Financial stability during a recession can be difficult but not impossible. Because of the uncertainty that can happen during this time, it’s important to have tools in place to protect the things that matter most, like your investments, family, and personal well-being.
One of those recommended tools is life insurance. This guide breaks down the basics of life insurance during a recession and why it’s the tool you need to be financially sound.
How can life insurance help you in a recession?
Life insurance provides a number of benefits to policyholders, especially during a recession. Here are just a few ways life insurance can help during difficult times.
Using Cash Value in Time of Need
Certain life insurance policies come with a cash value component in which the value of the policy grows over time.
That value can then be borrowed against in times of need, much like a home’s equity can be tapped into in case of emergency.
Accelerated Benefits
During a recession, it’s unlikely that your family has the extra funds to cover an emergency outright. Accelerated benefits, sometimes referred to as living benefits, allow a policyholder to access a portion of their benefits before their death.
In many cases, these benefits provide funds if you’re diagnosed with a chronic or terminal illness. While the death benefit will be reduced as you use the funds, accelerated benefits allow you to cover the cost of care while staying out of debt.
Protect Generational Wealth
Generational wealth is hard to build but is often made impossible to maintain in times of recession.
While investments like real estate or stocks are vulnerable to economic shifts, life insurance policies are locked in and protected.
For those looking to build wealth, protect investments, and pass them on, life insurance policies are one of the most stable methods to do so.
What types of life insurance policies are available?
Still, asking yourself what is life insurance? Or what are the types of life insurance available?
There are different life insurance policies to meet each individual’s unique circumstances. Two common types to know include term life insurance and whole life insurance.
Term Life Insurance
Term life insurance is a policy that is active for a set length of time. When you take out a term life insurance policy, you will be covered from the point of policy activation until the expiration date. Common term lengths range between ten and twenty years.
Whole Life Insurance
If you’re looking for life insurance coverage for the span of your entire life, whole life insurance is a great choice. Policyholders will be covered until their death, regardless of when it occurs.
In other words, a whole life insurance policy can cover someone for five years or fifty years without any lapses in coverage or renewals necessary as long as the premium is paid each month.
How do you choose the right policy for your needs and budget?
With so many life insurance options out there, it can be tricky to decide which is the best choice for you and your loved ones. To help decide which is right for you, consider your specific needs and budget.
For example: what kind of coverage do you need? Are you hoping life insurance provides a little support for loved ones, or do you want it to be an investment opportunity as well? In that case, a whole policy that carries a cash value component may be a better choice than term life insurance.
Alternatively, a term life insurance policy will have more affordable rates than whole policies. Because the term policy is only set for a certain length of time and does not have a guaranteed death benefit, they are usually cheaper. If you only need temporary coverage, a term life insurance plan will be much more accessible.
What are the risks of not having life insurance?
There are a number of risks that can arise when you don’t have a life insurance policy in place. From not preparing for the future to incurring costs for loved ones – risks can include:
Providing for Dependents
If you have a spouse or children who depend on your income to live, not having a life insurance policy for them can leave them without the support they need to maintain their quality of life.
Make sure you also consider future expenses like college tuition for children and extended care and how you want to provide for your dependents when you’re gone.
Covering Your Debts
If you pass away carrying large sums of debt, the debt can be transferred to your spouse or dependents. A life insurance benefit can help your loved ones avoid tapping into savings or spiraling into further debt as they try to pay off any debt that you carried during your lifetime.
Funeral Costs
Carrying out end-of-life services can be pricy. One of the greatest appeals of a life insurance policy is that the lump sum benefit amount can go toward funeral costs, such as burial fees or travel. Without a policy in place, your family members may need to pay out of pocket, which is even more difficult during a recession.
The Bottom Line
Life insurance is an important component of financial stability, especially during a recession when uncertainty looms. By taking the time to choose a policy that fits your budget and needs for coverage, you ensure that you and your loved ones are taken care of no matter what life throws your way.
Disclaimer: This content does not necessarily represent the views of IWB.