The power of life insurance

Getting life insurance is one of the most meaningful ways to take care of the people you love. But with so many options to sort through, it’s tough to know what’s best for you.

Whether you’re solely interested in life insurance as a protection tool or you want to explore how you can use it to benefit your retirement and estate planning, in addition to the death benefit, the right policy can have a big impact on your financial goals—both when you’re alive and after you die.

Here, Thrivent financial advisors answer your most common questions about life insurance.

A: Life insurance falls into two broad categories: term and permanent. Term life insurance provides temporary coverage for a set period—such as 10, 15, 20 or 30 years—and permanent life insurance offers coverage for your entire life and comes with other benefits, like the ability to build cash value, as long as premiums are paid.

Then, within the permanent life insurance category, there are a few different types of policies:

• Whole: Whole life insurance is guaranteed coverage for a lifetime, including a guaranteed death benefit, a fixed premium that never changes and guaranteed cash value growth. 
• Universal: Universal life insurance offers flexibility in when and how much you pay in premiums. The contract’s cash value or accumulated value also earns a minimum guaranteed interest rate. 
• Variable universal: Variable universal life insurance works just like regular universal life, except instead of earning a minimum interest rate on your cash value, you invest it in variable subaccounts, such as mutual or index funds. If the market performs well, your cash value may grow. If the market drops, your life insurance may lose value. 

A: Choosing life insurance can feel personal, because it is. There’s no one-size-fits-all answer. Lyle Morgan, a Thrivent financial advisor in Atlanta, suggests starting with three simple questions to help you figure out which type of policy might be the best fit for your life and goals.

1. What financial obligations do I have? Think about the amount you need to cover your loved ones’ financial obligations after you die, such as school loans, a mortgage, income replacement or your child’s education. 
2. How much can I afford in premiums? Life insurance is paid for with premiums you pay every month, quarter or year. The amount you can comfortably fit into your budget will guide what kind of coverage is realistic for you. A permanent policy usually costs more than term, because of some of its features, so it’s good to know what you can handle before you decide. 
3. Is this life insurance for protection purposes, or do I also want cash value for the future? Both term and permanent policies provide protection with a death benefit, but if you also want to build cash value you can tap into down the road, you should consider a permanent policy.  

Permanent life insurance can work a lot like an asset: It builds cash value over time and might even give you access to tax-free income down the road. Term insurance often is used by individuals and business owners who are seeking to collateralize their loans, by assigning the death benefit to the lender on an amortized basis until the loan is completed.

A: Getting the right amount of insurance is more important than which type, says Tom Bruckner, a Thrivent wealth advisor in San Jose, California. Often, it’s a mix. “Most people don’t get enough,” he says. “A million dollars sounds like a lot of money, but if it generates $50,000 of income annually, it is not enough for many households.”

Thrivent believes that the best way for an individual to estimate the appropriate amount of life insurance is through an in-depth discussion with a financial advisor who can help you identify your needs, your goals and your financial resources.

A general guideline you can use is to multiply the total income by number of years left to retirement. Bruckner recommends purchasing a policy that is worth 20 times your total household income.

“You want to make sure you have enough so that your beneficiaries can go through the mourning process, get through all of the paperwork and not have to make any big decisions the first year,” Bruckner says. You also want to ensure “the amount of money replaces lost income or helps ease changes in their financial situation as a result of your death.”

A: It’s never too early to purchase life insurance, as your health and age play a large role in life insurance eligibility and premium costs. “You’re not going to get any younger,” Bruckner says. “Every year you get older, life insurance is going to get more expensive, because it’s priced based on life expectancy.”

You also can buy life insurance for your children, making it easier and more affordable for them to continue coverage when they take over the policies in adulthood, even if they were to become uninsurable in the future.

A: Many people choose a term policy because it’s affordable, but that doesn’t mean you’re locked into it forever.

With Thrivent’s term policies, you have a five-year window to convert your coverage if you want to. You also can add an optional Extended Term Conversion privilege, which lets you switch to a permanent policy at any time during your contract.

Most importantly, you can make this switch without having to prove you’re still in good health. So, even if your health changes—like if you develop diabetes or get a serious diagnosis—you won’t lose out on coverage. Plus, you get to keep the lower rate based on your health when you were younger.

Morgan offers the example of a healthy 30-year-old who takes out a term policy. “When they go to convert it at, say, 50 years old, they would get the same risk class, even though their health condition may have changed.”

