Incorporating Life Insurance into Your Financial Plan: Key Considerations & Benefits

Life insurance is more than a safety net for your loved ones—it’s a powerful, flexible financial tool that can provide peace of mind and lasting security. 

While building wealth is a common focus, protecting your family’s financial future is equally vital. Life insurance does more than just offer a payout in the event of your passing; it can help cover outstanding debts, sustain your dependents’ lifestyle, and support long-term financial goals. 

In this article, we’ll dive into how this often-underestimated financial resource can become a cornerstone of your strategy, offering both essential protection and the potential for growth.

Understanding Term Life Insurance

Life insurance is a contract between you and an insurance provider, where the insurer promises to pay a specified sum to your beneficiaries upon your death in exchange for regular premium payments. It comes in two primary forms: term life and permanent life insurance.

Term life insurance offers coverage for a set period—typically 10, 20, or 30 years. It’s straightforward, affordable, and designed to provide a death benefit without accumulating cash value. 

Permanent life insurance, on the other hand, encompasses whole life and universal life policies. These policies offer lifelong coverage with a cash value component that grows over time, blending insurance with an investment-like feature.

While permanent life insurance can be a valuable tool in specific cases, term life insurance typically offers the best balance of protection and affordability for most people. Here are some of the key advantages of term life insurance:  

• Affordability. Term life insurance is much more cost-effective, allowing you to obtain greater coverage for a fraction of the cost. For example, as of 2024, a healthy 50-year-old man pays an average of $817 per year for a 20-year term life policy with $500,000 in coverage. In contrast, securing the same $500,000 of coverage through a whole life policy would cost him over $10,000 annually.
• Simplicity. Without the complexity of investment elements, term life insurance tends to be easier to understand and manage than permanent life insurance. 
• Flexibility. Term life insurance allows you to tailor your coverage based on your evolving needs, such as changes in family size or financial obligations.
• Targeted Protection. Term life policies provide straightforward insurance coverage when you need it most, usually during your working years when you have dependents.
• Investment Independence. With term life insurance, you can invest the money you save on lower premiums separately, potentially yielding higher returns.

The Role of Life Insurance in Financial Planning

Life insurance is often a vital component of a well-rounded financial plan, offering a flexible safety net that not only protects your loved ones but also supports your long-term financial goals. Here’s how it can integrate into various aspects of your financial strategy:

• Dependents’ Protection. The core function of life insurance is to provide financial security for those who depend on your income. If you were to pass away unexpectedly, the death benefit can ensure your family maintains their quality of life, covers everyday expenses, and continues pursuing important goals like funding your children’s education.
• Income Replacement. Life insurance is designed to replace your income for a specific period, giving your family time to adjust financially. A common guideline is to have coverage equal to 10–15 times your annual income, ensuring your family can cover expenses and maintain financial stability for years after your passing.
• Debt Coverage. Life insurance can also be used to pay off significant debts, such as a mortgage, car loans, or credit card balances. This prevents your family from being burdened with debt or potentially losing assets, like the family home, in the event of your death.
• Estate Planning Support. While permanent life insurance is often tied to estate planning, term life can also play an essential role. For example, it can provide liquidity to pay estate taxes, equalize inheritances among heirs, or fund charitable donations, ensuring other assets remain intact.

By addressing these critical areas, life insurance offers peace of mind, knowing that your loved ones are financially safeguarded in the event of the unexpected. Moreover, as your circumstances evolve—such as paying off debts or having children become financially independent—you can adjust your coverage to ensure your life insurance aligns with your changing needs and broader financial goals.

Common Misconceptions about Term Life Insurance

Despite the clear benefits of life insurance, a surprising number of people remain uninsured or underinsured. In fact, according to LIMRA’s most recent Insurance Barometer Study, 42% of American adults report needing to obtain life insurance or increase their current coverage. 

This gap often stems from common misconceptions that prevent individuals from securing adequate coverage. For example: 

• “I’m young and healthy, so I don’t need it.” Many young adults believe life insurance is only for older people or those with health issues. However, youth and good health are the best times to purchase insurance since premiums typically increase with age and declining health. 
• “It’s too expensive.” Term life insurance is often much more affordable than people think. Depending on your age and health, a 20-year, $500,000 policy can cost less than $30 per month. The peace of mind and financial security it provides far outweigh this modest cost.
• “My employer-provided coverage is sufficient.” While employer-provided life insurance is a valuable benefit, it’s often inadequate for most people’s needs. These policies typically offer coverage of only 1-2 times your annual salary, which falls short of the recommended 10-15 times income coverage. Additionally, this coverage usually ends if you leave your job, potentially leaving you uninsured when you need it most.

By understanding and dispelling these misconceptions, you can make more informed decisions about your life insurance needs, ensuring you and your loved ones have adequate protection.

When to Consider Term Life Insurance

Life insurance becomes especially important during pivotal life transitions and at different stages of your career and personal life. Here are key moments when you should consider getting or updating your coverage:

Major Life Events

• Marriage. When you commit to a partner, ensuring their financial security in the event of your absence becomes essential.
• Childbirth or Adoption. Expanding your family brings increased financial responsibilities, making life insurance critical to safeguarding your children’s future.
• Home Purchase. A mortgage is often one of the largest debts a family takes on. Life insurance can help cover this burden, preventing the loss of your home if something happens to you.

Career Milestones

• Starting a New Job. As your income grows, it’s important to reassess your coverage to match your higher earning potential and future financial obligations.
• Becoming Self-Employed. Without employer-provided benefits, personal life insurance becomes a key part of your financial security plan.

Age Considerations

• Young Adulthood. Locking in a policy while you’re young and healthy often results in lower premiums and long-term savings.
• Middle Age. As you accumulate wealth and take on greater responsibilities, it’s important to evaluate whether your coverage still meets your family’s needs.
• Approaching Retirement. Near retirement, you may want to reassess whether you still need life insurance, or if it’s time to reduce your coverage based on your financial situation.

Remember, life insurance needs shift as you go through different phases of life. Regularly reviewing your policy ensures that you’re properly protected, giving you and your loved ones peace of mind at every stage.

TrueNorth Wealth Is Here to Help

For many families, life insurance is an essential part of a comprehensive financial plan, providing crucial protection, peace of mind, and long-term financial security for you and your loved ones. However, finding the right coverage requires an understanding of your specific needs and financial goals.

At TrueNorth Wealth, our team of fiduciary CFP® professionals is dedicated to offering personalized guidance tailored to your unique situation. We help you make informed decisions that not only grow your wealth but also safeguard it for generations to come. Let us help you create a financial strategy that aligns with your future and provides lasting security.

TrueNorth Wealth is among the top Wealth Management firms in Utah and Idaho, with offices in Salt Lake City, Logan, St. George, and Boise. At TrueNorth Wealth, we focus on helping our clients build long-term wealth while maximizing the enjoyment they receive from their money. We do this by pairing our clients with a dedicated CFP® professional backed by an incredible team.

For our team at TrueNorth, it’s about so much more than money. It’s about serving families all across Utah and helping them achieve freedom and flexibility in their lives. To learn more or schedule a no-cost consultation, visit our website at TrueNorth Wealth or call (801) 316-1875.