January marks Financial Wellness Month, making it an ideal moment to step back and look closely at your overall financial picture. One area that often doesn’t get the attention it deserves is life insurance. Many people assume it’s only needed later in life, but in reality, it can play an important role in your financial stability at every stage.
Life insurance not only provides protection for your loved ones but can also help prepare your household for unexpected events. In some cases, certain policies can even contribute to your personal financial goals during your lifetime. Below, we’ll walk through what life insurance does, the main types of coverage available, and how to ensure your policy still aligns with your needs.
What Life Insurance Actually Provides
Life insurance is designed to pay out a benefit to the people you designate if you pass away. This payout, known as the death benefit, can help cover major expenses such as funeral costs, mortgage payments, childcare, outstanding debt, or everyday bills.
Ultimately, life insurance keeps your family’s financial plan moving forward even if you’re no longer there to provide support. The benefit gives your loved ones access to cash at a critical moment, turning a difficult “what if” scenario into something easier to manage.
To keep your policy active, you pay regular premiums. In return, your insurance company guarantees the payout according to your policy’s terms. That sense of financial security is a major reason life insurance is considered an essential component of long-term financial well-being.
Types of Life Insurance: Term vs. Permanent
Life insurance generally falls into two categories—term and permanent. Both serve different purposes, and the right choice depends on your goals, stage of life, and financial priorities.
Term life insurance
offers protection for a specific length of time, commonly 10, 20, or 30 years. If you pass away during the term, your beneficiaries receive the death benefit. If you outlive the term, the coverage simply ends. Term insurance is typically more budget-friendly and works well during years when financial responsibilities are highest—such as raising children or paying a mortgage.
Permanent life insurance
stays in place for your entire lifetime as long as you continue paying the premiums. It also includes a cash value component that grows over time. This cash value can be accessed while you’re living, though doing so may reduce the final benefit your family receives.
There are two common forms of permanent coverage:
- Whole life insurance: Offers predictable premiums, guaranteed cash value growth, and a guaranteed death benefit. It’s known for providing long-term stability.
- Universal life insurance: Provides flexible premiums and adjustable death benefits. Cash value growth depends on market performance, which means it can carry more risk but also more customization.
Both types of permanent insurance can be valuable if you want lifelong coverage or appreciate having a savings element built into your policy.
Understanding the Cash Value Feature
The cash value within a permanent policy is often viewed as an added advantage. Over time, this feature can accumulate money that you may be able to use for large expenses, such as college tuition, medical costs, or even part of your retirement strategy.
That said, it’s important to keep expectations grounded. Cash value typically grows slowly in the beginning, and taking withdrawals or loans may reduce the payout your beneficiaries receive. In addition, permanent life insurance tends to be more expensive than term coverage.
If you already anticipate needing lifelong coverage or prefer steady, predictable premiums, the cash value component can be a meaningful perk. Still, many people should focus on building their primary savings and retirement accounts before relying on life insurance as a wealth-building tool.
Customizing Your Policy With Riders
Life insurance isn’t limited to basic coverage. Riders—optional add-ons—allow you to tailor your policy to better fit your personal situation.
For example, a long-term care rider can help cover the cost of care if you face a serious illness or injury and need ongoing assistance. A terminal illness rider makes it possible to use a portion of your death benefit early if you receive a qualifying diagnosis. If you choose term insurance, a return of premium rider may allow you to recoup the money you paid into the policy if you outlive the term.
Some term policies also allow you to switch to permanent coverage later without undergoing another medical exam. This feature can be extremely helpful if your health changes but you still want lifelong coverage.
These add-ons can make your plan more flexible and aligned with your long-term goals, ensuring your coverage grows with your needs.
Keeping Your Coverage Up to Date
Regularly reviewing your life insurance is a simple but valuable part of maintaining financial wellness. A few key habits can help you stay organized:
- Review beneficiaries annually: Life changes quickly. After events like marriage, divorce, or welcoming a new child, make sure your policy lists the right individuals.
- Check your coverage amount: As your income, debts, or family size changes, your policy may need to be updated.
- Look for conversion options: If you have a term policy, see whether it allows you to convert to permanent coverage later—especially helpful if your health shifts.
- Schedule an annual policy review: Just like reviewing your budget or savings, a quick yearly check-in ensures your coverage still fits your life.
If you’d like help reviewing your current policy or learning more about your options, reach out anytime. We’re here to support you as you take steps to protect what matters most.