged that while no parent wants to consider the possibility of losing a child, having life insurance for your children offers several important benefits.
First, a life insurance policy can help cover funeral expenses and provide the financial resources needed for parents to take time off from work to grieve. Most employers only offer a few days of bereavement leave, but a child’s death often requires much more time to process emotionally.
Second, insuring children while they are young and healthy locks in lower premiums, which can benefit them later in life. As they grow older, they can take over the policy and continue to build on it, providing a financial safety net for their own families. Many policies also come with a guaranteed insurability rider, allowing the child to increase their coverage without needing a new medical exam.
The Importance of Life Insurance After a Loss
Losing a spouse—whether through death or divorce—is emotionally and financially overwhelming. Regan emphasized that women must reassess their life insurance needs in the event of such a loss to ensure their family is still financially protected.
In cases of death, the loss of your spouse’s income can leave you struggling to maintain your family’s standard of living. Having an adequate life insurance policy can provide the financial support necessary to cover everyday expenses, support children, and pay off debts.
In the case of divorce, it’s important to ensure that both partners maintain life insurance coverage for the benefit of their children. Regan advises including life insurance requirements in the divorce decree, ensuring that both parents are financially responsible for their children’s future, even after the divorce is finalized.
Essential Riders and Policy Options for Women
Finally, Regan shared several important riders and policy options that women should consider when customizing their life insurance:
- Guaranteed Insurability Rider: This rider allows you to increase your life insurance coverage later without undergoing additional medical exams, even if your health deteriorates.
- Disability Waiver of Premium: If you become disabled, this rider waives your life insurance premiums while keeping the policy active. This ensures that your coverage remains intact, even if you’re unable to work.
- Additional Insured or Child Rider: This rider allows you to add other people, such as a spouse or child, to your life insurance policy. This can be a more affordable way to provide coverage for family members, rather than purchasing separate policies.
Each of these riders can be tailored to fit your unique circumstances, providing flexibility and additional protection as your needs change.
Final Thoughts
Life insurance is a vital part of financial planning for women, especially as they navigate major life changes. Regan’s final advice is to pair your life insurance with disability coverage and use the LIFE model to determine how much coverage you need:
- Liabilities: Ensure your policy covers your major debts, like your mortgage.
- Income: Aim to replace 10 years of your income to provide for your family.
- Final Expenses: Set aside funds for funeral costs and other final expenses.
- Education/Extras: Consider future costs like your children’s education or a wedding.
Even if the total coverage amount seems daunting, Regan reminds us that something is better than nothing. Start where you can and adjust over time to ensure your family is always financially secure. For additional information or to see what type of coverage is right for you Regan Hizer can be reached at 734-418-7334.