Protecting what's important: Your insurance options explained

Many of the financial decisions we make are motivated by the people we love and care for. Whether we're looking to support our loved ones today or well after we're gone, it's reassuring to know that, with the right financial preparation, we can create a strategy to protect the people that matter to us most.

If you die unexpectedly or become injured or otherwise unable to work, your loved ones are suddenly left with emotional, physical and financial obstacles—like navigating the health care system or paying for college on their own. It's possible to protect them from some of these obstacles so they can grieve and live out their other responsibilities without the added burden of taking on yours.

In this article, we explain the options available to you, so you can create a strategy that protects your loved ones.

While it can be difficult to broach the subject of death or disability, thinking about how your family could be impacted can help you to better protect them. Life insurance enables you to provide for your loved ones after you’re gone by giving them a potentially tax-free death benefit.

Life insurance can offer much more than a death benefit alone—it can give the gift of freedom to take time away from work to grieve and handle your affairs without income influencing that decision. With the right coverage, you can also fulfill special gifts like funding your child's college education, wedding or a trip for your spouse that you would have wanted to take together.

Life insurance has financial benefits for those without children, too. It can help pay student debt, mortgage payments, or other debts that would be left behind if you were to pass away. The death benefit provides potentially income tax-free money for your loved ones.

There are two main types of life insurance—term and permanent:

Term insurance is also known as "pure life insurance" because its sole purpose is to protect your dependents if you die unexpectedly. Term life insurance is typically much cheaper than permanent life insurance because it lasts for a predetermined number of years, with 10, 20 or 30-year terms being the most common. If you die before that term is up, the death benefit kicks in and is paid to your beneficiary. It's often used for circumstances when a parent wants life insurance until their kids are grown, or they're taking care of aging parents and want to ensure their care continues.

Permanent life insurance provides lasting protection and includes cash value that may assist you in achieving financial goals while you're still living. There are a few types of permanent life insurance:

Whole life insurance can help you build your funds through guaranteed¹ cash value. This means you can borrow from it for retirement, college tuition or other major expenses and opportunities if you need to.²

Universal life insurance offers more flexibility with premium payments, as well as the opportunity to grow your savings through the accumulated cash value. You can also enjoy guarantee increase options (GIO) to help preserve your future insurability.

Variable universal life insurance allows you to have higher-risk, potentially higher-reward investments by investing your cash value into an account that invests in stocks, bonds and a fixed account. This option also offers flexible minimum and maximum premium payments.

Your insurance needs will change throughout your life. A simple way to determine how much life insurance coverage you may need is to identify and calculate three main financial need areas that would be left if you were to pass away:

1. How much outstanding debt do you have?
2. What large future expenses would your family be responsible for covering (e.g., property expenses)?
3. How much income would you need to replace, and for how long, to support those who depend on you?

You can also use our life insurance calculator for a better understanding of your needs.

The best time to think about life insurance is as soon as you have people in your life that could be impacted financially and emotionally if you were to suddenly pass away.

Consider adding life insurance to your overall financial strategy if:

• You have dependents (or plan to). If someone depends on you now or will in the future, it's time to consider getting life insurance.

• You're young and healthy. It can be smart to lock in lower premiums by purchasing life insurance while you're young and in good health. Life insurance can also come in handy if you have student debt. Life insurance can help your family cover what you still owe, so they can grieve without being impacted financially.

• You don't have a retirement or savings plan. Permanent life insurance can be a great kick-start or addition to a savings or retirement plan. It can help you feel more confident knowing you're building savings that can be split between you and your beneficiaries.

• You want to leave a memorable legacy to a cause close to your heart. Life insurance can help you leave a planned gift for a cause that matters to you.

Remember, it generally takes two things to purchase life insurance: money and good health. Premiums are lower at younger ages and typically when your health is better. Delaying the purchase may risk your insurability—which is your ability to obtain coverage down the road.

The past couple of years has been an unprecedented time for sudden illness, with COVID-19 diagnoses reaching hundreds of thousands in the U.S.

Even before the pandemic, the Social Security Administration found that more than one in four of today's 20-year-olds can expect to be out of work for at least a year due to a disabling condition before they reach retirement age.

No one plans to become injured or ill, but we all know it could happen. Without the right preparation, a disability could leave your loved ones with emotional challenges while juggling financial and physical responsibilities—like learning how to properly care for you at home or covering childcare or mortgage payments. Health care costs may also deplete your savings, which could dramatically change your quality of life or future plans.

With disability insurance, you can minimize these challenges and continue to protect your family, even if you need to take leave from work.

There are several types of disability insurance that could meet your needs. The main types are short-term, long-term, supplemental, state or federal support, and worker's compensation.

Short-term disability insurance can support you if you are injured or unable to work for a short period of time—a few months or up to a year. Depending on your policy, you can replace up to 80% of your pre-tax income.

Long-term disability insurance may be the most cost-effective option and can last for as little as two years or, in some cases, up until you retire. There are two general categories for long-term disability insurance: "any occupation" and "own occupation." Any occupation insurance provides support if you are unable to work any job, while own occupation covers you if you're only unable to work your current job.

Supplemental disability insurance helps to cover the rest of the expenses that your employer's insurance may not cover should you become unable to work.

Workers' compensation is a type of insurance that employers are required to have in case you become injured on the job. It's important to note that workers' compensation is not the same as disability insurance—if you're not injured on the job, workers' comp will not cover your expenses.

Some states—like California and New York—offer state-funded disability insurance, so check with your state to see if you qualify. The federal government also provides short-term disability through Social Security. And while this option has a reputation for having a long and complex application process, it still may be worth considering.

Not sure how much disability income insurance you may need? Estimate with our disability income insurance calculator.

The best time to consider disability insurance is before you actually need it. But what does that look like? Simply put, you're making an income, and looking into disability insurance now can help you prepare for necessary coverage later.

Today could be the perfect day to start protecting what's important to you. Create a protection strategy that aligns with your life plans and the legacy you want to leave with those you love.

Want to incorporate life insurance or disability insurance into your financial strategy? Connect with a financial advisor to learn more about your options.