January marks Financial Wellness Month, making it an ideal moment to reassess the overall health of your financial plan. One area that people often overlook is life insurance. Although many think of it as something only older adults need, it actually plays a meaningful role in protecting your financial stability at every stage of life.
Life insurance can provide support for those you care about, offer protection against unexpected events, and in certain cases, even help you build long-term financial security while you're still alive. Below, we’ll revisit the purpose of life insurance, break down the different types of policies, and explore how to keep your coverage aligned with your evolving needs.
How Life Insurance Supports Your Loved Ones
At its simplest, life insurance is designed to deliver a lump sum of money—called a death benefit—to the individuals you choose as beneficiaries when you pass away. This payout can help cover a variety of essential expenses, including rent or mortgage payments, outstanding debts, childcare, funeral costs, or everyday living needs.
In other words, life insurance acts as a financial safety net. If something unexpected happens, it helps ensure your family can maintain stability rather than facing sudden financial strain. By providing liquidity at a difficult time, it eases the burden of an already challenging situation.
To keep your policy active, you pay regular premiums. In exchange, your insurer commits to providing the agreed-upon benefit. That sense of reassurance is one reason life insurance is considered such an important part of a well-rounded financial plan.
Term vs. Permanent Life Insurance: What’s the Difference?
Life insurance typically falls into two main categories: term and permanent. Each serves its own purpose depending on where you are in life, what your budget looks like, and what type of coverage you want long-term.
Term life insurance
offers coverage for a specific period, usually 10, 20, or 30 years. If you pass away during that period, your beneficiaries receive the death benefit. Once the term ends, the policy expires, and there is no payout if you've outlived it. Term coverage is usually the more budget-friendly option and works well for those who want protection during years when financial responsibilities are highest—such as raising children or paying off major debts.
Permanent life insurance
remains in effect for your entire life as long as premiums are paid. It also includes a cash value component, which grows gradually over time. This cash value can be accessed while you're alive through loans or withdrawals, although doing so may decrease the amount ultimately passed on to your beneficiaries.
There are two common subsets of permanent life insurance:
- Whole life insurance offers steady premiums, guaranteed cash value growth, and a fixed death benefit. It appeals to those who prefer predictability and stability.
- Universal life insurance provides more flexibility. You can adjust your premium payments and death benefit, and the cash value is influenced by market performance. This gives you more control, but also introduces potential risk.
Either type of permanent coverage can be valuable if you want lifelong protection or appreciate having a policy that includes a built-in savings component.
Should You Consider Cash Value?
The cash value feature of permanent life insurance is often viewed as an additional benefit. Over many years, this savings component can help cover large expenses such as college tuition, medical costs, or supplemental retirement income.
However, it’s important to keep expectations grounded. Cash value accumulation generally starts slowly, and taking money out of the policy can reduce the final death benefit your beneficiaries receive. Permanent policies also tend to come with higher premiums compared to term life insurance.
Cash value can be a powerful tool if you already need lifelong protection and prefer consistent premiums. Still, most financial professionals recommend fully funding other savings or retirement vehicles before relying on a life insurance policy for investment purposes.
Optional Add-Ons to Personalize Your Policy
No two families are exactly alike—life insurance policies can be tailored to specific needs through optional riders. These add-ons help you enhance or customize your coverage.
For example, a long-term care rider
can help pay for care if an illness or injury leaves you unable to perform daily tasks. A terminal illness rider
lets you access a portion of your death benefit early if you're diagnosed with a qualifying terminal condition. If you choose a term policy, a return of premium rider
may allow you to get back the premiums you paid if you outlive the policy.
Some term policies also include a conversion option, which lets you switch to permanent coverage later without taking another medical exam. This can be especially helpful if your health changes over time.
These add-ons give you the ability to build a policy that fits your long-term goals more closely.
Simple Ways to Keep Your Coverage Current
Life insurance shouldn’t be something you set and forget. Keeping it updated is an important part of staying financially well. A few simple habits can help ensure your policy still supports your needs:
- Review your beneficiaries annually. Make sure the correct people are listed, especially after major life changes such as a new baby, marriage, or divorce.
- Reevaluate your coverage amount. As your income, expenses, or family size shifts, your policy may need adjustments.
- Check for conversion opportunities. If you hold a term policy, verify whether it includes a conversion feature that allows you to transition to permanent coverage without new medical tests.
- Plan an annual policy review. Just as you revisit your budget or savings plan each year, a quick look at your insurance can ensure everything remains on track.
If you’d like help reviewing your current coverage or exploring new options, now is a great time to do so. Making sure your plan is up to date is one of the strongest ways to protect what matters most.