Why Do I Need Life Insurance?

When it comes to financial planning, there are many exciting and meaningful topics we discuss with our clients. Things like retirement, buying a vacation home, planning for children, etc., are all important issues. Part of the magic in what we do is helping clients see what’s possible with their money and how best to leverage their wealth to create the lifestyle they’ve been dreaming of. Naturally, some conversations might feel a little less exciting, or even scary. Things like planning for death, illness or divorce might be unpleasant and potentially stressful, but are crucial nonetheless. Our world revolves around a lot of “what ifs” because, if we don’t address them, they could pose an even scarier situation for you or your loved ones.

I often talk about the unique risks that the LGBTQ+ community faces, especially when we think about building a family or protecting our rights as a parent. With marriage equality legislation passing in 2015, many folks are doing just that and having children. Protecting your family from death or sickness is not unique to the LGBTQ+ community, but is important to talk about. According to a study completed in 2022, 68% of survey respondents from this community believed they need life insurance, yet only 38% had coverage.  

The need for life insurance can ebb and flow throughout your life. I often come across clients who have old life insurance policies that were necessary years ago, but perhaps not anymore. Let’s look at four common reasons why one would want to consider life insurance:

1. Income replacement

Whether you’re a family with two working incomes or a family with one breadwinner, life insurance is critical in the event that a working partner dies prematurely. In addition to the heartbreak of such a tragic loss, imagine the impact of losing an income stream and how that might change the financial landscape for your family. Life insurance is designed to provide a level of security to ensure the bills can continue to be paid and financial life can resume as normal, especially during an emotional time with losing a loved one.

2. Pay off debt

Unfortunately, most debt doesn’t go away upon death. If you hold considerable debt, such as a mortgage, you might want to look at life insurance to help cover that debt in the event of a premature death, so that your loved ones are not held financially responsible.

3. College planning

Like myself, there are many people who want to be able to support their children’s college expenses. Saving into a 529 plan is a great way to do so, but again, what if you pass away prematurely? Life insurance, specifically a term policy, that provides insurance for a stated period of time, could be a way to ensure there is money available to pay for college expenses when the child turns 18.

4. Leave an inheritance

Life insurance is a tax-friendly way to leave money to loved ones as an inheritance. Upon passing, proceeds from the life insurance policy are paid to the beneficiary, and generally this benefit is not taxable in the hands of the heirs.

The need for life insurance changes over time as circumstances in your life evolve. For example, the amount of insurance you should purchase to help cover your debt can gradually be reduced as the debt is paid down over time. In consultation with your Corient Wealth Advisor, you should periodically assess your life insurance portfolio (both permanent and term insurance) to help ensure that you hold adequate coverage. This type of assessment also helps you avoid paying for insurance that you no longer need.

Source: https://www.loma.org/en/news/industry-trends/2022/pride-month-is-an-opportunity-to-look-at-lgbtq-americans-financial-security/

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