A: Life insurance is frequently included in employee benefit packages, but in most cases, the life insurance your employer offers is not enough coverage. “Life insurance through work is generally temporary life insurance, so it doesn’t build cash value,” Morgan explains. “It may not be able to fully cover the different expenses or liabilities you may have, or the coverage may not be suitable for you based on your income level and family needs.

“Also, if you were to leave that job, your life insurance may not continue with you. It’s best to have your own life insurance that, regardless of what happens [with employment], gives you the coverage you need.”

A: Check your policy whenever there’s a big change in your life, like a new job, a marriage, a divorce, a new child or a shift in your income or goals. Regular reviews help you make sure that your coverage keeps up with your life and your loved ones are protected.

“If life is calm, I recommend doing an annual review,” says Bruckner, noting that a once-a-year check-in is also an opportunity to build your relationship with your financial advisor. “We’re part of your policy, too. As a financial advisor, it’s hard to give somebody advice if they haven’t seen me for five years.”

A: When you buy life insurance, you’ll choose who gets the money when you’re gone. These people (or organizations) are called your beneficiaries. Many people list their spouse first, but you also can name your kids, parents, grandchildren or even a charity that’s close to your heart.

It’s important to provide accurate legal names and contact information for any beneficiaries you choose and to update them as needed.

A: Beyond offering financial protection for your loved ones, you can use life insurance as a financial tool while you’re living.

For example, you can create another income stream by tapping into the cash value of permanent life insurance, either through a cash withdrawal from or a loan against your policy.

“Even if you were to pull cash value out of the life insurance policy years before you’re retired, you can do so tax-free and use the money to do things like fund your child’s education, help with a down payment to purchase property or help your business,” Morgan says.

A: When you die, your beneficiaries will receive your death benefit without needing to pay federal or state income taxes on the amount.

“It provides a very efficient tool to pass on assets,” Bruckner says. “It helps to manage taxes. It helps to expand what you can do for your family and for charity.”

No matter what stage of life you’re in, life insurance is an important piece of your overall financial plan. When you plan with purpose and lean on trusted guidance, life insurance becomes more than protection. It becomes a way to care for your family long after you’re gone.

Taylor Hugo is a writer in Colorado.

Planning for the present and the future

Daniel Frankson admits he’s always been a private person when it comes to his finances, but once he connected with Thrivent Financial Advisor Lyle Morgan, he started to become more comfortable discussing his financial position, goals and assets, including life insurance.

“When I would think about life insurance before, I would automatically think ‘death,’” says Frankson, a real estate agent in Atlanta. “Lyle made me understand that’s not the approach we need to take.”

Frankson purchased permanent life insurance that will guarantee that his wife and three kids—ages 22, 16 and 4—will be supported financially after he dies.

“We live in a world where you never know what can happen,” Frankson says. “It’s my desire to live a long and healthy life, see my children grow and do this thing called life with my partner, but things happen.

“Me being a natural protector and provider for my family,” he adds, “it puts me at ease knowing that, should anything happen to me, life insurance, while it doesn’t replace me, would help to ease the financial burden they may face.”

Morgan helped Frankson understand why his previous term life insurance policy with another provider wasn’t the most beneficial for his family’s needs, and how a permanent policy would offer the protection he needs now and potentially benefit him in retirement.

“Anyone looking to get a life insurance policy, align yourself with a financial advisor who is going to craft something that works for you personally,” Frankson says.

Leaving a legacy

When Peggy Harris’s father passed away seven years ago, she and her husband Davie decided to move from California to Spokane, Washington, to be closer to Peggy’s family. Unsure if they could afford to leave their jobs and move, the Harrises reached out to longtime friend Tom Bruckner, a Thrivent wealth advisor, who worked with them to put together their first comprehensive financial plan.

Before joining Thrivent, the Harrises didn’t have any life insurance. They decided to purchase policies that offer financial protection. If either of them dies, that wealth is transferred to the survivor. When both die, their two adult children will receive the financial support.

“We were pretty solidly middle class when I was growing up, so for me personally, it was quite a journey to do things like buy a house, sell a house—things that were not in my family’s financial history,” Davie says. “To get to a place where Peggy and I could not only stop working but also be thinking about transferring wealth to our kids was a big change for both of us.”

Working with Bruckner and Thrivent also has encouraged the Harrises to think about their legacy on a larger scale by supporting the causes and communities they’re passionate about. “Part of Thrivent’s focus is enabling people to give back,” Davie says. “That’s another part of why thinking about life insurance and financial planning broadly has been an adjustment, because it has changed the way we give charitably. It has become a really big part of our financial plan.”